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March 26, 2008

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We're thinking of moving to another house in a nearby neighborhood. We don't plan to pay any or much more for the new house than what our current one is worth. We have around 175-200k equity in a house that will sell for 275-300k, meaning we owe about 100k. At the end of the day, we plan to still owe about 100k.

Our bank approved us for a loan up to 350k so we can make an offer without a contingency of selling our house first. We met with the loan officer, showed them proof of employment and gave them copies of our latest statements from savings and investments. The approval came in a couple of days.

We don't have any other debt. We don't know our credit score but it's probably very high.

I just met with a mortgage broker last night. I have been pre-approved for $375K and am looking for a home in the San Diego east county. I had to show proof of assests, I have no debt and my credit score is 813.

"Borrowers must also put more money down, especially if they don't have stellar credit. For instance, those with down payments of less than 5% need a credit score of at least 680"

geez that sounds draconian.... oh wait, NO.

"I have to think—or maybe just really want to think—that folks with good credit and financials will still be able to get mortgages and HELOCs at the end of the day. "

Mortgages, sure no problem. A HELOC is a completely different risk profile, much riskier. You default on a mortgage, bank forecloses on your house and typically gets 50%-60% of their money back. You default on a HELOC, bank is basically screwed (100% loss).

I recently sold a moderately priced condo, and my buyer---with outstanding credit scores--had a DEVIL of a time getting a loan. If her mortgage broker hadn't been so hard working--she tried 10+ loan products--we'd still be waiting.
Blessedly it all finally worked out....

it's interesting how socially acceptable a second mortgage is these days. we used to talk about them only in hushed tones

On a side note, I am looking into buying a house the next time I am relocated for my job. All together I have ~100k in student loan debt. Do banks look at accumulated debt other than accounting for monthly payments in the back-end ratio and the ding the total debt has on your credit score?

Basically do I have a chance in getting a mortgage in my situation before I waste time saving money for a downpayment:

-Relatively high salary 90k+
-Approx 100k in student and car loans (1.6k monthly payments)
-Fairly good credit score: Estimate 630-680
-Able to put 5% down

I'm not sure how total debt plays into the banks calculation, but it's not a waste of time to save for a downpayment regardless of your immediate plans.

I originate loans for one of the largest banks in the world and work in their North American subprime division. (One of the only remaining players in this unpopular market...) Within the last few months, my company has eliminated the HELOC product in our area due to the inherent risk. Even the tradtional second mortgage is quickly fading with tightened restrictions that make it nearly impossible to receive approval.

I'm sure the policies vary from bank to bank. When I refinanced my mortgage in January, I wasn't asked to provide any more documentation than I did before. They didn't even bother with an appraisal.

Firstly - everyone told us upfront we couldn't get a mortgage in the current climate and everyone assumed our credit was crap.

We had one broker willing to ask questions found out we have excellent credit (me - 810, him 790) and almost a 7% downpayment. Once we had that information we were good to go.

We ended up wanting a new home and they force you to use their lender. Their lender person called us almost hysterical practically yelling at me, saying they never should have approved us purchasing the house. When I finally could get a word in I told her that that was ok, we could use the lender I already had that could do it. Oh, do you have a downpayment she said? After she hung up she checked our credit and then called back, almost excited. So from my experience everyone's knee jerk reaction is it can't be done and they won't even pull your credit or find out if you have a downpayment. This lender only likes to do easy loans but I had a similar experience with other brokers till I could prove I had 1 yes. After that people seemed to do the research to get the loan through.

You might check with the legal eagles on this one, but I don't think that a builder can REQUIRE you to use their lender. I think they can require you to QUALIFY with their lender, but you can borrow the money anywhere. That said, they may offer upgrades or price concessions if you use their lender, which, in my opinion, may walk the line on legality, but is difficult to stop.
Most of the time these "preferred" lenders have worse rates and terms than competitive lenders.

we bought our first home in january...we put down 20% and have credit scores of around 750 each (my wife and I), we had no problems whatsoever getting a loan through our local credit union

I just did a mortgage... 10% down, mid 700's on average credit score, with some debt and income under $100k.

It was a full doc loan and was approved in 24 hours.

I think good loans are out there, but you've got to be able to back it up. Too many people are flat-out walking away from properties... The bank wants a good buffer on the loan-to-value, and strong income to back it up.

I think a HELOC smells like trouble to them. I think, that they think, "What kind of nut is taking more equity out of their house in this environment!"

I'm sure you're not a nut... :)

Student loan debt definitely counts against you, but not in the same way other types of debt do.

Ultimately student loans are viewed as "long term decisions".

Car loans, revolving credit, etc., are considered impulsive loans and would scare a lender more.

Again, I think it comes down to income as much as anything. Find out what your lender's total debt service threshold is... your total payments (including the new purchase) as a percentage of your income, will need to be less than their cut off.

Lenders are blacklisting condos in bubble areas. Private mortgage insurers are as well for all homes there, so forget about anything less than 20%, some lenders even require 25%. Helocs are widely being reduced and frozen, Citbank and Wamu for example, even below 75% as some lenders are in serious trouble. It's tough out there.

Looking at the current situation when there is so many facing foreclosure banks are quite apprehensive about giving loans to people even if they have good credit scores beside they are also not in a good situation as well.

Dan

I just got a mortgage done (close in three weeks) and it was super easy. My credit score is 800 and my only debt is ~9500 in student loans which are locked at 4%. It also helped that I'm buying about 100K less home than I can afford and that I'm putting 5% down (not a lot, but I'm a first-timer).

My broker was actually very happy to be dealing with a borrower like myself who isn't trying to get into a house they can't afford on a flimsy mortgage.

Credit score is just one of the many factors...You can have an 825 credit score, but if you just lost your job and can no longer falsify your loan documents, then you are out of luck. If you have a good salary and a solid credit score and are looking for 100% financing, you to will have some issues as well.

You need to have a solid credit score, solid income and a solid down payment to get a house and it should be that way!

This is the way it SHOULD be IMHO. Long gone are the days where your dog could get 110% financing and say he makes $125K a year.

As far as other borrowing outside of buying a house, I recently got an amazing rate for a car loan and a friend just got a BOAT LOAD from Bank of America in the form of a personal loan at a fixed rate and they didn't request any proof of his documentation!

We just closed on our house on Monday. Our mortgage was locked in back in December and we finally closed the day before it would expire (long story). We have a high income (close to $200k jointly) but we also have debt ($100K in student loans, and $20k in auto/consumer debt). We qualified for a loan of $415k after 3% down, but our credit scores had to be above 680 (we are 690 and 700). However, this was back in December, and part of the race to get everything closed was because we weren't sure we would get approved now. It's scary out there.

What is scary is that someone with that amount of debt you have and the low scores you have can STILL get $400K freakin' dollars!

You make $200K and you have 20K in consumer debt? Why?

Regardless, with what you just told me, I think it is scary that you are getting that much money....

I just closed on a HELOC in Feb. Full doc, signed, sealed and delivered in a week. The bank even sent the notary to my house to sign the papers. I'm pretty sure I had the conditional approval in less than 24 hours.
The bank is Third Federal and it's a $100,000 line. The house is worth somewhere between 275,000 and 300,000 in this market and I owe a little over 55,000. My credit score is 830, no other debt at all and income just under 95,000. Third Federal even had a signing bonus of $225 if I followed through on the application.

Because a HELOC or second mortgage has to wait for the first mortgage to be paid off, lenders are becoming spooked about getting stiffed. See:
http://www.nytimes.com/2008/03/27/business/27loan.html?_r=1&ex=1364356800&en=766a94aa60ae41d1&ei=5088&partner=rssnyt&emc=rss&oref=slogin

Is it spooked or simply operating reasonably?

I wouldn't want to be in second place, on the hook for 20% of a property either...

The market is working things out and correcting itself...Sucks if you have no money, have 16 credit cards, 3 iPods and a fast car, but if you make money, pay your bills on time and save, money will be available to you.

My wife & I are first-time buyers in Chicago. The market here didn't explode like the coasts did, but it appreciated smartly the first half of this decade. However, it's not dropping as quickly either.

I can summarize it this way: it's a great time to shop for homes and a terrible time to shop for mortgages. If you're a first-timer, you don't face the prospect of selling in this market, but you don't have the credit-score benefit of an existing mortgage or down-payment padding of existing equity.

Here's what it's like to shop for houses. New construction? Builders will throw anything and everything in to keep their advertised price. Parking, appliances, upgrades, even fistfulls of gift cards are all available if you're a preapproved buyer. Existing? Not so exciting, especially for condos. These sellers are mentally clinging to prices of two years ago (or perhaps what they still owe). REO properties are a gas. You can buy at a 30% discount off current comps, maybe 40-50% off the recent peaks. We were shopping for 2BR/2Ba units in the Uptown market, but ended up putting an offer on a 3BR/2.5Ba duplex in the same area. It's twice the size of anything else we looked at, and has every upgrade you can think of. Since it's REO, it's AS-IS, and it'll take us at least another $20k to finish, but we'll walk into about $100,000 in equity.

Shopping for a mortgage? THAT'S a nightmare, especially if you earn just above the generous first-timer programs from the city. Lots of people won't even pull your credit until you show them a preapproval letter from another bank. We've got excellent, highly stable income, 680/700 credit scores, and can put 10% down.

Even when you convince them to quote you something, uncertainty rules the day. Underwriting rules are change daily and vary widely from bank to bank. I've got one guy who will write us a 0 down 30-yr fixed, and someone else who won't take less than 25% down on a condo in this zip code. If you think those are confusing, it's impossible to compare rates. Rates have bounced as much as 50 points within a day. You have no idea if one lender says 5.85% is really cheaper than the one who says 6.125% two days later. When you go back to the first, he might be at 6.250%. I've tried to get them to quote me in terms of spread from t-bonds, but those that know what I'm asking for won't tell me (and at least 1 in 3 doesn't even know what I mean).

Finally, I'd just like to share something with "Zook":
Try reading your posts from the shoes of the person you're talking to. Just because you beat off looking at your own credit score doesn't mean you can talk down to everyone. You come off like an insufferable jackass.

Fantastic comments by Michael Blackburn.

I think it says alot that RL only qualified for 415k.$200k annually is very strong income and they have decent credit scores.Two years ago the problably would have qualified for 600-700k even with the debt load.Also,people shouldn't forget that credit score has alot to due with age/age of accounts.A 700 score early in life is pretty good.

They may have qualified for more Steve...Who knows...The fact that they make $200K a year and only have $12K to put down doesn't look all that good...

Michelle Blackburn, you sound like a little lady complaining about getting a mortgage. Welcome to the big people world!

Well I gotta run...My credit score is getting me very excited right now...

I think it says alot that Rl only got approved for 400k. Two years ago with 200 k, which is a very strong income and decent credit scores they would have gotten much more.Even with their debt load it problably would have been 600k plus.

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