Credit history-in a panic

[Shellie]

If you are ineligible for Fannie Mae is that the end of it?

We are in a tight spot.  We are buying my husbands grandparents home from them.  We are out of time.  Grandma needs the proceeds from the house to continue living in the assisted living facility she is in.  Husband is self employed and his employer didn't give him his 1099 until mid-March.  Taxes are filed and his income is $38k for 2017 and $42k for 2018.  Prior to April 2018, you couldn't even pull a report on him because he has always paid cash for everything.  We got him a secured Discover card which graduated at 7 months. Perfect payment history.  In preparation for the mortgage we got him a small loan and a store card back in October, both perfect payment history.  Right now his discover card says his score is 648.  He has an average of 8 months credit age, 6% credit use and one collection that is paid (Verizon-they sent it to the wrong address and we never got it.  We have tried everything to get it removed).  

We have been working with a loan officer thru our credit union and all along I have not trusted her abilities.  She seems very lacking in knowledge and can't comprehend the simplest of questions.  It's quite irritating.  We have found someone else that we are hoping can help.

She emailed me late yesterday "At this point I am unable to proceed, as it is  returning ineligible on behalf of Fannie Mae. The following does not meet their criteria-there is not sufficient credit history for your husband that it is not allowing to proceed.  You may be able to reach out to a Broker and they  may be able to help and may be able to use your credit as well."  That's it.  I am totally fine not using her, I do not, and have not, felt that she was capable from day one. 

My question is; is that it?  Is Fannie Mae the end all?  If Fannie Mae denies us do they set the industry standard? 

We don't have time.  We needed to get this done by the end of May.  I found out from a different loan officer that if you owe taxes, hubs is 1099 so there is always something owed, that you have to have it paid in full or a payment arrangement in place with 3 payments made.  That is something she never mentioned and I have no doubt we would have gotten to the end of May and learned this and been screwed on time. 

I'm just in a panic.  We have to get this mortgage.  We have to.  I know we can. We did all the stuff we were supposed to.  We started building his credit, saved money, took great care in maintaining the credit we started.  Now this.  If we were not in the situation with the gma this wouldn't be an issue.  We would wait a year and try again.  Real estate does not move around here and gma's house would be sitting on the market for God knows how long and she woulnd't be able to pay her rental.  We also want the house, that is why we agreed to buy it.  Mortgage is so complicated.    

[JVille]

Why aren’t you doing FHA or some other First time buyer program? Are either of you Veterans? You need to go see an experienced LO or Mtg Broker.
A referral from friends, family, co-workers who have “recently” had a successful lending experience.

[JVille]

And yes your 2018 Taxes must be done and paid in full AND/Or if you are in a payment plan 3 payments must have been made and they can’t have been made all at once. Are your 2018’s done?

[Anonymous]

As the OP stated there are more options then just fannie mae and freddie mac which is traditional financing. There are FHA loans, First Time Buyer Programs, Down Payment Assistance Programs, USDA Home Loans and VA Home Loans (if you are current or former military). So indeed you need to find a qualified mortgage officer if the one you are dealing with is dropping the ball on you. So in a nutshell no it is not the end there are plenty of options to get you in a home. There are also creative financing options that can be used depending on the status of the original mortgage.

For example: If the original Mortgage has already been paid off by the grand parents then you could rapidly leverge this to make the home purchase itself using the equity position. Like so: Have the grandmother do a quitclaim, special or general warranty deed (seek legal advice) to transfer title of the property to you and your husband which would then allow you to do a 90% LTV secured loan (sometimes it's hard to get 100% LTV) on the equity which you would then give to grandma as payment (actually she would get proceeds at closing you should never have possession of the proceeds) you have just created a mortgage by using the house itself. I'm not a lawyer or Real Estate Broker so i am in no way advising you to do anything I have just used this type of transactions myself to purchase residential and commercial real estate so I know it can be done and in the end does effectively do what you want which is to get the home financed and you into the house. But you would also still owe the grandmother the remaining 10% of the value in addition to the first position lienholder.

There's more to it then the simple way I explained it so seek professional assistance if you decide to try this. For example when I would do this I always did it after I place the property in escrow and made a good faith deposit title was transfer at this stage under a condition that if I was unable to obtain the equity loan that title would transfer back to the original owner. This is a must to protect their interest just in case. Very rarely did I not find funding as your presenting an owned asset to the finance institution as security so it almost always works out. But you MUST seek professional advice so all the legal and protection angles are covered.

[JVille]

Is grandma selling this home to you at a Family Price (a super good deal under market value) and are you going to live in this house as your primary residence?
If you are getting the “family discount” there are ways to structure the deal in such a way as to have built in equity. You will need an extremely knowledgeable Mtg Broker to assist and you will also need to be mindful NOT to create a Tax Liability for Grandma.

[Shellie]

Neither of us are veterans.  I am recovering from a bankruptcy so my scores and credit do not help.

We are getting a deal on the house.  Market value is apx $214k and she is selling it to us for $135k.

I haven't liked that LO from day one but due to my limited knowledge of mortgage and buying a house etc I was hoping for the best.  That is all the info she provided.  Fannie Mae.  I didn't think it was normal to try one place and stop but what do I know.  

[Shellie]

The house has been paid off for many years.  The bought in '88 for like $78k.

We have been living in the house paying her rent since September.  We did it this way so that the house wasn't just sitting empty costing her money. 

We plan on paying everything.  I told the other mortgage guy that we would be paying sellers costs also.  We will be using the  "gift of equity" for the down payment and less the $7200 in rent for closing cost.  We do have some savings but we have to be careful.  This was sort of dropped in our laps last fall.  We were planning on buying eventually so we don't have a huge savings yet.

I hope this provides enough info. 

[JVille]

Grandma can “gift” you equity and closing costs. The transaction needs to be written properly and you need to make sure you are not creating a tax liability for grandma (speak to her or your accountant). This way if you have no money you will have funds to close the transaction. You won’t walk away with money and grandma would still get the same amount of money at closing. The way it works is you buy the house for say $150 and seller pays all lender allowable closing costs and the difference is a Gift Letter of Equity towards your Downpayment and “other” closing costs. A very very wise Mortgage Broker can figure out how best to structure the transaction to meet your needs.
I am not an accountant so the only real issue is to make sure Grandma has no tax liability. I recently did this for one of my children on a home we owned. To keep within the IRS Annual gift limitations grandma may need to gift to each of you. (Lender has the Gift letter form). Remember this does not cause Grandma to come up with any money herself. It all happened on paper at close of escrow. Good Luck!

[Anonymous]

Keep in mind that selling this house to you for under market value will likely disqualify grandma for Medicaid assisted living coverage for awhile. If she outlives the proceeds of her house or her cost of care increases (it will), she will have a hard time getting any sort or assistance for her care facility. $135k is not much at all when it comes to assisted living. I wouldn’t buy her home for less than market value without consulting an elder care or estate attorney who has extensive info about Medicare approval. Getting a house for cheap may be great for you but isn’t great for grandma, especially when she is gifting you equity and closing costs and credit for rent paid.

[JVille]

This would be one of many reason to speak with Grandma’s accountant.