mortgage conundrum #4,000

[swbsam]

I started the process to buy a certain home about 5 months ago.

We're a newly wed couple in our mid-20s, so we don't have a huge nestegg.
We have two accounts:

1. savings that is pretty much untouched, which has five figures in it, to cover down payment/closing/ etc. The amount in this account has not changed at all and was saved (from wedding gifts, etc) for this very purpose

2. day to day checking - very little in it, since we use it to pay bills, rent, and day to day expenses

We were given a commitment letter weeks ago and, now, the under-writer contacts our broker to say that we should have more money in our checking account, and says that they wonder why we're not putting more of or excess away... The implication is that we're spending money like water and now our "commitment letter" feels less so..

The reality is that we were told, months ago, to pay down our debt by our broker. We paid up nearly $5,000, all from our own pocket (and not from the savings account which we don't want to touch), within the last few months to help our case for a mortgage, and now we're getting word that it seems like we'll be a gamble.

how is this fair? Do they not understand that we wouldn't normally spend $5,000 paying down debt if we were not looking to buy a home?

EDIT: "Settle" is a bad word - only one account from back in college was a collection account, everything was current, revolving credit that we were otherwise in no pressing need to pay down completely

 

[MrChad]

How much debt are we talking about here?

 

[spidey07]

You need to have more money in your checking account to show you can make the payment.

 

[swbsam]

Originally posted by: MrChad
How much debt are we talking about here?

$5,000. I'm now mostly debt free (have a $300 credit card I keep for gas and netflix) and my wife only has student loans now (other than a car loan for the cheapest car in the country). I don't view us as a gamble based on our income and our new credit history, but the bank sees our checking account and thinks that we're paycheck-to-paycheck, which isn't fair because of our savings account and debt repayment activity.

In the end, it was good for us to pay down that debt, but now they're looking at us as spend-a-holics, while we were just paying down debt.

 

[MiniDoom]

I just bought a house and keep very little in my checking account. no one said anything to me about it. they did also know about my savings account.

 

[Train]

A single bad account can kill an approval. Bought a car years ago.. I had a stellar record with CC's, student loans, etc. Then they pull up a $40 parking ticket from campus police that was like 6 years old and I never knew about, I was like wtf? thats its? And they wanted to up my APR by 2% just because of the "deragotory credit mark"

Luckily I did a much more thourough scan before trying to purchase an house.

If you have assets in savings.. make sure they know about it.

 

[Genx87]

Move the money from the savings to the checkbook. Idiots probably be fine with that.

 

[swbsam]

Originally posted by: spidey07
You need to have more money in your checking account to show you can make the payment.

I get that, but we'd have more money in our checking account if we didn't blow a ton of cash on paying down debt...

I understand we're risky because we're newly weds and relatively young, but why not tell us this 6 months ago, instead of after we spent money paying down debt and for inspections/appraisals/lawyers/etc?

 

[swbsam]

Originally posted by: Genx87
Move the money from the savings to the checkbook. Idiots probably be fine with that.

I can't, I thought giving them statements for my checking and savings accounts (going back 6 months) is enough, and now that the under writer already looked at my statements, the red flag is raised.

I'll ask my broker if I should just dump a few grand into checking like you said, but I think the question has already been raised.

 

[xSauronx]

Originally posted by: swbsam

Originally posted by: spidey07
You need to have more money in your checking account to show you can make the payment.

I get that, but we'd have more money in our checking account if we didn't blow a ton of cash on paying down debt...

well i wouldnt really say you blew it, but it does suck that since you paid down the debt *now* youre getting a hard time over your balances.

 

[jpeyton]

You're in your mid-20s, what's the rush?

Rent for a few more years, live frugally, and pack away money into your savings account.

Do the 100% down plan. Fuck the bank and their mortgage bullshit; just write a check. Your retirement portfolio will be a lot fatter if you're not making mortgage payments into your 50s.

 

[swbsam]

Originally posted by: jpeyton
You're in your mid-20s, what's the rush?

Rent for a few more years, live frugally, and pack away money into your savings account.

Do the 100% down plan. Fuck the bank and their mortgage bullshit; just write a check. Your retirement portfolio will be a lot fatter if you're not making mortgage payments into your 50s.

You know, we're totally ok if we get rejected (or got rejected months ago!) but had to at least try, because rents where I live are absurd.

We currently pay $1,825 and can afford it, and live plusher than necessary (I really wanted an extra room for an office since I freelance in addition to my 9 to 5, but don't absolutely need it). We could and will downsize if we don't get the house, but rent starts at $1600 for a decent/not rat infested place.

I felt like we spent a year throwing away money and know that we can afford the house, which is a 2 family that we can afford as is but becomes a bargain when potential rent income if factored in...

So, yeah, we will definitely try again in 2 years but tried to take advantage of the current buyer friendly market

 

[Insomniator]

Originally posted by: jpeyton
You're in your mid-20s, what's the rush?

Rent for a few more years, live frugally, and pack away money into your savings account.

Do the 100% down plan. Fuck the bank and their mortgage bullshit; just write a check. Your retirement portfolio will be a lot fatter if you're not making mortgage payments into your 50s.

What... I wonder how long it would take to save 150k+ even living 'frugally'.

 

[swbsam]

Originally posted by: Insomniator

Originally posted by: jpeyton
You're in your mid-20s, what's the rush?

Rent for a few more years, live frugally, and pack away money into your savings account.

Do the 100% down plan. Fuck the bank and their mortgage bullshit; just write a check. Your retirement portfolio will be a lot fatter if you're not making mortgage payments into your 50s.

What... I wonder how long it would take to save 150k+ even living 'frugally'.

150K? Try $400,000 plus.. I love New York but hate how expensive everything is..

Though we're approaching this as frugally as possible, the price we're paying for a 2 family is less than some people pay for a 2 bedroom co-op

 

[Aimster]

u have 5 figures in ur savings account and ur lender is giving u a hard time?
lol ur bank sucks

 

[alkemyst]

Originally posted by: jpeyton
You're in your mid-20s, what's the rush?

Rent for a few more years, live frugally, and pack away money into your savings account.

Do the 100% down plan. Fuck the bank and their mortgage bullshit; just write a check. Your retirement portfolio will be a lot fatter if you're not making mortgage payments into your 50s.

good luck with that.

To the OP without knowing more on the story, it's hard to say. Having 5 figures in savings is better than most and should prove ample reserves. The mortgage company shouldn't care if you are living paycheck to paycheck or not as long as your ratios for the purchase of the home / existing debt are good. Sounds like you have an idiot for a broker that just wants a slamdunk for a better commission.

 

[swbsam]

Originally posted by: Aimster
u have 5 figures in ur savings account and ur lender is giving u a hard time?
lol ur bank sucks

Indeed. To play the devils advocate, 50% of it (or more) will be wiped out since the funds will be used for down payments/closing costs/ etc.

Still, my point isn't that we're not risky - we're in a credit crisis and these guys know better than us, even though I feel that we can completely handle this. The problem is that they should have known this from the get go, not months into the process after we spent thousands following their advice.

The debt repayment bothers me less than the apx 2 grand that's been spent on fees and inspections and.. blah..

 

[Pantoot]

Originally posted by: alkemyst
Having 5 figures in savings is better than most and should prove ample reserves.

It really depends on what the first of those five figures is. 10k might cover the closing costs on a 400k loan, but wouldn't cover a down payment or reserves.

 

[Aimster]

My credit report showed $2,000 in credit card debt, but it was paid off before it ever hit the credit report. My lender never said anything and I don't have anything close to 6 figures in my savings

 

[jpeyton]

Originally posted by: Insomniator

Originally posted by: jpeyton
You're in your mid-20s, what's the rush?

Rent for a few more years, live frugally, and pack away money into your savings account.

Do the 100% down plan. Fuck the bank and their mortgage bullshit; just write a check. Your retirement portfolio will be a lot fatter if you're not making mortgage payments into your 50s.

What... I wonder how long it would take to save 150k+ even living 'frugally'.

Depends on where you live. If you're in NYC or LA, you're part of the rat race. Rent is absurd and so are property values.

But in a good mid-sized city, it doesn't take long at all.

Imagine a pretty average two income household, with each partner bringing in $40k in take home pay; the household take home is $80k. Monthly take home is ~$6600.

Rent in a mid-sized city for a 1 bedroom apartment is about $600/month; you can even get a 2 bedroom for the same price if you live in the suburbs. Because you're living frugally, you already own a nice used reliable automobile (or two). Factor in food ($300/month), utilities ($150/month), clothing ($150/month), insurance ($150/month), etc. ($300/month), and you would barely make a dent in the monthly take home. You would still have ~$5000/month left over.

But let's assume you're horrible at living frugally and you can only pack away $4000/month into your savings. In four years, at $4000/month, you would have $192,000 in your savings account (and even more if it was invested in a good mutual fund). That's enough to buy a nice first home outright, or make an enormous down payment.

Four years of living frugally and saving, or 15-30 years of writing a monthly check to the bank?

 

[Taughnter]

Originally posted by: swbsam
We were given a commitment letter weeks ago and, now, the under-writer contacts our broker to say that we should have more money in our checking account, and says that they wonder why we're not putting more of or excess away... The implication is that we're spending money like water and now our "commitment letter" feels less so..

Is there any way you could be a little more specific about what you mean by "commitment letter"? I only ask because I frequently see people confuse Mortgage Commitments with what I'll refer to as Pre-commitment letters. There are a number of ways it can come up, for example, some people will go to the bank before they make an offer on any real estate, get pre-approved for a mortgage and then go look for a home now that they believe that they have been aproved for a loan. Once you sign a Contract, the bank is likely going to want to appraise the real estate to determine its actual value (and therefore determine if you will have any equity in the property) as well as make the actual determination as to whether your credit is good enough to get a loan for X dollars at Y APR.

Obviously without more info, I couldn't tell you what sort of commitment you have. I did a quick internet search to find you a link that may help explain the difference.

http://soundbiteblog.com/2008/...-real-approval-letter/

Generally speaking, the Mortgage Commitment has ALL details of the loan and is may be signed by someone at the bank. Usually it is not effective until you sign it and return it to them, but in every case there are conditions. If your financial situation changes that can affect it.

The main thing to keep in mind, in my opinion, is that if your loan is not approved, you can probably work with the bank to get it approved. Is your savings account realistically enough to cover the down payment and closing costs? (Generally 20% of purchase price for down payment and I'd estimate 5,000-10,000 in closing costs to be safe.) If it looks like you'll have anything left over you can consider moving some of it, paying points, putting more money down, etc..

If the bank is truly unwilling to work with you here, and I hate to say this but, it seems like you probably weren't going to be approved either way. $5,000 is not really a lot of money when you're probably looking at a 200-300 thousand real estate deal.


None of the above should be considered to be legal advice and is merely my opinion as a person who is relatively familiar with real estate transactions. I'll check back and provide any info I can, but you may want to speak to an expert in your home state (i.e. an Attorney, which you will probably need for the purchase anyway, or a Mortgage Broker). Also, contacting the bank can help at times as well, but ymmv there.

Hope some of this helps.

 

[rsd]

Originally posted by: jpeyton

Originally posted by: Insomniator

Originally posted by: jpeyton
You're in your mid-20s, what's the rush?

Rent for a few more years, live frugally, and pack away money into your savings account.

Do the 100% down plan. Fuck the bank and their mortgage bullshit; just write a check. Your retirement portfolio will be a lot fatter if you're not making mortgage payments into your 50s.

What... I wonder how long it would take to save 150k+ even living 'frugally'.

Depends on where you live. If you're in NYC or LA, you're part of the rat race. Rent is absurd and so are property values.

But in a good mid-sized city, it doesn't take long at all.

Imagine a pretty average two income household, with each partner bringing in $40k in take home pay; the household take home is $80k. Monthly take home is ~$6600.

Rent in a mid-sized city for a 1 bedroom apartment is about $600/month; you can even get a 2 bedroom for the same price if you live in the suburbs. Because you're living frugally, you already own a nice used reliable automobile (or two). Factor in food ($300/month), utilities ($150/month), clothing ($150/month), insurance ($150/month), etc. ($300/month), and you would barely make a dent in the monthly take home. You would still have ~$5000/month left over.

But let's assume you're horrible at living frugally and you can only pack away $4000/month into your savings. In four years, at $4000/month, you would have $192,000 in your savings account (and even more if it was invested in a good mutual fund). That's enough to buy a nice first home outright, or make an enormous down payment.

Four years of living frugally and saving, or 15-30 years of writing a monthly check to the bank?

"Monthly take home" for 80k/year is absolutely not $6600. Likely closer to $4000-4500 after taxes etc etc.

Please let me know where you live to not pay any taxes 🙂

 

[jpeyton]

Originally posted by: rsd
"Monthly take home" for 80k/year is absolutely not $6600. Likely closer to $4000-4500 after taxes etc etc.

Please let me know where you live to not pay any taxes 🙂

Read more carefully. I said the yearly take home was $80k. Meaning each partner earns $40k AFTER TAXES per year.

But even if you earn less (let's say $60k AFTER TAXES per household per year), it doesn't change the scenario very much.

 

[rsd]

Originally posted by: jpeyton

Originally posted by: rsd
"Monthly take home" for 80k/year is absolutely not $6600. Likely closer to $4000-4500 after taxes etc etc.

Please let me know where you live to not pay any taxes 🙂

Read more carefully. I said the yearly take home was $80k. Meaning each partner earns $40k AFTER TAXES per year.

But even if you earn less (let's say $60k AFTER TAXES per household per year), it doesn't change the scenario very much.

Oops my bad, not used to someone describing yearly pay in terms of take home, generally its in terms of gross.

 

[swbsam]

Originally posted by: Taughnter

Originally posted by: swbsam
We were given a commitment letter weeks ago and, now, the under-writer contacts our broker to say that we should have more money in our checking account, and says that they wonder why we're not putting more of or excess away... The implication is that we're spending money like water and now our "commitment letter" feels less so..

Is there any way you could be a little more specific about what you mean by "commitment letter"? I only ask because I frequently see people confuse Mortgage Commitments with what I'll refer to as Pre-commitment letters. There are a number of ways it can come up, for example, some people will go to the bank before they make an offer on any real estate, get pre-approved for a mortgage and then go look for a home now that they believe that they have been aproved for a loan. Once you sign a Contract, the bank is likely going to want to appraise the real estate to determine its actual value (and therefore determine if you will have any equity in the property) as well as make the actual determination as to whether your credit is good enough to get a loan for X dollars at Y APR.

Obviously without more info, I couldn't tell you what sort of commitment you have. I did a quick internet search to find you a link that may help explain the difference.

http://soundbiteblog.com/2008/...-real-approval-letter/

Generally speaking, the Mortgage Commitment has ALL details of the loan and is may be signed by someone at the bank. Usually it is not effective until you sign it and return it to them, but in every case there are conditions. If your financial situation changes that can affect it.

The main thing to keep in mind, in my opinion, is that if your loan is not approved, you can probably work with the bank to get it approved. Is your savings account realistically enough to cover the down payment and closing costs? (Generally 20% of purchase price for down payment and I'd estimate 5,000-10,000 in closing costs to be safe.) If it looks like you'll have anything left over you can consider moving some of it, paying points, putting more money down, etc..

If the bank is truly unwilling to work with you here, and I hate to say this but, it seems like you probably weren't going to be approved either way. $5,000 is not really a lot of money when you're probably looking at a 200-300 thousand real estate deal.


None of the above should be considered to be legal advice and is merely my opinion as a person who is relatively familiar with real estate transactions. I'll check back and provide any info I can, but you may want to speak to an expert in your home state (i.e. an Attorney, which you will probably need for the purchase anyway, or a Mortgage Broker). Also, contacting the bank can help at times as well, but ymmv there.

Hope some of this helps.

Thanks for replying, you seem in the know 🙂

To answer your questions:
1. Our lawyer referred to the letter as the "commitment letter," not the pre-approval letter we got months ago. I haven't actually seen the letter, but have copies of our signed contracts and all of that. Our real estate agent also referred to the letter as a commitment letter, so I assume it's the real deal, not a pre-approval

2. Our savings has enough for closing/down payment/ and then about $10,000 extra

3. If we get rejected we get rejected. I'm more venting than anything, since this has been a long process and I'm more stressed than anything at this point. We were supposed to close, according to our broker, weeks ago and should be spending the last week in June moving. Now we're in limbo and it sucks, but we'll live!