Not able to get a mortgage--help?

[kwynn]

I don't understand this...I mean, I do, but...

I have called three mortgage places and no one is really willing to work with me on a pre-approval or mortgage.

I feel (of course I am biased) that I would be an okay candidate for a mortgage.

I have never ever had a late payment on my credit report. I am completely 100%
debt-free. I have 770k in assets (includes retirement at about 200k, all in mutual funds and cash).

I have two years' worth of expenses in an emergency fund, and want to buy a house at around 100-120k. I planned to put down 25k and finance the rest to avoid PMI.

My current rate payment is $670 plus utilities, which I am meeting just fine. My new place, the expenses may go up a bit, but I will have a roommate contributing about $400/month to rent and utilities.

I'm actively trying to work to get my income up as well. I'm very financially conservative and don't want to make any bad mistakes.

As far as my income, well...

I own my own business and have for three years. Before my husband died, it was
just a side business and wasn't making much due to start up costs, etc, and the fact that I was still new and also not the breadwinner in the family---but we lived on about 25k as a couple, saving every penny we could. I'd say I claimed on my taxes my income being 10k the first year, 16k last year, and about 25k this year.

Starting this year (they are getting the accounts set up now from my financial advisor), I will have approximately 36k coming to me each year from investments as income but I will not touch that unless I need to---it will go into my accounts for me. But obviously, that has not started yet--I will not touch the principle under any circumstances.

I know for a fact that other widowed people have purchased homes, even SAHM's, after the spouse has died and it hasn't been with cash, it has been with a mortgage. How were they
able to do it?

But every single company is telling me it's a law now (or will soon be) and they can only count my income, not assets. It doesn't matter at all what you have, it's only what you earn--I understand that but is there anything else that can be done?

If someone worked for a traditional company, she could get laid off tomorrow and not be able to pay her mortgage, but she is still approved according to the rules. But me, I have the actual money for the entire mortgage in the bank---even if I could never work another day I could still pay off the house. I just didn't want to liquidate so much $ right now and the interest rates are low.

I have no idea what to do---everyone's telling me to get a co-signer, but my family does not
have as good credit and I'd have to pay PMI even with a >25% downpayment, so that sucks. I'm understanding that, with a co-signer, I need PMI for the life of the loan. I was also told alternately at other brokers that the co-signer option isn't even available to me, so who knows.

Also, I hate involving family in finances.

It'sa bad financial move to pay with cash, right? Earning 6% on my money, interest rates around 3%...I just don't feel comfortable parting with so much money at once. It makes me feel sick.

I'm bummed out. I can't afford to rent (I can't save much money while renting) but using the bank's suggestion, I should try to raise my income and buy a house in three years. (In three
years, I would have the cash to just buy it outright though, so what the heck?). Makes no
sense.

You save and save and it still does no good. Sorry for the vent---what do I need to do, anything I need to try or places that do some unconventional qualifying for a mortgage?

I am so sorry this is a Debbie Downer. I didn't think someone with good credit and a lot of savings would have such a problem so I didn't start the pre-approval process until this week.

[ssmjlm]

Have you checked with a credit union? Where are you assets held? Does that bank do mortgages also?

[dr.girlfriend]

I would look at all other options, but since you are looking at buying a relatively inexpensive place, and I don't think it would be a huge mistake to pay cash for it. I don't think it's optimal, but it's better than renting in your situation.

[SJ]

I am so sorry.

We have run into this issue with our clients and it is maddening. I have a client with over $14M of investment assets, and BOA would not refinance a $250K mortgage because she didn't have enough "earned income." Well, duh, she has $14M, why would she need to work? I went round and round with them, and finally we just cut a check and paid it off.

That was maybe 2 years ago? I have found things starting to get a little bit better in this area, but I do think it will be hard given your last 3 year's income.

I wish I had better advice for you, but I would really try to avoid paying in cash. You will definitely have to submit asset/investment statements. I don't think it's hopeless. Have you tried both banks and brokers? What about local shops or credit unions?

[kwynn]

Jan 16, 2013 15:26:54 GMT -5 ssmjlm said:

Have you checked with a credit union? Where are you assets held? Does that bank do mortgages also?

I didn't realize credit unions do mortgages. I don't have a credit union--I use a regular bank for free checking. I used to belong to a credit union though--that's a really good idea.

My assets are held via a financial firm and they don't do mortgages--they only do investing for individuals and institutions.

I'm embarrassed to call them and tell them what I'm looking for---I think they've gotten a little tired of all my questions lately and that I took literally 4 months to fill out paperwork they sent me.

[Deleted]

This is so maddening! How will they give my sister a mortgage of up to $160,000 when she makes <$40k and wants to only put $1500 down, but not YOU!? Wtf.

[Deleted]

I'd look at a mortgage broker (they'll know who is most likely to work with you) or consider buying in cash because that meets your needs. Buying as a small business owner is notoriously difficult.

[kwynn]

Jan 16, 2013 15:30:28 GMT -5 SJ said:

I am so sorry.

We have run into this issue with our clients and it is maddening. I have a client with over $14M of investment assets, and BOA would not refinance a $250K mortgage because she didn't have enough "earned income." Well, duh, she has $14M, why would she need to work? I went round and round with them, and finally we just cut a check and paid it off.

That was maybe 2 years ago? I have found things starting to get a little bit better in this area, but I do think it will be hard given your last 3 year's income.

I wish I had better advice for you, but I would really try to avoid paying in cash. You will definitely have to submit asset/investment statements. I don't think it's hopeless. Have you tried both banks and brokers? What about local shops or credit unions?

I think they told me today on the phone there is a new law that is going to make it *even* harder to qualify without earned income.

I do work, and I work really darn hard. I'm hate talking on the phone about how I make like 25k but have saved up money. It is so hard to just get the words out. I feel horrible about how I got my assets, but I also wanted to state that that's not even life insurance money---it's money WE saved together as a couple to buy a house someday, and I contributed to that by working odd jobs, clipping coupons, negotiating our rent down, supporting my husband as he worked, and not spending really anything over the past few years at all. I also saved money living at home after college to save every cent of my paycheck.

I feel like any stay at home parent or spouse with a lower earning job (a student, a more entry-level worker, someone unemployed/underemployed, starting a business) would be up the same crick without a paddle, you know?

I'm going to try a credit union now. It's a really unique situation most companies are not equipped to deal with--I've only tried four places so I'm going to keep Googling for maybe more unconventional style places.

I really don't want to pay cash because I can make more on my money sitting in the bank. One mortgage broker said that's not true and he doesn't feel I could be earning more than 3-4%? I think I'm earning 6%, does that sound unreasonably optimistic?

[kwynn]

Jan 16, 2013 15:34:44 GMT -5 RockNVoll said:

Ugh, I'm sorry that I have no suggestions but that's a pretty unique and crappy situation you're in. I don't blame you for not wanting to buy something outright and I think your reasoning for wanting to avoid that is completely sound, but maybe in your situation it's not the worst idea. $120K out of an asset base of $770K doesn't seem so bad. I wouldn't want to mix family and money either so I'd avoid the co-signer route as well.

All that said, if it were me I think I'd continue to rent and just keep meeting clients at coffee shops and such. Then reassess next year and see if things have changed.

I should just rent, I know that. It's what I originally wanted to do. It's just SO hard trying to find a rental that will take me and that fits the budget. I need to give them the year upfront and that's a lot of money to part with too.

I also am scared about renting because it just drains my money every month...it doesn't allow me to save much. Especially because I plan to live in the area long-term.

Also, I hate moving But that's a purely selfish, lazy thing---I just hate hate hate moving.

[Deleted]

You can make a better return on your investments than mortgage rates, but that's not counting your potential income from a roommate or the quality of life/security you'll feel from ownership. Those things are worth something, both tangibly and intangibly.

[emilyinchile]

Financially, you're right to keep looking at other options, and I hope someone will give you a mortgage.

Emotionally, it's ok to decide that you just want to buy something even if it's not the best financial decision. You can afford it, and there is value to having your own place which may for you be greater than the value of the interest you'd otherwise earn. There's nothing at all wrong with making that choice.

[rikki]

I have no advice, but I just want to say I am so sorry that you have to deal with this headache.



With your assets and the relative low cost of the house you plan to buy, I might just pay cash. How frustrating!

[regina22]

If you're sitting on $200k in cash/bonds, then no, it's probably not earning 6%. Cash is around 1% these days and an index fund of the total bond market returned 4% last year.

I would pay cash. You're right, everyone without an income would be in the same position - they're not going to give a mortgage to a student, a stay-at-home spouse, whatever. If you look at the logic from a non-recourse state, the can't go after your retirement account or bank account or whatever if you decide not to pay. And what's to stop someone with a ton of cash, from going and getting a bunch of mortgages and then only paying the ones that make a profit. The financial mess that we got in five years ago makes these restrictions a necessity.

[sjh722]

Jan 16, 2013 15:44:06 GMT -5 chalupa said:

I'm a lurker, but ditto the credit union - because they don't sell their mortgages off, they don't have to conform to fannie/freddie guidelines. This allows them a good bit more flexibility in giving loans to those with poor credit, but sufficient income or assets, so I don't see why they couldn't work with you, too. Good luck!

I'd try this route before giving up and renting. Also, sometimes there are banks or mortgage companies local to the area that don't sell their loans. You might have better luck there. An in-house loan from a bank might have a slightly higher rate to compensate for the increased risk, but they definitely still make them.

[lindyanne]

I would go talk to a local credit union. If you sign an actual lease with your tenant and you can sit down with an actual person, they may be willing to work with you. It may involve putting more down but not just paying cash for it.

[Bob Loblaw]

Sorry, I know how frustrating it can be. I also recommend talking to a broker. After dealing with several banks and credit unions, we started working with a broker. He's been doing this for long enough that he knows which lenders work best for any given scenario.

[mswax]

Jan 16, 2013 15:42:18 GMT -5 kwynn said:

I should just rent, I know that. It's what I originally wanted to do. It's just SO hard trying to find a rental that will take me and that fits the budget. I need to give them the year upfront and that's a lot of money to part with too.

I also am scared about renting because it just drains my money every month...it doesn't allow me to save much. Especially because I plan to live in the area long-term.

Also, I hate moving But that's a purely selfish, lazy thing---I just hate hate hate moving.

Another vote for renting here.  I think by living in the area for a year, you'll be in a MUCH better place to buy.  You will have a much better understanding of the area (what parts you like, what you don't, commutes, etc.), plus, you will actually be IN the area to go house hunting.

I totally understand how much you hate to move, but I think if you buy now you will regret it later.  Even if it costs a little more every month, you'll likely still be "saving" money in the end if you end up in house you are happier with, and you don't have sell something (an pay a 5% commission) on a house you regret buying.

[Deleted]

I agree with Regina and Token. I'd just buy a small house outright and then repay yourself with the money you'd pay on the mortgage. It may be a small return, but at least it is a guaranteed 3.5% (or whatever) return on your investment. I don't see any problem with this AND it will save you the headache of the mortgage, etc.

[kwynn]

Jan 16, 2013 15:59:31 GMT -5 mswax said:

Jan 16, 2013 15:42:18 GMT -5 kwynn said:

I should just rent, I know that. It's what I originally wanted to do. It's just SO hard trying to find a rental that will take me and that fits the budget. I need to give them the year upfront and that's a lot of money to part with too.

I also am scared about renting because it just drains my money every month...it doesn't allow me to save much. Especially because I plan to live in the area long-term.

Also, I hate moving But that's a purely selfish, lazy thing---I just hate hate hate moving.

Another vote for renting here.  I think by living in the area for a year, you'll be in a MUCH better place to buy.  You will have a much better understanding of the area (what parts you like, what you don't, commutes, etc.), plus, you will actually be IN the area to go house hunting.

I totally understand how much you hate to move, but I think if you buy now you will regret it later.  Even if it costs a little more every month, you'll likely still be "saving" money in the end if you end up in house you are happier with, and you don't have sell something (an pay a 5% commission) on a house you regret buying.

I feel like I know the area pretty well since I lived there since I was a kid..I obviously don't know every area though or every specific town and that's hard knowing specific streets to narrow it down to.

I think if I rent I'll probably do it for 2-3 years though because I'll need time to rebuild my savings after first/last/security (or a year of rent upfront, yikes--it's like 12k right there) and I think I would need 2-3 years worth of income on my taxes for a mortgage application anyway.

I just do not want to go through this all again in just a year---I either want to buy now or buy in five years or something. I just need some stability. I've moved 4 times in 8 years and it's pretty annoying. I don't care if I rent or buy, I just want to find something decent that fits my budget and something I'll be "okay" with for a few years.

[kwynn]

Jan 16, 2013 15:48:01 GMT -5 regina22 said:

If you're sitting on $200k in cash/bonds, then no, it's probably not earning 6%. Cash is around 1% these days and an index fund of the total bond market returned 4% last year.

I would pay cash. You're right, everyone without an income would be in the same position - they're not going to give a mortgage to a student, a stay-at-home spouse, whatever. If you look at the logic from a non-recourse state, the can't go after your retirement account or bank account or whatever if you decide not to pay. And what's to stop someone with a ton of cash, from going and getting a bunch of mortgages and then only paying the ones that make a profit. The financial mess that we got in five years ago makes these restrictions a necessity.

Wait, if you don't pay your mortgage, they cannot go after your bank account? Really?

That seems ridiculous---why not?  Isn't the money I have in assets sort of collateral for the loan?

So you can just walk away and they can't touch your savings...I know student loans, credit cards, all other creditors will come after your savings with a vengeance.

I have 200k in retirement (mutual funds and stocks), 100k in cash, and the remaining 470k in a mix of things like muni bonds, stocks, funds, and other things I don't really understand. 1% sounds pathetic---I need to talk with my FA and ask him what percentage I'm getting exactly.

That seems outrageous that they can't get their money back if you do indeed have the money. That's straight up stealing to have, say, 100k in the bank and owe 100k on a house and just leave and never pay--how is that even legal?

[Deleted]

Because they get the house if you don't pay. The collateral on a mortgage is typically the property.

[kwynn]

Jan 16, 2013 16:13:18 GMT -5 @tokenhoser said:

Because they get the house if you don't pay. The collateral on a mortgage is typically the property.

Ohhh...I see. So what's the point in all the verifying if they have the collateral right there?

If you owe 100k on a home and you walk and they take the home and can only get 80k for it, do you then owe them the 20k? Couldn't they sue you for that and take your savings?

It's just silly I think---wouldn't the better collateral for them be actual cash?

[hski2349]

The tightening guidelines are becoming worse and worse. I completely understand why they made stricter guidelines, but when qualified people are trying to get mortgages and can't, it is going to create another housing crisis, because nobody will be able to buy.

I agree looking at credit unions. My other question is, would anything change if you put more down, like 30-40%? That way you can still keep some of your other assets.

[kwynn]

Jan 16, 2013 16:14:49 GMT -5 Nugget T. Brain, The OG said:

If you really, really hate the idea of having that much money sunk into a house could you just pay for the house in cash up front, and then in a year do a cash-out refinance for 75% of the home's value? Then you should be able to avoid PMI, and there won't be as much hoopla because the house is already paid for.

I know my parents did a cash out refinance years ago---do you think the interest rates will rise a lot in a year?

I feel like that's some stock market crash stuff---weren't ppl in 1929 doing this and then using the borrowed money to invest?

It would be a great option though because, if money ever got really tight for me, I could always sell the house, you know? Or cash out refinance? I need to think of it not like the money is gone and spent on something frivolous but in a different kind of asset that may or may not retain/rise in value.

[CloudBee]

I think you should look into a credit union, chat with a small/local bank, and then move forward with purchasing in cash if you have no luck with the mortgage.

It sounds like you are really, really ready to settle down. The interest earned in the bank/investments, etc., is really not going to impact you significantly in the long run based on the large financial cushion you already have.

Please don't feel guilty for not being able to get the "best" deal on purchasing a home over a small percentage you "could" earn if the money were invested.

Houses are pretty inexpensive right now, so there's a really good chance that value of your home will be increasing in the coming years and possibly out-earning your traditional portfolio as is.

ETA:  Okay, bad phrasing.  Homes aren't inexpensive, but prices have dropped in many areas, and it's a great time to buy. 

[kwynn]

Jan 16, 2013 16:17:45 GMT -5 hski2349 said:

The tightening guidelines are becoming worse and worse. I completely understand why they made stricter guidelines, but when qualified people are trying to get mortgages and can't, it is going to create another housing crisis, because nobody will be able to buy.

I agree looking at credit unions. My other question is, would anything change if you put more down, like 30-40%? That way you can still keep some of your other assets.

I was thinking this too---like do 40% and try to get qualified for the remaining 60k if I can qualify for that much (maybe not given my average income but you never know)...

That's another option I am going to call about...

[kwynn]

You ladies are the best---you are so much more helpful than the places I've called and so knowledgeable about things! I was crying before I wrote the OP and told my mom "I'm just going to ask my friends on the Internet if there's anything else that can be done because I don't know what else to do."

I'm so glad I came back to this board... I love talking money with ppl and no one in my real life (except for my late husband) likes to--they all think talking about money is weird/boring. So I've really been missing these kinds of discussions and wisdom and debates since Steve passed away.

[greencrayon]

I make $25k a year as a graduate student, with about $30k in assets at the time, and I got approved for a mortgage. I got pre-approved through USAA and BB&T, if you haven't tried those guys.

[cjeanette]

Jan 16, 2013 16:16:20 GMT -5 kwynn said:

Jan 16, 2013 16:13:18 GMT -5 @tokenhoser said:

Because they get the house if you don't pay. The collateral on a mortgage is typically the property.

Ohhh...I see. So what's the point in all the verifying if they have the collateral right there?

If you owe 100k on a home and you walk and they take the home and can only get 80k for it, do you then owe them the 20k? Couldn't they sue you for that and take your savings?

It's just silly I think---wouldn't the better collateral for them be actual cash?

There are loans out there where you put investments up as collateral.  At that point you can't touch them without the bank signing off on them.  I have never seen one done for a mortgage though.

[Deleted]

The reason no one will work with you is probably because you want such a small loan that the amount of work required by the broker isn't reflected in the commission they'll earn