Mortgage Loans

[waiting4credit]

I'm going to be applying for a mortgage soon on the home I'm renting.  I would like a conventional mortgage.  Our credit scores are pretty low, but we are working on raising them.  The house we're buying was appraised at $123,000 two years ago and we are purchasing it for $115,000 of which $111,000 will have to be financed.  Since we will already have equity in the home when we finance it, will we still neeed a big down payment?   I have another home that I could sell for the down, but I would prefer to keep it for a rental?  

[greyhound2007]

I would def have that home reappraised, two years ago is a long time.  I believe the down payment depends on your credit.  Not sure as I have never gotten a mortgage.  Good luck.  Tks Vicki

[saladdin69]

No place will offer loan without current appraisal, probably only a few months old max.

Your loan value is what you pay for it. There is no "instant" equity that will go as a down payment.

And there is no way I would agree to a house price with a 2 year old appraisal with the markets dropping. I will bet you a dollar you are over paying if basing on a 2 year old appraisal.

saladdin

Message Edited by saladdin69 on 12-29-2007 08:35 PM

[ShanetheMortgageMan]

There are still 100% financing options available today... but like the other posters have said, make sure you are buying it for the market value today (if it's lower) rather than the price you agreed upon ~2 years ago, if it's worth more today, I'm sure the seller wouldn't have an issue sticking to the original agreed upon sales price.  Further, the lender will require an appraisal on the property... if your sales price is $115k and it appraises for $112k, then guess what?  The lender won't lend more than $112k to buy the home.

Is there any reason you want to use conventional financing rather than FHA?  FHA isn't the answer to everyone's mortgage financing, but it's not something that one should dismiss until both options are looked at.

[Lady_Scarlet]

Appraisal no more than 6 months old - in this market I would want to see no more than 3 months old.  To price a house I am concentrating on the last 30 days then out to 3 months.

[ShanetheMortgageMan]

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Lady_Scarlet wrote:

Appraisal no more than 6 months old - in this market I would want to see no more than 3 months old.  To price a house I am concentrating on the last 30 days then out to 3 months.

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Quite a few lenders are requiring comparables within 3 months rather than their typical 6 month timeframe as well.

[waiting4credit]

I'm lucky, our market isn't declining.  We didn't have the large increase in home prices that a lot of other places did, so there wasn't really a bubble to burst.  I live in OK and we had a slow increase in values.  Also, the house is in a really nice neighborhood and has a great view.   We're doing a lease-to-own and have an agreed price of $115,000 in the contract.  I put $3k down and about $500 a month of my payment reduces the principle.

[waiting4credit]

I'm not sure what kind of loan would be the best for us.  I don't know much about the FHA loan programs, but I thought you had to be either below a certain income level or a first time home buyer.  I already have a home and we make way more than the state's average income for our family size.  Also, I thought the price of the home we're buying is above the requirements. The last time I checked our credit (mid-November) we were both just below 600.  What I want is a mortgage with no or a very low down so that I can keep my other house to begin a rental business.  I want fixed monthly payments (none of that adjustable business.)  We had a very low DTI--I think it was about 10% before we began leasing this house ($1000 month) and got a secured loan  for $4500 to pay off a bad credit card. I have some student loans which will I will owe for a month this summer and then they will go into deferrment again for at least three years. 

[ShanetheMortgageMan]

waiting4credit wrote:

I'm lucky, our market isn't declining.  We didn't have the large increase in home prices that a lot of other places did, so there wasn't really a bubble to burst.  I live in OK and we had a slow increase in values.  Also, the house is in a really nice neighborhood and has a great view.   We're doing a lease-to-own and have an agreed price of $115,000 in the contract.  I put $3k down and about $500 a month of my payment reduces the principle.

I'm not sure what kind of loan would be the best for us.  I don't know much about the FHA loan programs, but I thought you had to be either below a certain income level or a first time home buyer.  I already have a home and we make way more than the state's average income for our family size.  Also, I thought the price of the home we're buying is above the requirements. The last time I checked our credit (mid-November) we were both just below 600.  What I want is a mortgage with no or a very low down so that I can keep my other house to begin a rental business.  I want fixed monthly payments (none of that adjustable business.)  We had a very low DTI--I think it was about 10% before we began leasing this house ($1000 month) and got a secured loan  for $4500 to pay off a bad credit card. I have some student loans which will I will owe for a month this summer and then they will go into deferrment again for at least three years.

You are probably right about not being in a declining market, KS & OK are still pretty solid areas as far as values are concerned.  As far as lease-to-own agreements, the $500/mo that you are referring which reduces the principal balance owed (or towards your down payment) is called a "rent credit".  Rent credit only works if you are paying more than the "market rent".  Market rent is determined by an appraiser doing a rental survey (optional part of an appraisal) which finds homes that are being rented out which are similar to the subject (the home you are buying), and uses the rent that is being charged on those homes to determine the market rent.  Any amount you are paying above the market rent can be applied towards a rent credit towards your down payment... but only if the lease-to-own agreement specifies.  So if you are paying more than market rent and the lease-to-own agreement doesn't say anything would go towards reducing principal/down payment, then you'd be out of luck.  However in your situation your contract says that $500/mo would go towards down payment, so that could only be used if you are paying $500/mo more than the market rent.  Otherwise, the rent credit would be the difference between market rent and what you are paying.  If you are having trouble following this concept (it is a little tricky I admit) I can give you a more specific example if you can let me know how much your lease-to-own monthly payment is.

If you do follow, then if it's determined that your $500/mo towards down payment in the lease-to-own agreement is more than the actual rent credit a lender would use... you can always ask the seller to apply the leftover difference as a credit towards your closing costs.

I'm going out on a limb here and using arbitrary numbers, but say you put down $3k initially, monthly rent is $1,200/mo, market rent is $800/mo, and your lease-to-own contract says $500/mo would be used towards down payment, and you've been in this contract for 12 months.  So if you went strictly by the contract, you'd have $3k (initial down payment) + $6k ($500/mo x 12 months) totalling $9k towards the down payment.  However because the difference between market rent & your actual rent is $400/mo, it'd be $3k (initial) + $4,800 ($400/mo x 12 months) totalling $7,800.  You could then say "Hey Mr. Seller, the way the lenders are looking at this is that I'm not going to be able to use $1,200 of the figure that we determined I could use towards down payment, so could you give me a $1,200 closing costs credit instead?"   The seller doesn't lose out because his profit is the same as if $9k was being used as a rent credit/down payment, and you get to take full advantage of the down payment terms you negotiated upfront.

FHA doesn't have any income limits, and you do not need to be a first time homebuyer.  You do have to fit your loan amount within FHA's loan limits though, which you can check out at https://entp.hud.gov/idapp/html/hicostlook.cfm, and as you can see the maximum in OK is $200,160... so your loan amount would fit.  FHA does require your credit fit within FHA's guidelines, but has no minimum credit score requirement (whereas conventional financing does).  You can read a little more about qualifying for FHA at FHA LOAN QUESTION, but you are free to ask your own questions (probably should keep them within this thread for easier tracking of your situation).

[waiting4credit]

Thanks Shane for taking the time to look at my situation a little more.  I'm not sure what the market rent would be--maybe around $700 or $800 a month?  Our landlord isn't a professional.  I actually suggested the lease.  He had the house FSBO, and I've become so familiar with all the homes for sale in the area that I knew he'd had it on the market for a long time.  (turns out the interior needs some updating, appliances are old, and a few other odd things probably kept it for sale so long.)  My husband and I love the area, and there aren't many homes for sale in our price range (it's near a lake.)  I suggested the lease-to-own and our landlord bought the standard Socrates brand lease-to-own from an office supply store.  Apparently, they have an interest only loan against the place which costs them $511 a month.  I'm paying $1000 so $489 goes toward the price we will have to finance.  Our contract specifically says that, I hadn't planned to use any of that as leverage with a mortgage broker.  If I wait the full year to finance the home, I'll owe $107,000 or so.  I'm pretty sure it will appraise for about $125,000.  I checked the other homes advertised in the area and $125,000 is right in the middle.   My biggest concerns are that I won't get financed without a huge down or that the landlord isn't doing what he says he will with the money and there will be a big mess to sort out.  However, I really love the  area and if home values go up even a little bit more, I don't think we'll qualify.  (Last year DH grossed $68,000 and mine was somewhere around $11,000)