mortgage conundrum #4,000

[Adul]

Originally posted by: swbsam
I started the process to buy a certain home about 5 months ago.

We're a newly wed couple in our mid-20s, so we don't have a huge nestegg.
We have two accounts:

1. savings that is pretty much untouched, which has five figures in it, to cover down payment/closing/ etc. The amount in this account has not changed at all and was saved (from wedding gifts, etc) for this very purpose

2. day to day checking - very little in it, since we use it to pay bills, rent, and day to day expenses

We were given a commitment letter weeks ago and, now, the under-writer contacts our broker to say that we should have more money in our checking account, and says that they wonder why we're not putting more of or excess away... The implication is that we're spending money like water and now our "commitment letter" feels less so..

The reality is that we were told, months ago, to pay down our debt by our broker. We paid up nearly $5,000, all from our own pocket (and not from the savings account which we don't want to touch), within the last few months to help our case for a mortgage, and now we're getting word that it seems like we'll be a gamble.

how is this fair? Do they not understand that we wouldn't normally spend $5,000 paying down debt if we were not looking to buy a home?

EDIT: "Settle" is a bad word - only one account from back in college was a collection account, everything was current, revolving credit that we were otherwise in no pressing need to pay down completely

You doing an FHA Loan by chance?

 

[Taughnter]

Originally posted by: swbsam

Originally posted by: Taughnter

Originally posted by: swbsam
We were given a commitment letter weeks ago and, now, the under-writer contacts our broker to say that we should have more money in our checking account, and says that they wonder why we're not putting more of or excess away... The implication is that we're spending money like water and now our "commitment letter" feels less so..

Is there any way you could be a little more specific about what you mean by "commitment letter"? I only ask because I frequently see people confuse Mortgage Commitments with what I'll refer to as Pre-commitment letters. There are a number of ways it can come up, for example, some people will go to the bank before they make an offer on any real estate, get pre-approved for a mortgage and then go look for a home now that they believe that they have been aproved for a loan. Once you sign a Contract, the bank is likely going to want to appraise the real estate to determine its actual value (and therefore determine if you will have any equity in the property) as well as make the actual determination as to whether your credit is good enough to get a loan for X dollars at Y APR.

Obviously without more info, I couldn't tell you what sort of commitment you have. I did a quick internet search to find you a link that may help explain the difference.

http://soundbiteblog.com/2008/...-real-approval-letter/

Generally speaking, the Mortgage Commitment has ALL details of the loan and is may be signed by someone at the bank. Usually it is not effective until you sign it and return it to them, but in every case there are conditions. If your financial situation changes that can affect it.

The main thing to keep in mind, in my opinion, is that if your loan is not approved, you can probably work with the bank to get it approved. Is your savings account realistically enough to cover the down payment and closing costs? (Generally 20% of purchase price for down payment and I'd estimate 5,000-10,000 in closing costs to be safe.) If it looks like you'll have anything left over you can consider moving some of it, paying points, putting more money down, etc..

If the bank is truly unwilling to work with you here, and I hate to say this but, it seems like you probably weren't going to be approved either way. $5,000 is not really a lot of money when you're probably looking at a 200-300 thousand real estate deal.


None of the above should be considered to be legal advice and is merely my opinion as a person who is relatively familiar with real estate transactions. I'll check back and provide any info I can, but you may want to speak to an expert in your home state (i.e. an Attorney, which you will probably need for the purchase anyway, or a Mortgage Broker). Also, contacting the bank can help at times as well, but ymmv there.

Hope some of this helps.

Thanks for replying, you seem in the know

To answer your questions:
1. Our lawyer referred to the letter as the "commitment letter," not the pre-approval letter we got months ago. I haven't actually seen the letter, but have copies of our signed contracts and all of that. Our real estate agent also referred to the letter as a commitment letter, so I assume it's the real deal, not a pre-approval

2. Our savings has enough for closing/down payment/ and then about $10,000 extra

3. If we get rejected we get rejected. I'm more venting than anything, since this has been a long process and I'm more stressed than anything at this point. We were supposed to close, according to our broker, weeks ago and should be spending the last week in June moving. Now we're in limbo and it sucks, but we'll live!

No problem, I just wish I could offer you something that would help you resolve the situation.

I'll assume that if your attorney and realtor both referred to the letter as a commitment, then that's what it is. I wonder if the real issue is actually that the deadline on your original commitment has passed and you are now working on getting a new commitment.

Given the way the market has gone lately, I wouldn't be surprised if missing the deadline could hurt you. First, interest rates (at least for mortgages) have been trending upwards the past few weeks. I also get the sense that closings (at least in the NY-NJ area) are picking up a little bit. Both of those factors together may affect the rates and amounts banks are willing to give out and it may even knock you out of eligibility for the original loan you were approved for.

I'm no expert on property values, but I am of the belief that now is not necessarily the best time to buy in NY/NJ anyway. Prices may have dropped, but in many areas I think we can expect to see them continue to drop for another year or two. If you think you're getting a good price, obviously that is what matters, but I think you've got the right idea when it comes to not stressing about it if it doesn't work out. I think the biggest issue is probably that you signed a contract, put a down payment down, and now you probably can only get out of your contract if your commitment falls through so you're basically just waiting to have someone else make a major life decision for you.

Anyway, hope everything does work out whether you get approved or not.

 

[Delta6Echo]

Originally posted by: swbsam
I started the process to buy a certain home about 5 months ago.

We're a newly wed couple in our mid-20s, so we don't have a huge nestegg.
We have two accounts:

1. savings that is pretty much untouched, which has five figures in it, to cover down payment/closing/ etc. The amount in this account has not changed at all and was saved (from wedding gifts, etc) for this very purpose

2. day to day checking - very little in it, since we use it to pay bills, rent, and day to day expenses

We were given a commitment letter weeks ago and, now, the under-writer contacts our broker to say that we should have more money in our checking account, and says that they wonder why we're not putting more of or excess away... The implication is that we're spending money like water and now our "commitment letter" feels less so..

The reality is that we were told, months ago, to pay down our debt by our broker. We paid up nearly $5,000, all from our own pocket (and not from the savings account which we don't want to touch), within the last few months to help our case for a mortgage, and now we're getting word that it seems like we'll be a gamble.

how is this fair? Do they not understand that we wouldn't normally spend $5,000 paying down debt if we were not looking to buy a home?

EDIT: "Settle" is a bad word - only one account from back in college was a collection account, everything was current, revolving credit that we were otherwise in no pressing need to pay down completely

You do not sound like you a ready to purchase a home. Your broker told you to pay down your debt to qualify and then told you that the bank will "maybe" be alright with it? Are you seriously kidding me?

It doesn't sound like any of you know what you are doing. You haven't even told us about this supposed loan type/rate and I hope that everything will be rolled into it (property taxes/interest/principle/homeowners insurance/HOA dues-if any).

Don't be an idiot and put a huge amount of money down on a house, drain your savings and then struggle to afford everything. Don't you know that the reason we are in this mess is because people were being reckless with their money?

Oh....and fire your broker who is a fvcking moron.

EDIT: You are only going to be left with about $10K after your down payment.....WOW! I can see that clearly what has happened to the real estate/mortgage industry has taught you nothing

 

[Elbryn]

just be carefuly when comparing between the house payment and renting. house's have many hidden costs in the form of taxes, maintanence. and time. if your stove dies in the house, you have to replace it, rather than calling the landlord. taxes on a 400k house could be around 8k a year, 666.67 per month.

i do know that when the underwriters look at the numbers, they are looking to make sure your monthly payment in addition to any monthly debt service from cc's, car loans, or other loans is below a certain % of your gross income per month. Thats probably why the other guy said to pay those down. If you dont meet that %, the underwriter may be looking at increasing your down payment to make the numbers work. i dont know for sure by that could be why they say you dont have enough cash. if its a 400k home, 10k cushion isnt going to change the mortage payment # much.

sucks you've already spent money on a home, but your probably better off renting one more year, paying off the debts, and getting more cushion for payments. if you cant pay the house off on 1 income if someone gets fired, i'd be very wary of buying a house right now.