Monday, March 23, 2009

More obstacles

We just got a letter asking us for MORE documentation. Now the bank needs 1) proof of an additional $700 cash in hand for closing costs; 2) evidence of reserve funds amounting to 3 months' PITI (principal, interest, taxes, and insurance) in liquid assets; 3) a detailed budget of how we plan make our mortgage payments every month; and 4) an explanation why Eddie's license address is different from the correspondence address (uh, because we moved, bank robomaton).

Jumping this hurdle will be impossible because they won't accept "gifts" as a source for these additional funds. Previously, I funneled my money into Eddie's account as a "gift" to cover the closing costs. If we had known about these additional funds, say, two months earlier, we could have transferred all the cash needed from my account into Eddie's and they would not have detected it because they only look at the last two months' bank statements.

Friday, March 20, 2009

Lesson #2: Don't trust anyone

Later the same day...

On my lunch break I stopped to help a man in a tweed suit with an old-fashioned fedora who was asking for directions.

"I need to find PIL International," he says, holding a checkbook-size red leather pouch with a lock at the end of the zipper.

"Do you have an address?" I ask.

"No, I just know it's PIL International."

"Sorry," I say, about to walk away.

"Are you agent?" he asks.


"Agent. Maybe you can read this." He points to a label affixed to the pouch. There is a line of Arabic scribbled on top, and on the bottom it reads PIL International.

"Do you need help?" A lady interrupts us. She is wearing a plaid wool trench coat with black boots.

"It's in Arabic," I point out to the man, ready to walk away, again.

"I found this on the ground and I'm trying to return it to its owner. It looks important," he says.

"Well, what's inside?" the lady asks. She is taking over, invading the man's space and touching the pouch, looking at its different angles.

"It's locked," he says.

"No it's not," she replies, taking the pouch from his hands and unzipping it. I gasp audibly, maybe even jump, when she opens the pouch and reveals a thick stack of bills. He takes the pouch back and thumbs through. They look like all 100 dollar bills. He finds a note. We all read it.
"Dear Brother: We have hit it big this time. The boys in blue have all been paid off..."

That is all I read, and I also see the figure $100,000 later in the note, before the lady says, "You should keep it" to the man. The man looks nervous, and takes out the wad of cash.

"I'll split it with you. Three ways," he says. He grips the corner of the bills, ready to split it in thirds. The lady looks eager and her hands are open in anticipation. I take a step back, reeling with giddiness and disbelief.

"No, you should take that to the police," I say. "They could come back looking for the money." It was all so obvious to me. If we took the money, we would be hunted down by the Arab mob and in the worst case scenario they would force us to work for them as hired guns.

Both of them are quiet.

"You know what," the man says, "I work right around the corner. I'll take the money there and see if anyone looks for it."

"What?" I ask, incredulous. "We have to call the police right now and figure this out. This is crazy!"

"I work at Chase, just down the block. We'll hold on to it."

"Don't give it to the police," the woman says, "they'll just keep it. It'll disappear."

The man nods in agreement. Before I can pursue this mystery further, they part ways.

I walk away too, totally shocked that I just turned down a three-way split of $100,000.

I cut lunch short and run back to the office. I gather Alicia, Tameka and Margaret to my office and begin the story of my strange encounter. As soon as I utter my first sentence, Alicia and Tameka both start nodding their heads knowingly, "Yep, we've heard this before."

Apparently, it was a SCAM! I'm not clear on the details, but if things had gone another way, they would have somehow got me to put in my money, done a switcheroo, and given me a bag of nothing. WHAT? New York, you are crazy.

*UPDATE: I found a description of the scam online. It's called the Pigeon Drop. If a scam is just a way to part a fool and his/her money, I indict you, McDonald's two-for-one apple pie; free shipping over $150, JCrew; and Amazon's Gold Box of deals.

Lesson #1: Don't trust anyone

SO, after some high-heaven praising of our general contractors to everyone we know, I am officially entering a retraction.

Wells Fargo looked into their history as part of the bank's due diligence for our 203K loan, and then promptly called us to let us know that they will not give us the loan unless we dump these guys. The bank couldn't disclose what they found out, but it must have been some serious sh*t.

It took us weeks and weeks to even find contractors willing to work on our house, and these guys were professional, courteous and enthusiastic. They were also willing to work at almost no profit. Of course they wouldn't pass the background check.

Thursday, March 12, 2009

Adventures in googling

I was looking for a lunch place near work that served tacos.

New York Tacos: I will not be having one.

Friday, March 6, 2009

Movin' on up

We are in the process of buying our first home. It is located in Newburgh, New York, along the Hudson River and about 60 miles north of New York City.

The Process:

First, we had an awesome realtor. He went into great detail about the new developments in Newburgh and which neighborhoods would benefit when.

Secondly, we got an informative mortgage broker who was experienced in a special government loan, the FHA 203K, that would allow us to buy the property and rehabilitate it all in one mortgage.

Thirdly, we found wonderful contractors - general, electric and plumbing/heating - who were invested in the community and wanted to help us renovate this house to bring more own-occupied homes to Newburgh.

And fourthly, we had help from Eddie's sister-in-law, since she is a real estate lawyer and gives great advice. Our real estate lawyer proper was also very communicative and got things done quickly.

The hard part was getting everything together to get the loan. If you're interested in the 203K loan, here is what you need to know:
  • BEFORE you start the whole process for any mortgage, make sure that you have your financials in good shape. Outside of good credit, you also need to make sure your bank statements reflect an adequate amount of money to cover the closing costs and all the other fees. Since most banks look at the past two months' bank statements, it's good to have all the money in the bank before those two months. It's also a good idea to locate your W2's for the last two years and the last two months' worth of pay stubs. You'll have to account for any deposits over $200 in your bank statements. Make sure you have a good income-to-debt ratio and that you're saving a lot of your paycheck during those two months of bank statements.
  • Not all banks offer the 203K loan, but on the FHA website, you can look up which banks offer it.
  • The closing costs for FHA is higher than other loans and you must pay insurance on the mortgage (MIP), but the downpayment amount is only 3.5% and the interest rate on the renovation portion is the same as the mortgage making it more reasonable than other renovation loans. Also, you can finance the closing costs in a 203K, if you qualify.
  • If, like us, you are buying a foreclosure that needs a lot of rehab, it is wise to get a jump start since the selling bank is usually less understanding than real-people sellers.
  • Get pre-qualified, find a house you like, win the bid. Within a week or two of winning the bid, your real estate lawyer will meet with you to sign the final contract and you must put down a deposit.
  • Find a home inspector (who is also a 203K consultant, if possible) and get an inspection (usually around $500).
  • Have a 203K consultant inspect the home for a work write-up. This work write-up outlines what needs to be done to bring the house up to code and the cost. If you're not buying a foreclosure that has been badly vandalised (like ours), and your house is perfectly livable, then the renovation portion of the loan may be used for cosmetic, repair or improvement work, such as installing new lights, fixing the tread on the stairs, or adding a new bathroom. The renovation must be at least $5,000 to qualify for the 203K.
  • Next, you must find contractors willing to do the work outlined in the work write-up for the cost the 203K inspector indicated. They will have to write up their own estimate that matches the scope of work and price of the consultant's work write-up. They will also have to sign an agreement that the mortgage broker sends to them.
  • In the meantime, your real estate lawyer will have sent the fully executed contract and title seach to your mortgage broker, and he will have a municipal search listing any code violations that need to be addressed. Those should not be a surprise if you have a good home inspector and 203K consultant.
  • At this point, you should have everything needed for your mortgaging bank to go into underwriting: 203K work write-up, contractor's estimate and signed documents, fully executed contract of sale, as well as, a photo ID, most recent pay stubs, two months' bank statements, last two w2s, and finally, a check or credit card for the bank to pay for an appraisal of the property, a credit check and a deposit for the lock-in rate ($500, $25 and $500, respectively).
  • Underwriting takes anywhere from 2 to 4 weeks. During this time, the bank is conducting its due diligence and determining the risk involved in the loan.
  • The closing cost breakdown for a 203K loan:
  1. Interest rate: 6.5% with .375 discount. We eventially bought it down to 5.5% for around $3,000.
  2. Appraisal fee: $500
  3. Commitment fee: $700
  4. Flood Life of Loan fee: $24
  5. Suppl. Orig. (Reno): $500
  6. FHA Upfront Mortgage Insurance Premium: $3,526
  7. 203K Consultant fee: $1,000 (this is based on the size of the renovation loan and the fee is set by FHA)
  8. Abstract or title search: $1,947
  9. Attorney's fee: $700
  10. Municipal lien search: $500
  11. Recording fee - deed: $150
  12. Recording fee - mrtg/DOT: $150
  13. State tax stamps: $1,640
  14. Fire and Hazard insurance premium for 1 year: $960
  15. Hazard Insurance escrow (9 months): $720
  16. City property taxes (7 months): $933.31
  17. School taxes (10 months): $2,500
  18. Downpayment: 3.5% of combined mortgage and renovation loan

The cost for items with months in parentheses change depending on the time of year you close.