financing question

Discussion in 'Homesteading Questions' started by cc-rider, Mar 5, 2004.

  1. cc-rider

    cc-rider Baroness of TisaWee Farm Supporter

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    Ok, I need input from all you finance-savvy people out there..... :)

    I want to buy a house for 0 down. Payments will be $650 a month. I currently own a home, payments are $450 a month. That is my only fixed payment -- I paid cash for my cars and I don't have any monthly bills like cable, credit cards, etc.

    I don't want to sell my home until AFTER I buy the new one. (why? because I want to move my plants, and berries, and trees...... the realtors think I'm crazy, but it is important to me! Also, I want to sell it on my own. If I buy a house contingent on selling mine, I'll be forced to use a realtor and sell it cheaply/quickly so I can get the other one).

    I have enough money in the bank to make mortgage payments on both houses for two years -- although I fully intend on selling my current one within a couple months.

    The problem is that both mortgage payments will give me about a 45% debt-to-income ratio. I think you have to keep it under 32% or so to get a loan. Will a bank take into consideration that I have the cash to handle the payments until I can sell?

    I realise that getting a 0 down loan will make my payments higher than I'd like, but I could put a chunk down after I sell my current house. The one bank I talked with said they wouldn't recast the loan (don't know why -- I'm really not getting any straight answers out of them), but I think I could refinance it in a couple years to get the payments down.

    What do you think? Is there some other option that I'm not seeing???
     
  2. agmantoo

    agmantoo agmantoo Supporter

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    In my opinion you need to take a different approach to the purchased of the second home since I do not think the one you are attempting will work. The bank will not give you decent consideration for the money you have in the bank, they think you may spend it on something else. A sad fact is that people with sound financial practices often do not get proper recognition for being astute money managers. You need to take a home equity loan on the current house and use that as a downpayment on the second home. For the sake of this discussion, consider the first home to become a rental creating income. With the projected income, the percentage of total house payments doesn't consume too much of your income and you should qualify. Then later, since you have "reconsidered the rental business" and decided not to go that route you sell the first house and close the obligation.
     

  3. cc-rider

    cc-rider Baroness of TisaWee Farm Supporter

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    Hmmmm...hadn't thought about that. I HAD thought about a home equity loan, but figured it didn't make sense because you owe a penalty if you sell the house within a year. Of course, the penalty is only $200... that's cheaper than paying finance charges for 30 years on $40K that I didn't have to!

    But you might have hit on another idea.... I could rent out my first house for awhile until property values go up more. (Of course, renting may negate the value.... it is in excellent shape now. I'm one of those fanatics that doesn't allow animals or shoes in the house....SORRY!)

    Will a bank loan money on "projected" income (i.e., rental?). Of course, who is to say that I need to actually rent it out?

    So....get a home equity loan to lower my purchase price and payments, tell them I have "projected income" from a rental, and use my savings to pay the equity loan and new mortgage until I sell my house, and then pay off the equity loan and put money back in savings.

    You're a genius, agmantoo! :)
     
  4. fordy

    fordy Well-Known Member

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    .................Agmantoo is right on the money i believe. It looks like to me that once you borrow on home i to finance home 2 that it will trigger a down payment requirement on home 2. Also, don't rent home 1 out because it may have the Hell tornout of it by your renters and then you'll need to FIX home1 before you can even put it on the market. Not wise in my opinion , fordy.. :)
     
  5. Mudwoman

    Mudwoman Well-Known Member

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    What you are wanting to do is called a "Bridge" loan. You borrow a portion of the equity you have in house #1 so that you have the down payment and closing costs required to buy house #2. You must be able to support all the loans on both properties with your current income to qualify just in case house #1 takes longer than you think it will to sell.

    The Veterans Administration insures 100% LTV (loan to value) mortgages for veterans. FHA insures loans with down payments of 3%. There are conventional loans for as little as 5% down. I'm not aware of any loans that are "0" down unless you are a veteran or unless there is some "fuzzy" pricing and appraisals on a particular property.

    There are many things that a mortgage company will look at to qualify you for a loan. One is your credit score. Another is how much money you plan to put towards the down payment. Your income and job stability. The property itself is also considered.
     
  6. goatlady

    goatlady Well-Known Member Supporter

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    The bank will consider "projected" income provided you had a signed, dated lease in hand and they will verify the income. All the money in the world in the bank doesn't count worth diddly anymore. the bank figures you could/would spend it. If your income will not provide payments on both houses AND keep the debt to income ratio under 30-35% its a no go situation.
     
  7. Mike in Ohio

    Mike in Ohio Well-Known Member

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    Hi CC,

    Please understand that any advice is given without knowing all the particulars of your situation. Is there already a specific property you are trying to work the deal on or is this more of a generic question? Are you planning on generating income from the new property (by raising crops or ??)? Things like this.

    In any event, I would recommend that you try to nail down your long term mortgage on the new place. If you go to refinance or have a bridge loan you will likely pay a lot extra in fees than if you just got financed for one loan. Also remember that interest rates are at near historic lows and not likely to stay there. Even waiting 6 months or a year to nail down your rate could cost you thousands of dollars. (calculate what a mortgage rate 1% point higher would cost you).

    It sounds like you are "buying the payments" rather than considering the interest rate and costs. Think through the whole deal. You may be able to structure it better.

    I'd also use some of the money you have set aside for payments so that you don't need to have a zero down loan. I'd argue that one year of payments (under the circumstances you describe) is something to consider, especially if you are selling the first property and trying to do it FSBO (gives you more flexibility to drop the price some to move it).

    The next thing is that you don't have to hold off selling your house. Figure out how long it will take you to remove the plants and trees. For example, you might specify a closing 60 days after contract signing if you think you can have them removed within that time frame. I don't recommend removing them after the closing....too many opportunities for legal issues.

    One thing you can do to get a jump on things is to start getting the plants ready now. Transplant them into pots and then place the pots back in the hole. We have a small tree nursery at our house where I "pamper" newly bought trees for a year or two before transplanting them out to their permanent location. When I want to move them I just pull the container (some are 14 inch diameter) for hauling to where I want it. For smaller ones that I know will get transplanted within a season I use pressed peat pots (up to 8 inch diameter).

    For bulb type plants you can just dig them and put them in a plastic tub (don't put the top on tightly, they need air circulation. Keep them moist and in a dark cool (not cold) place.

    Hope this helps,

    Mike
     
  8. Hughes

    Hughes Well-Known Member

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    Here is some information that you may find helpful:

    1st of all this information is all dependent on a couple of things - if either one of the properties include more than 5-10 acres, (depending on the bank) The mortgages are more strigent with more acres, because the mortgage is not attractive to the 3rd party market where most banks sell their mortgages to.

    Secondly what your credit rating is at, a tier 5 (above 700) makes things much easier to work with any bank.

    If you are dealing with a property that is smaller and your credit rating is above 700, then here are a few options that should apply to you (assuming you find the right bank and loan officer - I have had the best luck with Wells Fargo):

    - You can do what is called a bridge loan - it is intended to be a temporary double mortage with the intent to sell one.

    - As far as the downpayment, you can do a 80 -20 loan, which means that you have a 1st mortgage for 80% of the value and the 20% downpayment is paid via a 2nd mortgage that you can pay off early once you sell and cash out of your first house.

    - As far as debt to income ratio, once again with a tier 5 credit rating you can go as high as 45-48%.

    Hope this helps.
     
  9. SueD

    SueD Well-Known Member

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    First - let me applaud you!!! It is not common these days (perhaps even here) for people to live well enough below their means to do what you plan!

    You are going to need security, and won't necessarily be able to use your current bank balance - unless you want to put the money into a CD or other similar vehicle, signing it over to the bank in case of default. I've done many loans this way - don't know if you have a personal relationship with your banker that would benefit something like this. Always pays to get to know the top guys at your bank really well before something like this.

    Another option would be to approach this as if it were a business loan. Develop your plan in writing and present it - at your current bank - to the highest official you can get your hands on. NOT TO A LOAN OFFICER, but to a VP or Pres. - have HIM/HER pitch it to the loan department. This also assumes a good relationship with the bank officers... They are really hard to get to if you have to go through the loan department first.

    Depending on your situation, you can also get a home equity line of credit, with the first house as security. There are tons of reasons this might work, besides the tax deductions, which with a little creativity would be as good or better than a mortgage interest deduction... Then you have the option of playing landlord, or selling to settle the debt. I personally abhor being a landlady, but you may enjoy the second income more than the problems your tenants can raise.

    I'll warn you, though - if you do not go through a regular mortgage broker, you will have a hard time with the no money down unless it is owner financed. The programs out there that give you a down payment usually tack it on to the mortgage, and will still run about $3000 to get it done.

    If, however, all you are trying to do is widen the timing window, I'd suggest a solid written plan of action for doing what you want to do, a list of pals ready and able to help, and dispensing with the double mortgage altogether.

    Sue
     
  10. Gary in ohio

    Gary in ohio Well-Known Member Supporter

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    Why tie up all that debit for your plants. Why dont you just put into your selling contract what plans you will take with you and a right to remove clause. Getting a lawyer (you should have anyway) to add a few lines to the contract is going to be a lot cheaper than two house payments.
     
  11. RAC

    RAC Guest

    Just to avoid problems, I'd move plants first before putting the home on the market--typically you are not supposed to remove plants after selling (crops are one notable exception). If buyers don't see it in the first place, fewer problems later.

    Even if you tagged the plants with big signs, you never know when someone looking at the house will remove the tag/sign, then claim later "oh, it wasn't tagged". Also be ready for someone to lower their offer because you are removing value from the property, once they see how much you're taking away (sounds like the entire landscape ;-D.

    So, since you'll be going back and forth moving plants, rent that property out until you're finished moving them. Provide in your contract that renters are not to touch the plants, and do not need to care for them (you may want to pay the water bill and water them yourself in the meantime). Renters typically are not as interested in caring for plants as owners are, especially if they have to pay the water bill, and won't be concerned about it. Also, consider keeping the property as a rental--eventually it will be paid off, and then you have another source of income.

    Also, I would consider putting at least enough down on your new home to avoid impound accounts for your taxes/insurance. Even if you pay off a huge chunk later, after selling your first house, it can be difficult to get the mortgage company to remove the impounds, and it only gets worse when the mortgages are sold.... They'll say "it didn't appraise high enough", etc.