Mortgage Complications

I'm learning more and more about mortgages each time we can't get one. After looking at those houses last weekend, we decided we liked the latter one, on Courtney Avenue. It's an AMAZINGLY well maintained house with original floors, moldings, fireplaces... We loved it! The basement was clean and usable. Nobody had painted over the stair banister. The copper was still in place. As Eddie joked to our wonderfully wonderful realtor, Chris, it had us at "you-don't-need-a-drill-to-get-in" and "you-can-walk-around-without-flashlights."

Then...the mortgage. We talked to three new banks (not Wells Fargo, the one that approved us for our loan that we ended up not taking). All of them said that it looks like we would not qualify for a loan (although we would need to actually apply for pre-qualification before they could reject us officially).

This house costs $15,500 less than the other house and we are going to lay down 20% for this house rather than just 3% for the other house. So, technically, if we had gotten a loan for the other house, getting this one should be a piece of cake. The most informative person in the whole process was Keith at HVFCU. He kept plugging in numbers for me so we could troubleshoot our loan-worthiness.

It turns out that Wells Fargo was possibly very forgiving and allowed us a higher debt-to-income ratio than other banks would have because they assessed and took into consideration the increased value of the house after our renovations. Those few percentages of allowed ratio make a big difference. The difference, for us, between a 45% debt-to-income ratio ($45 per $100 of income we could spend on mortgage) and a 50% dti ratio is about $90,000.

The higher down payment you're willing to lay out and the better your credit score also bumps up those percentage points. If you have a credit score less than 720, you automatically have to pay an origination fee of .5% of your mortgage. So, it makes sense for us to take some money that we had saved to pay down our debt, and hopefully increase our credit score and lower our monthly debt expenses.

Well, the point of all this, is, I think the property (pictured in this post) we were all set to buy in June, and had a mortgage for, is now back on the market. I just saw it relisted on the CitiMortgage website, but that could be a glitch in their machinery. I hope not. If we can, we're going to buy it. With a straight mortgage and renovation loan and cross our fingers that the magic of its numbers still work.

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.