I got a phone call today from a Realtor that I work with, asking me to Pre-Qualify one of her Buyers. This Buyer was working with a Lender that this Realtor had not heard of before, and she did not trust what he was telling her Buyer. Supposedly this Loan Officer had Pre-Approved this Buyer for a No Money Down Loan up to $160,000 with a 6.50% interest rate. Based on what the Realtor new about this Buyer, this “just did not add up”.
Let me start by giving the Buyers financial position:
She is a single person.
She makes $12.00 per hour on her first job, and works 35 hours per week. ($1,820 per month).
She has a second job that she makes $11.30 per hour, and works 12 hors per week ($587.60 per month).
She only has $1,500 in the bank, and no Gift money available to her.
Seller is willing to pay up to $5,000 for closing costs.
Credit Scores are 685. 687, & 663.
She is trying to purchase a Condo:
Purchase Price ………...$117,300
Taxes………………......$1,149 per year ($120.75 per month)
Condo Fees…………….$1,980 per year (165 per month)
Other Revolving Debt….$431 per month
With this information the only loan programs that I have that she could possibly qualify for are My Community or a Flex 100. Obviously between the two My Community would be the program of choice, because it has a slightly lower interest rate and a much lower PMI multiplier.
My Community will allow the Seller to pay up to 3% towards Closing Costs ($3,519). My Closing Costs with zero points were $3,346.81. In order to take full advantage of the 3% Closing Costs I was having her buy .25 point witch would give her a 6.785% interest rate.
Monthly Payment with No Money Down on a My Community Loan 6.875%:
Principle and Interest…....$770.58
This means that we have a Front Ratio of 46.27% and a Back Ratio of 64.172%. With this scenario I got an Approved/Eligible fro DU. If I go over a 65% Back Ratio, DU will not give me an Approved/Eligible. But I am under a 65% Back Ratio so everything is fine. Wrong!!! It turns out that she has only had her present job for 8 months, which means that I can not use her second job towards income. So all of the sudden her Front Ratio becomes 61.209% and her Back Ratio becomes 84.89% no way is this going to work on this a Condo, much less a Condo or House with a Sales Price of $160,000 like the other Loan Officer qualified her for. So this left me more than just a little puzzled as to what this Loan Officer is doing, what was he trying to accomplish besides wasting everybody’s time. The only way that this might ever work is to do a “Stated Program” at a much higher rate, and lie about the income. Unfortunately I see this all to often, and then I hear the horror stories of what happens when they get to the Closing.
I hope she asks lots of questions and looks at the Good Faith Estimate and Truth in Lending REAL CLOSE. I was sorry that I was not able to help her on this purchase, but I will sleep well tonight that I took the time to look at her whole financial situation, and did not mislead her into thinking that she can do something that she can not do. I have also given her advice on what to ask this other Loan Officer before she finds herself in a very unpleasant situation. I will be following up with the Realtor that she is working with to see how this ends up. I hope this Loan Officer doesn’t end up making a monkey out of both of them.
Info about the author:
George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or email@example.com