So now that I had this big idea to write a blog, now I get to find something to write about more often then once in a blue moon. After spending the day writing loan applications and finding solutions to challenges for borrowers, I am not sure that my creative juices are flowing. But since we have now had this blog for a week and only one person has had the courage to post anything on the blog I am not sure that creative juices are necessary. Either way, the exercise of writing is the most important thing. I think that as I write these blogs I will have the opportunity to learn more about the loans that I encounter, learn better ways to help borrowers and possibly learn new or better systems for delivering loans.
One of today’s challenges dealt with a Bridge loan. A common challenge facing people who want to buy a new house but have not sold their old house is how to do so and tap into the equity in their current home. The client today had a home that has been described to me as a fixer upper, in other words, will be put on the market at below average condition. The house they wanted to purchase was being sold by owner and the buyer needed to act quickly before the seller listed the house with a realtor and then raised their price to compensate for the need to pay the realtors commission. In listening to the referral source describe the situation a bridge seemed like a possibility, but I was concerned about the expense. When you get a bridge loan against your current home it is a refinance. Thus there are expenses incurred to acquire the loan along with the fact that the lender is not making any money doing the loan so you will usually have to pay an origination fee. Then you are limited to only borrowing 80% of the value of your current home. With a house that is going to be in below average condition, I had fears that we would be having the client spend $2,000 to only be able to get to 8-10 thousand dollars. After interviewing the client and then reviewing their credit I decided upon the path of least expense for the borrower. It will require a step stone process, in other words we will do the original loan just to get them into the house, but as soon as they can sell their current house, we will use their proceeds to pay down the new loan and refinance into a lower loan to value and either lower their cost of mortgage insurance or eliminate it altogether.
Now you ask, would that cause expenses to refinance? It would if the client wanted to purchase the absolute lowest interest rate, but with the ability to use our income for selling their loan after we refinance it, I can use that income to pay the closing costs on the future refinances. Over the last 14 years I have seen too many people tell me that they wanted to pay the closing costs and then within 3 years they were back at my desk looking to refinance because the rates had fallen, they needed to access the equity in their home, they want to put an addition on to the house or even worse they decided that they can afford the old house payment and now they want to move to a bigger house. Thus whenever I have a client with an open mind I will always suggest to them that the right path is to take slightly higher interest rate and let us pay their costs for them.
Seems simple enough but then the referral source wanted to know why we were only going to do one loan and not two loans on the new house or an 80/20 loan. Someone had told them that they could avoid mortgage insurance by doing the 80/20 loan. However we had a challenge that the borrower would not qualify for the 80/20 since they would carry too much debt for their income. In addition, mortgage insurance is now tax deductible. The after tax expense of the mortgage insurance versus the 80/20 would leave the client better off paying the mortgage insurance now. Then when we lower the loan to value with the refinance after they sell their current home we will lower the cost of the mortgage insurance or eliminate it. With the 80/20 the 20% loan will be there at the higher rate until it is paid off through the use of assets or another refinance.
So now it seems like we have the mortgage planned out. We now have to get the seller to pay the borrowers closing costs and pre-paids so that they don’t use up their available cash with expenses related to the purchase. By getting the seller to take a higher sales price and pay the above mentioned costs at closing out of the proceeds of the sale we are able to keep a nice cash reserve for the borrower so they can afford to make two house payments for a month or two if they have challenges selling their current home.
There you have it! Another solution to another client with a unique circumstance. Just an average day in the mortgage industry. If that was all I had to do then it would be easy, but fortunately for me, that was one of 4 loans originated today. I also had an investor tell me that their underwriting turn time for refinance loans is currently 15-20 days. After I finished laughing, I sent a scathing e-mail to the account representative to remind him that this is not the year 2003, or 1998 or 1992, this is 2007 and any company that is experiencing those types of turn times does not know how manage their business and if these numbers are factual that he would not be getting any more business from our company. On top of that I spent 2 hours working my database sending out mailings, making phone calls and scheduling “Mortgage Fitness Checkups.” When you throw in the occasional banter with the other sales people and office staff, I can honestly say that I had a full day at the office.
Thank you to Todd and Julie Hall for being a repeat client. Also deserving of mention is Dustin Smart who is going to be utilizing my services again to refinance his home.
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