T minus 1 day and counting
Posted on April 19, 2007 - Filed Under Business |
The following takes place one day prior to the close of escrow.
LenderLady: Clifford, we can’t give you the interest rates we originally quoted. The lender has changed the requirements.
My heart stopped beating.
LenderLady: Your first was originally at 6.175% and now it’s at 8.875%. Your second was at 8% and it is now at 13%. This raises your monthly payment $300 per month.
The whole "second home" scheme failed. Per the lender, a multi-unit residence cannot be declared a "second residence". It was now being viewed as purely an investment property by an out-of-state resident.
Clifford: You know this is the day before the close of escrow.
LenderLady: Yes Clifford and we’re really sorry.
With my cashflow at $195/month, a $300/month increase in my mortgage makes this deal negative cashflow territory.
Cat: I can’t believe this! Plus they increased your closing cost $2,000!!
In my shock, that fact was missed.
Another realization hit: I was past the point of no return on my contract. All the earnest money I had put down: gone. All the inspectors and appraisers I had paid: gone. All the contractors, plumbers I had paid: gone. In total, with this deal going bad I was going to lose $2,500.
All the day before the close of escrow.
Cat: I’ll call the seller and let them know we can’t make the deal work.
I asked her to wait. My romantic side cried out "This deal can yet be saved!" I just couldn’t see how. But Cat confirmed waiting 24 hours on this deal wouldn’t change anything. Why not take advantage of it?
So what did I do?
I called my friends, bought a bottle of champagne, and celebrated.
That night, my rosé champagne head hit the pillow. As the bubbly buzz filled my imagination with all sorts of interesting images, an idea appeared as to how the deal could yet be saved.
It was so crazy it might just work.
If you liked that post, then try these...
Pettiness on April 18th, 2007
A character flaw exists in my world: pettiness.
Putting on July 1st, 2008
Todays commentary is going out late.
Comments
9 Responses to “T minus 1 day and counting”
Leave a Reply
You seem to be getting into Casey territory here trying to claim something as both a second home and an investment property I presume for tax purposes…. Can’t see how you thought a multi-family could fly as a second home anyway. If you somehow could split it so one unit had a different mortgage than the others…..
Unless you can get that rate down, jump ship!! I liked your idea of buying a multi-unit in the Long Beach area, so move back to that plan if this fails.
Ouch! Bad news to get at the 11th hour!
I hate to tell you that I told you so, but, well, I kind of did in my comment on your ‘Lead off Pitch’ post.
I’m thinking that you had hopes that everything would magically be OK and did not thoroughly check that there rate was legit for your situation.
PS: You posted before that the NOO rate would be 7.5%; How did they jump it to 8.875%? Is this a bait-and-switch or is there something you have not told us? From what you have told us so far ‘LenderLady’ is either incompetent or fraudulent.
Moom, I was only going by what the lender told me. She stated this qualified as a second home. It certainly never crossed my mind that this could be considered as such.
Shawn, actually my plan was to buy in both CC and Long Beach.
Greg, my level of expectation was based on what the lender told me. Maybe I am mis-understanding your comment, but I don’t know of anyone who shops, verifying an interest rate. Usually if people find a good deal, they stop hunting.
In the post “Lead off Pitch”, the interest rate was initially stated at 7.5%. Towards the end of that same post, it went to 6.25%. Now the lender was telling me their rules had changed and my loan was at 8.875%.
This is a classic lender bait and switch tactic. I can’t tell from the story if it happened at the broker level (typical) or at the bank. Either way, I would have gone to the seller for an extension and asked the agent to find a new lender. It’s in her interest to get you a reliable lender as well - I’m sure she saw her commission evaporating when she heard this.
However, I have to concur with those that were skeptical of the second home angle all along. You should have verified the conditions early on and had a “Plan B” in place in the event that the second home strategy failed.
Can’t wait to hear the next chapter….
Cliff, you can still save it. Get an extension from the seller. Find a new mortgage broker, a competent one. The rates seem high, however in talking with my mortgage broker, rates have jumped up in the past weeks.
I know you can get a lower rate. I can get a stated income, investment loan at 80% LTV for 6.5% with one point. In your case, 1 pt. is only $1400. I can’t imagine NOO being more than 7.5%.
Another thing, if you go NOO, you should be able to close real fast. Ask for 1 week, it can be done… unless you don’t really want this property anymore.
Can’t you still get your earnest money back due to financing? In your original contract didn’t you have interest rate parameters in the financing contigency?
First let me start by saying…sounds like you a getting a little beaten up on this posting. This process is never an easy one. I see a few things in this one…
A. Second homes are usually 1 family properties. So, it sounds like your broker didn’t think before offering you the rates she did as a second home.
B. You are better off not having it go through as such, because that would be fraud. You can’t claim a property as a second home when you intend to rent it out. Lenders frown uppon this and in most cases do find out.
C. Second homes do rate out nicely…so what you broker was trying to do would have given you a lower payment, rate, and closing costs…but like I said second homes are usually only offered on 1 family properties.
D. If she went from quoting a second home which tends to allow for higher LTV’s than an investor and allows for larger loan amounts in conjunction with higher LTV’s, you probably were getting a lower rate. Once you get into investor properties the risk substantially goes up. The LTV allowances go down and the rates go up. So depending on your particular need this could have thrown it into an Alt A or Sub prime area which inherently would make the rates go up. Also, and lastly, the lenders are starting to crunch down on some types of loans…so if this were stated that may have added to the risk and rate.
Just my two cents. Good luck in your future deals!
To all of you, this is a wealth of knowledge I certainly hope all my readers review.
Kenric, the seller did grant a few days after the close of escrow. And the idea of paying down points did occur to me until the Lender informed me I was already paying points. The 8.875% was based on paying 1 point and a half. If you’re paying down points, how many is too many?
Mortgage Maven, believe me the last thing I want to do is get entangled with fraud cases. And because my second jumped to 13%, my mentor and I agree with your assestment that this went into sub-prime territory.
As it sounds like you’re either in the mortgage business, or deal a lot with brokers, how am I, Mr. Joe Public, suppose to know if what the loan officer is telling me is above board? When the loan officer told me she could do this as a second home, I believed her. If she is the expert, why would I doubt her?