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I'm posting under another name as I don't feel comfortable putting so much info. out there with my city-data name and posting history.
We are currently in the underwriting process. I am of the opinion that our loan is not going to be an issue, but my husband came home yesterday and said, "I don't think we'll be approved." His concern is our current spending habits. I don't think our previous/current spending habits matter to the underwriter if the rest of the information looks good, but I have no factual basis for this statement. I think anyone will look at our application and be completely fine with it, but now he's got me worried!
The house amount is $745,000. We are putting $186,250 down (25%). We are doing a 7/ARM jumbo with a 3% rate locked.
Income:
We make in excess of $325,000 a year (my income makes up about 25% of that), not including my husband's bonus, which he has received without fail, the past 13 years. The lowest amount he ever received in those thirteen years was $100,000.
Expenses:
We have two other homes, one has a mortgage of $200,000 (estimated market value right now between $375,000-$400,000). We've owned that home for 10 years. The other home (our primary residence) has no mortgage. I'd estimate its value at about $625,000-$650,000.
We have property taxes combined for those properties at about $19,000 per year. We also have homeowner's insurance as an expense, but I can't recall what that amount is.
We have no other debt, no car loans. We have basic living expenses of food, electric, gas, cable (at one home only) etc.
We will have to alter our discretionary spending. We tend to have LARGE credit card bills (anywhere from $3,000-$8,000 monthly), as we pretty much live our lives using the credit card for everything. This is what is bothering my husband and why he thinks we won't be approved. But we have never, in the past 20+ years, not paid the entire balance off monthly.
Assets: We have a decent amount of other assets. I will go into greater detail if you think it's necessary to answer the question.
Credit score: It hovers between 795-810.
To me, it seems silly that I'm even asking this. Is my husband just being pessimistic or does he have a valid concern?
Lenders have LOTS MORE LATITUDE to be picky when a mortgage applicant is pursuing a very cheap adjustable rate jumbo AND they have multiple properties. The underwriting standards are designed for folks, even in the jumbo category, who have a single residence. That said, based on your basic percentages / scores your loan is not going to "stand out" in a portfolio of secondary market loans and THAT is really what matters...
The funny thing is that if you don't get approved (which might happen as much because of having multiple homes...) I might advise you to seek out a mortgage from a traditional bank that might want to build a relationship with you as you do sound you like you could be a "high net worth client" that many banks to like to pursue BUT if you have expenses that routinely consume a large portion of even your large income you may not have all that much money to invest. The "high net worth banks" have found that their most profitable clients are often people who have their own business and can benefit from consolidating not just traditional retirement-targeted investments but also the sorts of cash management that businesses need, along with business lending for expansion and other types of less common things that folks who just are fortunate to be in worker (or partner) in some highly compensated firm...
You have not shared details on why / how you intend to use three homes but I would caution that even among those with incomes far higher than what you have the on going costs AND EXPOSURE to real estate which is very illiquid can quickly cause serious financial troubles. You may want to rethink your strategy...
Lenders have LOTS MORE LATITUDE to be picky when a mortgage applicant is pursuing a very cheap adjustable rate jumbo AND they have multiple properties. The underwriting standards are designed for folks, even in the jumbo category, who have a single residence. That said, based on your basic percentages / scores your loan is not going to "stand out" in a portfolio of secondary market loans and THAT is really what matters...
The funny thing is that if you don't get approved (which might happen as much because of having multiple homes...) I might advise you to seek out a mortgage from a traditional bank that might want to build a relationship with you as you do sound you like you could be a "high net worth client" that many banks to like to pursue BUT if you have expenses that routinely consume a large portion of even your large income you may not have all that much money to invest. The "high net worth banks" have found that their most profitable clients are often people who have their own business and can benefit from consolidating not just traditional retirement-targeted investments but also the sorts of cash management that businesses need, along with business lending for expansion and other types of less common things that folks who just are fortunate to be in worker (or partner) in some highly compensated firm...
You have not shared details on why / how you intend to use three homes but I would caution that even among those with incomes far higher than what you have the on going costs AND EXPOSURE to real estate which is very illiquid can quickly cause serious financial troubles. You may want to rethink your strategy...
Don't feel comfortable going into the reason why we have three homes but that is something that we have thought about when contemplating this purchase. We will put both of the homes we currently own on the market eventually. One is probably a three year horizon. The other is a five to seven year timeline. At that point, we will pay off the mortgage with the money we make on the sale of those homes.
Even though we have high monthly expenses, many are discretionary. We maximize our 401k every year and have done so since we were in our twenties, so we're living within our means. We have also saved the majority of my husband's bonuses every year.
We are getting our loan through a personal mortgage broker at a large,national bank. We have 401ks, IRA, stocks, money market accounts, bonds, etc. in the neighborhood of $3+ million. The bank we are working with has already reached out to us for private banking but we have not decided whether or not to pursue that with them.
Based on what you have detailed, I don't believe you will have an issue getting approved. Your DTI seems well within limits. I recently blogged about this very subject: The-one-word-that-perplexes-home-buyers
AZJoeD's blog post about underwriting is a good primer, but the OP is facing a different situation -- lenders evaluate folks who have "unusual circumstances" with more scrutiny. The fact that the OP has two other properties is likely to trigger more questions than their spending habits -- basically an assurance that the "discretionary spending" on their credit cards IS NOT being done with Home Depot and contractors that are renovating homes on the side or some other unreported real estate investment, they won't care about fancy lifestyle.
That said there is no reason to "stress out" about the situation. If the lender asks for more details that just means that they want some assurance that there is no plan to run a scam trying to use an owner occupied mortgage to finance a flipping business or rental property. The OP need not detail to us here why they have three homes but if the lender asks they should be ready to give an answer. I personally know that this sort of thing came up for one on my clients who very generously was allowing their elderly parents to live in a home with no rent. The lender verified that and the mortgage was approved.
If the lender finds out that there are unrelated parties living in one of the OP's other homes and /or there is renovation going on that is not the end of the world either, it is more about verification / awareness that nothing funky is going to happen with the new home that is collateral for the mortgage that is now in underwriting -- with an asset base that is sufficient to pay off any debt on the existing home or the newly purchased one it is unlikely that the OP is going to rip off any lender!
AZJoeD's blog post about underwriting is a good primer, but the OP is facing a different situation -- lenders evaluate folks who have "unusual circumstances" with more scrutiny. The fact that the OP has two other properties is likely to trigger more questions than their spending habits -- basically an assurance that the "discretionary spending" on their credit cards IS NOT being done with Home Depot and contractors that are renovating homes on the side or some other unreported real estate investment, they won't care about fancy lifestyle.
That said there is no reason to "stress out" about the situation. If the lender asks for more details that just means that they want some assurance that there is no plan to run a scam trying to use an owner occupied mortgage to finance a flipping business or rental property. The OP need not detail to us here why they have three homes but if the lender asks they should be ready to give an answer. I personally know that this sort of thing came up for one on my clients who very generously was allowing their elderly parents to live in a home with no rent. The lender verified that and the mortgage was approved.
If the lender finds out that there are unrelated parties living in one of the OP's other homes and /or there is renovation going on that is not the end of the world either, it is more about verification / awareness that nothing funky is going to happen with the new home that is collateral for the mortgage that is now in underwriting -- with an asset base that is sufficient to pay off any debt on the existing home or the newly purchased one it is unlikely that the OP is going to rip off any lender!
Thanks. Not flipping and not rental. Appreciate the in-depth response. Also thank you to AZJoeD and his primer on underwriting. Much appreciated!
Location: Was Midvalley Oregon; Now Eastside Seattle area
13,070 posts, read 7,505,741 times
Reputation: 9796
IMO, It's about showing Income.
In the 2000-2008, one could buy a house using liars' loans.
Our story1:
2015, then Retired 65/68. Received inheritance. Own home. Own nonproducing acreage. No debt. Caps on CC of $5k. IRA, Roths, Annuities, Brokerage Accts. FICO 710-740. Taking SS and living on SS. We wanted to buy a rental condo in Seattle near our son, with the inheritance, with 25% down and ring fence the remainder of inheritance for mortgage payment and vessel to receive rental income. Prequalification came to over 4%, 30 yr conventional, with cap of $250,000. We offered cash which the seller jumped at.
Story2:
2017. 67/70. Decided to get a retirement home near to son, Seattle area. Won the bid @$100k over asking, +20%. Ideal for us. FICO =750. Mortgage broker found a lender, giving us cap $325k, 40% down, +4%, 30yr based on our SS, current rental income and rental income on this new condo (which will be rented of 9mn-2yrs until we figure out our current home). We have yet to touch IRAs, Annuities. Liquidated Roths and taxable brokerage accts for the downpay.
We will be taking 1st RMD in 2017, which will be taxed at 25% marginal. We don't need the Income.
We Will be Refinancing after 6 months and within 12 months.
Last edited by leastprime; 08-26-2017 at 05:19 PM..
im no underwriter so I don't know how they would view this
but if this threw your DTI ratios off. why couldnt you pay off your credit card debt? sounds like you have the means. evidence the money trail. use cash/checks for the next month or three. have lender do a credit supplement to evidence the credit cards are no longer a liability.
Location: Was Midvalley Oregon; Now Eastside Seattle area
13,070 posts, read 7,505,741 times
Reputation: 9796
Quote:
Originally Posted by leastprime
IMO, It's about showing Income.
In the 2000-2008, one could buy a house using liars' loans.
Our story1:
2015, then Retired 65/68. Received inheritance. Own home. Own nonproducing acreage. No debt. Caps on CC of $5k. IRA, Roths, Annuities, Brokerage Accts. FICO 710-740. Taking SS and living on SS. We wanted to buy a rental condo in Seattle near our son, with the inheritance, with 25% down and ring fence the remainder of inheritance for mortgage payment and vessel to receive rental income. Prequalification came to over 4%, 30 yr conventional, with cap of $250,000. We offered cash which the seller jumped at.
Story2:
2017. 67/70. Decided to get a retirement home near to son, Seattle area. Won the bid @$100k over asking, +20%. Ideal for us. FICO =750. Mortgage broker found a lender, giving us cap $325k, 40% down, [strike]+4%[/strike] 4.65%, no points, 30yr based on our SS, current rental income and rental income on this new condo (which will be rented of 9mn-2yrs until we figure out our current home). We have yet to touch IRAs, Annuities. Liquidated Roths and taxable brokerage accts for the downpay.
We will be taking 1st RMD in 2017, which will be taxed at 25% marginal. We don't need the Income.
We Will be Refinancing after 6 months and within 12 months.
im no underwriter so I don't know how they would view this
but if this threw your DTI ratios off. why couldnt you pay off your credit card debt? sounds like you have the means. evidence the money trail. use cash/checks for the next month or three. have lender do a credit supplement to evidence the credit cards are no longer a liability.
Assuming this is in response to me? We only have one credit card and the entire balance is always paid off monthly. Supposed to hear from underwriting today or tomorrow.
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