OT: well, semi-OT - Mortgage Qualifications

[J. Dan]

I say "well, semi-OT" because band income and verification of self employment came into play, big time!

 

OK, a little review... I've been going through divorce. After over a year it's finally been filed, and I'm happy to say we've gotten to a point where we are again friends, agreed on everything, and filed non-contested and very simple (for our part).

 

So step 1 - since she can't qualify for a loan with her name on the mortgage, is for me to temporarily buy her out, she gets a loan, buys a house, moves out, I move back in, finish work on the house, put it up for sale, sell it, we settle up equity based on ACTUAL sale price, then I buy a new place, and we live happily ever after.... easier said than done!

 

I normally don't divulge this kind of detail online, but trying to be vague will just make this a difficult read, so I'm just goint to go ahead and put numbers to this. It's nothing shocking or that can't probably be found publicly anyway - hell, you can go online and get it since everything in a divorce becomes public information anyway. So here it goes.

 

The house should go for around $345k - there's only one comp that sold recently in the neighborhood, and it went for $330k after being on the market for 5 months. We have an extra bath, off street parking (a big deal in my neigborhood), and other improvements. Real estate agent said she'd list ours higher. We will each end up in smaller houses obviously. I Owed a little over $150k on the house, so we're hoping in the end for about $90k to $95k a piece (splitting equity equal), but for now, she needs $70k to pay off debts and put down 20% on a new place. Like I said, we'll settle up the difference later. I need to keep 20% equity in the current place on the refinance (re-fi to get her name off and all under me). Doing the math, it would need to appraise for at least $275k - should be no problem since it would sell for $345k, right? WRONG! Appraisal comes back $220k. It appraised for $285k when we bought it 9 years ago, BEFORE we put new windows, new roof, new ornamental fence with slidegate, new patio pavers, new paint, etc. Apparently appraisers that USED to appraise high are appraising ridiculously low now. Couldn't do anything with that. Mortgage broker gave me the run around for almost a month before finally fessing up that all I could do was withdraw the loan app, wait 30 days and try again.

 

Well, I withdrew, but didn't wait. I went to somebody else. Got an appraiser who actually knows the neighborhood. Apparently the other appraiser used comps for similar SIZED houses in the same ZIP - well, you can go 6 blocks in one directino and you're in the hood, or 3 blocks the other direction and have multi-million dollar homes. THIS appraiser appraised at $312k, still a little low, but definitely usable.

 

Now the fun begins! We were originally just applying for the loan using only my W2 income, not my band income - and I would have qualified with just that. Well, the bank wanted to know the details of the divorce (not final) in terms of what's going on with the property. So my lawyer sends that info to the lender. Well, then they see the child support amount and decide they need to verify my band income. I send 3 years of 1099's and 1096's. Ok, fine, but now they want "third party verification of self-employment". In otherwords, OK you made that money for the last 3 years, but how do we know you're still making it? Well, look on the web site - those are the gigs we have booked, and they match the last 3 years of 1099's. Not good enough. They wanted a letter from a CPA stating that I was currently self-employed. Like my CPA would know that? I mean, he did my taxes, how does he know if I have gigs booked? Ultimately, since I'm registered with a DBA with the state of MO, I sent a link to the Secretary of State web site with my Charter Number for my DBA and they accepted that (which is funny because that doesn't tell them anything - Kanker could register with the state of MO as DBA "That 80s Band" and have no gigs here, as could any of you). Next, I owed a shitload of taxes to the fed's from 2010 and only paid a little. OK, I said I'd post numbers.... I owed over $12k and only paid $550. Originally they were only looking at 2008 and 2009 taxes, but this dragged on long enough that they wanted to see 2010. So now all of a sudden they're concerned about that. They wanted to know what my payment plan was. I'm like, well if you close this damn loan and cash out my equity, I won't need a payment plan. They're like, OK, show us an invoice from the IRS. I'm like, I just sent the payment in 3 weeks ago, I probably won't get an invoice for 2 months the way the IRS works. YOU have my 2010 return and a copy of the cancelled check I sent in - subtract one from the other, and that's what I owe! SO they made me write a letter stating that I planned on using part of the cashout from the refi to pay my 2010 taxes, less what I paid on check # xxxx, yada, yada, and sign it, which I did. Finally it goes through, but instead of giving me a check for the cashout, they are giving me 3 checks - one written to my ex for $70k, one written to the IRS for $12k, and one to me for the very little bit left over.

 

This whole ordeal, between 2 mortgage brokers, 2 appraisals, all the documents, etc, has spanned about 4 months for a simple re-fi. Why am I posting this?

 

If you will be going through anything like this, even without the whole divorce situation, just a refi or buying/selling, you need to be aware of several things:

 

1) Appraisers are appraising really low. Just because you agree to buy for a certain price, or somebody offers you a price for your place, doesn't mean it will go through. If the appraiser appraises too low, then you (or the buyer) can't get the loan. They will not loan more than the appraised value. Both brokers I spoke with said that this has been a big problem lately.

2) If you will rely on band income for your financing, you better have your ducks in a row. First of all, if you've claimed everything (as you should) on your taxes, that helps because it MUST be there in order for them to consider it. Make sure you have all your 1099's for sure. Have a good relationship with your CPA. If you can have a DBA registered with your state, or better yet, a business license - even better!

3) Do your homework before hiring a mortgage broker. Some will go to bat more than others to make sure all this BS gets ironed out. NIGHT AND DAY difference between the first and second brokers I used - HUGE difference. Talk to Real Estate agents, Builders, anybody who deals with these people regularly in your area. It's not public information which brokers used which appraisers, etc, but if you talk to people who work with them regularly, they will have experience like "yeah, people have had a lot of trouble with XYZ, but not so much with ABC". Wish I would have done that research up front, I just started with the broker I used when I bought the place - big mistake! Times have changed!

[zxcvbnm098]

Dan, this is the pendulum swinging too far back in the other direction with the problems that Fannie Mae and Freddie Mac are having.

 

As you probably know, whomever you get a mortgage from will likely sell it within the first couple of months to a couple of years to someone in the secondary mortgage market, like a Fannie or Freddie. But because the secondary guys are holding on to a lot of "toxic" loans, and the primary mortgage guys must sell it quickly because of their instability, every link in the chain has become incredibly conservative. So yes, it is imperative in this market to get an excellent broker who knows the ropes and can massage these through the system. It is really challenging at the moment to get anything through without a fight,no matter what your circumstances. It will lighten up in the next two years, but if you're in the soup now, it's ugly.

 

As a case in point, a buddy of mine who is a broker just had a deal fall through at the last minute: Buyer had an 800 FICO score, made a little under $1M/yr., put $350K down on a $800K house (this is Southern California btw). Between the first credit report they pulled and a second one before they were sending out loan docs, the guy has a charge on a credit card he disputed. He didn't miss a payment, just disputed a charge. That alone killed the deal. Brutal...

[Jim Alfredson]

Three cheers for financial slavery!

[J. Dan]

You bring up an excellent point regarding credit report! During all this BS, between multiple credit inquiries, and racking up my credit cards due to the loan taking so long to go through, my credit score dropped from 785 to 704, and I had no late payments. That alone ended up costing me a quarter point on my interest rate. Make sure your CC balances are not more than 30% of your limit. One credit card had cut my limit in half because I had no balance for so long. If I had my old limit, then the amount I had charged would have been no big deal. Crazy how this crap works, especially with credit. The broker was telling me even paying off your credit cards all at once can be a hit AGAINST your credit.

 

Incidentally, since I'm only moving back long enough to fix the place up and put it on the market, I was originally going to go with an ARM. Normally not a good idea in this market, but in my case, would have made sense. The first broker said she would get me a 4.25% rate. Well the second broker said due to the cash out of equity, that the only ARM I could get was FHA, and they require insurance, and when you factor in the premium, the payment would be as much as with a conventional 30 yr fixed. I don't know if the previous broker was just leaving that little tidbit of info out, or if things had changed (rates had changed drastically over that period). So another word of advice: Don't trust any broker - rates, anything - read the fine print and make sure you know your options and what your principle amount and payment will be at the end of the day. They have a way of just "rolling it into the loan", and next thing you know, you're financing extra thousands of dollars you knew nothing about!!!

[DanL]

Aside from the housing market collapse, appraisals are low now because the mortgage companies are using 3rd party people who are going by the book. Before you could get your "uncle Joe" or someone else you knew to give an appraisal and have it inflated to suit your needs. (which is why there is so much trouble in the industry, people buying more house than thery could afford, defaulting, and the banks taking a loss on the loans) Now they have a pool of appraisers in an area, with no ties to the mortgage company or the home owner. We've been talking about a refi, to drop a couple points on the rate, and between the mortgage balance and a home equity line, we are worried that the appraisal will come in lower than what we owe between those 2 amounts with enough buffer to let us get the loan we want.

[Marzzz]

Three cheers for financial slavery!

You mean paying rent?

[Jim Alfredson]

If calling it that makes you feel better, sure!

[Bobadohshe]

All I can say is I envy your home prices, good lawdy. No wonder it's so much easier for everyone to make a living as a musician in other parts of the country.

 

This is what $345K gets you around here:

 

http://bobbycressey.files.wordpress.com/2011/05/ghetto19.jpg

 

Sorry, I know not helpful. Just trying to bring a little levity

[Jeff Klopmeyer]

All I can say is I envy your home prices, good lawdy.

 

I don't think there's a house under $500K within five miles of here. Maybe a 1-bd condo.

[Michelle ggurl]

Wow, Bobby, you can get all THAT for $345K where you are? LOL. I haven't seen plots of dirt go for as low as that in years around here.

[J. Dan]

All I can say is I envy your home prices, good lawdy. No wonder it's so much easier for everyone to make a living as a musician in other parts of the country.

 

This is what $345K gets you around here:

 

This is what it gets you here:

 

http://www.that80sbandstl.com/images/house.jpg

 

(5 bedroom, 3.5 bath) It'll be on the market soon if anybody's interested

[The Real MC]

My divorce was unpleasant because she manipulated the legal system.

 

During my divorce, she wanted to stay in the house and wanted me to provide $$$ to pay the mortgage. I made the argument that when she was in charge of finances on the marital house, she had missed three mortgage payments which damaged my credit history. Thus her demands were not satisfactory as long as my name was on that mortgage and my credit history was at risk, and I demanded that she refinance the mortgage in her name. Of course she was in no position to refinance.

 

In the end we settled on selling the marital house, but the judge granted me sole control over the sale of the house. She had locked me out of the house for three years (she used every legal delaying tactic to prolong the divorce, which didn't sit well with the judge) and had literally TRASHED the house during that time. We had a LOT of fixing to get it on the market.

 

Fortunately I had a realtor who quickly found a buyer. Unfortunately the ex's name was also on the deed and she refused to sign the sale contract. That landed her back in court. Her lawyer no longer provided any services as she was now in contempt. Judge told her to sign the contract, or he would order the sheriff to sign it. She signed.

 

I am free and clear of obligations to her, and had to wait until the detriments were cleared from my credit history (they stay on record for seven years). After that time I had landed a loan for a new truck and found my credit score is 780 which is extremely good. In about 18 months I will be applying for a construction loan to build a new house.

 

Let me say there is a world of difference between getting a loan from a bank and from a credit union. Banks have always been notoriously finicky while credit unions are more consumer-friendly.

[mate stubb]

What part of town is your home in 80s?

[RABid]

I was thinking about all you friends in California while I was house shopping a couple years ago. I ended up with a 3-bedroom plus bonus room new house, 2300 sq feet + 2 car garage, half acre level lot, good subdivision where everyone has concrete driveways and nice landscaping. ... 185K. Even after adding a second air unit for the bonus room, really nice custom made storage building to match the house, alarm system (which I have never turned on), and more I still came in under 200K.

 

Of course, there is a down side. If I was in California or any decent size city my salary would double.

[J. Dan]

What part of town is your home in 80s?

 

It's in the City, close to Washington University, Forest Park, and the Delmar Loop. Wash U owns about 15% of the properties in the neighborhood for student housing and Wash U security patrols the neighborhood. I'm a 3 block walk to Forest Park and about a 5 block walk to the Loop. A Metro Link station is about 2 blocks away. I like the area, I just don't need that big of a house for just me and the kids, and want to move closer to their school and where my ex is moving for convenience.

[MonksDream]

I challenge anyone that complains about real estate prices to check out the prices in Vancouver. $700 - $800K is considered a bargain!

[J. Dan]

This whole thing made me curious. Sorry, this is only US data:

 

http://www.that80sbandstl.com/images/Housing%20Chart.jpg

 

Just a small sample. Sources:

 

Median Income

Median Hiousing Prices (By MSA - Metropolitan Statistical Area)

 

Oh, and the "Dan Duran Indes" is Median Housing Price, divided by Median Income. Higher means based on your income, the housing is less affordable.

 

I was actually very surprised by some of the results.

 

St. Louis is DEFINITELY very affordable. I'm sure other cities are as well, I didn't have time to compile a lot of data, but it's all out there in the links I posted - if anyone has time on their hands, feel free to put it together on here.

[MonksDream]

Vancouver, BC, Canada:

 

Median income: $68, 670

Median house price: $392,000 (Average house price: $921,000)

Dan Duran Index:5.71

(Figures taken from Canadian newspapers after quickie web search)

 

 

[offnote]

This is what $345K gets you around here:

 

http://bobbycressey.files.wordpress.com/2011/05/ghetto19.jpg

 

that's a great building for recording studio, is it for sale?

 

p.s.

isn't that whole mortgage business a little bit sick in US?

[DanS]

Vancouver, BC, Canada:

 

Median income: $68, 670

Median house price: $392,000 (Average house price: $921,000)

Dan Duran Index:5.71

(Figures taken from Canadian newspapers after quickie web search)

 

Prices like that boggle my mind. I can't even fathom owing that much on a mortgage. I've got 4 years to go on mine, bought for $97k 13 years ago before prices started skyrocketing.

[Eric Jx]

You missing a very large factor in affordability. Real Estate taxes.

 

I don't know what the median real estate taxes are in the Suffolk County (where I live), but I can tell you I pay $12K/year and that is not uncommon.

 

Take 2 people, one guy has 12K/year taxes, another guy has $5K/year in taxes. The second guy can take on an extra $100K in mortgage principle and have the same monthly payment.

 

 

[offnote]

I don't know what the median real estate taxes are in the Suffolk County (where I live), but I can tell you I pay $12K/year and that is not uncommon.

 

that is like renting not owning isn't it?

[DanL]

This is what 345k gets you around here- 5 bedrooms, over 3000 sq ft, 1 acre lot.

 

(not my house!)

 

http://p.rdcpix.com/v04/lad47e141-m0x.jpg

 

 

[Joe Muscara]

Houston-Sugar Land-Baytown, TX metro area

 

Median income: $65,100

Median house price: $148,500

Dan Duran Index: 2.28

 

BTW Dan, I think you used the wrong home price for NYC, but I'm not sure which one is NYC.

[MikeT156]

by 80's LZ:

 

Make sure your CC balances are not more than 30% of your limit. One credit card had cut my limit in half because I had no balance for so long. If I had my old limit, then the amount I had charged would have been no big deal. Crazy how this crap works, especially with credit. The broker was telling me even paying off your credit cards all at once can be a hit AGAINST your credit.

 

Credit Card companies are legalized mob loan sharks. Absolutely a bunch of THIEVES. They squealed like pigs when Congress changed the laws on how these pirates operate. If they were running a legitimate business in the first place, Congress wouldn't have to do anything.

 

I had numerous bad experiences with credit card companies over a period of 5 or 6 years, so all my credit cards went in the shredder. Example: I had a 9.9% interest rate on a credit card for over 3 years, always paid monthly statement ahead of time, paid at least 150% of the minimum payment, and sometimes twice the minimum payment. One month I get a bill and they had doubled my interest rate! Say what? I called them up and asked what was going on. They said "You were one of our customers that was chosen for the "new rate" based on your demographic" or some other kind of BS. I told them that if they didn't change my interest rate back to what it was, I would transfer my balance to another card within 24 hours and close the account immediately! They changed their tune pretty quick.

 

Dan, sorry to go OT of your OT. I'm sorry to hear you are dealing with that load of crap. If divorce isn't bad enough, you have to put up with the financial industry run around even though you paid your bills. What a raw deal.

 

 

Mike T.

[Steve Force]

And this is what you could have gotten for $500,000 USD in Pontiac, Michigan, a couple of years back..

 

http://football.ballparks.com/NFL/DetroitLions/front.jpg

 

 

 

 

[Steve Nathan]

Can't help telling this story.

Some 40 years ago, the great Stan Szelest (the guy who taught me Rock & Roll), had been living in the same rental house for years while earning a good living as the leader of Buffalo's premier rock band. He went to the bank where he'd had his account for as many years, and sat down with the banker who knew him well.

He said the house he was renting was going to be put on the market and he wanted to buy it. The banker reached into a drawer and pulled out a small booklet and showed it to Stan. It was a pamphlet listing occupations ranked by credit risk.

Musician was not last.

It was second last.

One notch above Carnival Worker.

[J. Dan]

You missing a very large factor in affordability. Real Estate taxes.

 

I don't know what the median real estate taxes are in the Suffolk County (where I live), but I can tell you I pay $12K/year and that is not uncommon.

 

Take 2 people, one guy has 12K/year taxes, another guy has $5K/year in taxes. The second guy can take on an extra $100K in mortgage principle and have the same monthly payment.

 

 

Property Tax on this place is about $2,600/yr, but in the city you also have to pay 1% City earnings tax, which more than makes up fir the property tax you pay.

[DanS]

One notch above Carnival Worker.

 

At least he could say he wasn't a clown.

[J. Dan]

You missing a very large factor in affordability. Real Estate taxes.

 

I don't know what the median real estate taxes are in the Suffolk County (where I live), but I can tell you I pay $12K/year and that is not uncommon.

 

Take 2 people, one guy has 12K/year taxes, another guy has $5K/year in taxes. The second guy can take on an extra $100K in mortgage principle and have the same monthly payment.

 

 

Actually, an even bigger factor around here is school district. People move to certain counties just for the school district. In St. Louis City, where I live (note: St. Louis city is it's own county, and is NOT in St. Louis County), the public schools are horrible - in fact they lost accreditation and were taken over by the state. Most people who live in the city (myself included) send their kids to private school. There are some pretty expensive ones, but even going budget, a Lutheran high school is $10.5k per student per year. If had 2 kids in high school, that's almost another $2k per month you could put towards a house payment in a good school district.

 

But if you're like me, and want to do private school anyway, then why not live in the city where you get good bang for the buck and live close to the action. Plus I can't stand strip malls, chain restaurants, minivans, and soccer moms.