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Interesting Home Loan Event


brian128
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I have a question about mortgage practices that I hope someone can help me with.

Background: 29yo, never owned a home, never rented, STILL with live with my parents. I make $32k a year. Been on current job since March; previous job for 3.5 years; in the same field since ’99. Have $4k in a checking account with Chase. Have $20k in IRA with Chase. Have student loans at $140 a month (alas, no college degree of any kind) paid on time for 2 years. Have auto loan at $320 month paid on time for 7 months. My current scores are EQ: 505, EX: 509, TU: 619 (see my other credit question for more info on my credit history).

Problem: I first applied for a home loan with Chase in July. They already had access to my bank and IRA records (I was planning to use 10k from my IRA as down payment/closing costs) so I provided them with pay stubs, W2’s, gave them the amount of debt that I owe ($320 auto, $140 student), and all the other info that they requested. Based on that info, they gave me a loan about around $90k for my ‘pre-approval’. I signed papers and sent them back. Due to a family member’s death I was unable to do anything about it finding a place till August. At that time I had to re-submit my application because my first one expired. I updated my info with them and they gave me another ‘pre-approval’ (both times where in a packet of info with detailed monthly payments and in writing it stating pre-approval) for around the same amount. Again, signed papers and sent them back. As difficult as it is to find a place for under $100k in the west burbs of Chicago, I actually found one that was in ok shape. I went back to Chase and told them to send my loan application to their underwriters for final approval. I received a letter in the mail from Chase denying my loan 5 days later. The reasons are’ in this order:

1. Insufficient income for loan amount requested.

2. DTI too high (my DTI at the time with auto and student loans and estimated mortgage would have been at %55, %1 above their cut off).

3. Insuffiecent credit history.

I called my loan officer back and asked what and how could this happen. To me all three reasons were very serious reasons to be denied a loan. Any one of them should have been a red flag in the pre-approval stage, especially the first reason considering Chase told me how much of a loan I can qualify for based on my income and debt. She called me back a day later and told me that, yes I was denied by these reasons and that given my situation, I could not possibly qualify for any type of mortgage with Chase anytime soon without serious changes to my income or credit reports. Based on that, I asked how was it even remotely possible for me to even get ‘pre-approved’ then, not once, but twice? She said she wasn’t sure and passed my problem on to her boss. Her boss called me back a week later and told me that I never was ‘pre-approved’ either time. I received a ‘pre-approval pre-agreement’, which according to her, was a pre-approval for a pre-approval. I told her that this doesn’t make any sense, and that my packets stated ‘pre-approval’. She said that I was incorrectly misinterpreting what ‘pre-approval’ meant and I will not be getting a loan.

Does any of this make sense to anyone? Is there such a thing as a pre-approval for a pre-approval or is this Chase trying to cover their a$$ because they screwed up BIG time with me? Because of all this and the fact that I already found a place, I went franticly to several other mortgage brokers to get a loan. After being turned down 3 times, I found one that said yes, but my monthly payment was more than I make in a month. So in the end, not only do I not have a place to live, I have numerous credit inquires on my credit reports and I am worst off now then I was before I started. If there anything I can do about this or about Chase? I feel after they screwed me like this, they should give me the loan as promised, both times. Not that it would matter anymore considering as of this week, there are NO places for sale under $100k anymore.

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I'm sorry to hear you've been nailed by an unscrupulous Mortgage Originator.

There is no such thing as a pre-approval... Its really pre-qualifying which is basically worthless.This is a throw back to years passed when Banks actually did pre-approvals.

A pre-approval/pre-qualification is always subject to so many provisions that most courts would be reluctant to hear such a case.

There is no legal recourse here unless you're rich and want to have fun fighting in court over nothing. (I would write a letter to the CEO of Chase to get the employee in trouble and maybe some better training...)

The answer is don't get even- get ahead. These days, most people have to almost become their own loan officer and run all the numbers BEFORE they ever walk into a Bank to apply for a loan. Sign up for and bring your own credit report with you when you interview someone who wants to originate a Mortgage loan for you. DON't let them pull your credit UNTIL you are ready to sign on the dotted line with them - If they don't like it - go see one of the other 100,000 loan officers in your area.

Learn the requirements for buying a home, squeeze your monthly budget and get that additional 1% off your DTI ratio. By the time you are ready, housing prices will have fallen 5-15% and you'll qualify for what you want.

You can get rid of the inquires through Bumpage. Search the forums for a bunch of posts on how that is done.

Your insufficient credit history is because you live with mom and dad. You must have a 2 year rental history for a residence (Apartment) before most A credit mortgage programs will believe that you are resopnsible enought to pay a mortgage, (as a rule.) If you want to stay with mom and dad then you need a notarized lease and cancelled checks showing on time payment and the bank statements from mom and dad proving they deposited your checks and they might require tax returns showing mom and dad declared the income. This is still not optimal but it can work with some lenders.

Good luck.

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I totally agree with you on these Pre-approvals/Pre-quals. I only give a loan approval. Good for 45 days. And I give them because the lender gave me an approval.

Great advice on rental history. PAY BY CHECK and pay your bank the extra to get back either copies of the canceled check or the "image check". If they don't have this, go to a bank that does. Yes, there are ways around this. If your scores are high enough, a letter from your parents will work. Also if you live in an apt complex etc, you can get a letter, but for something as important as this, I would not trust that part of the loan process to anyone. I know of one instance where the apt complex was sold, and the old files trashed, and the renter had a big problem.

To recap, get into the habit of paying your parents at least 2/3 of what your house payment would be, and yes have them cash the check promptly. Then when you are ready to buy your home, your parents can give you the money to help in the purchase.

Now, for the "pre-approval" from Chase. This was a stupid thing for them to do, your scores do not qualify for their programs, and they should have told you so.

Now, to get your scores up. Get 3 credit cards. There are links on this site on where to get them if your bank does not want to work with you.

Credit scores are a reflection of your credit history, so you need to develop some good credit history.

I feel bad that you had this as your first experience with getting a home loan. But you have learned a lot, and it will be better next time.

Charles

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  • 2 weeks later...
Learn the requirements for buying a home, squeeze your monthly budget and get that additional 1% off your DTI ratio
Since this incident, I have done alot of research about the home/loan process and I agree that I do not qualify and should not have even gone this route. And as for reducing my DTI, this is an impossiblility. My only debts are my car loan of around $14,500k left and my student loans of about $10k left. I need to have these montly payments to have some kind of a credit history. Also, even if I cash out my IRA (around $19k now), minus taxes and penalties, I could not payoff the car loan. I might be able to pay off the student loan (which right now is my oldest trade line at 2 years) but I will have then liquidated all my assets and my downpayment for a place. My montly income will not increase anytime soon if at all (I already make the max amount of $$ for my field). A Part-time job will be out of the questions because I work alot of overtime and need the flexability. So I dont see any really option here, I am stuck with my current DTI
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Your insufficient credit history is because you live with mom and dad. You must have a 2 year rental history for a residence (Apartment) before most A credit mortgage programs will believe that you are resopnsible enought to pay a mortgage, (as a rule.) If you want to stay with mom and dad then you need a notarized lease and cancelled checks showing on time payment and the bank statements from mom and dad proving they deposited your checks and they might require tax returns showing mom and dad declared the income. This is still not optimal but it can work with some lenders.

Well, I live at home for two reasons. First, due to lack of credit/renters history, I can't find a place to live on my own (or with someone else) and second because my parents need me around the house to help them out, they are up there in years and have serveral medical issues each. As a result, they have never charged me rent as I help them out financialy with bills when they need it (a major reason why my savings isnt as much as it should be as I have given them alot of money each year). So I do not have a history of cancelled checks showing any kinds of payments with them ( I almost alwasy gave cash or just did an online transfer since we had the same banks. I am not on their lease either due to the fact that they have and a history of slow payements and did not want any future problems to affect me.

The MAJOR problem I have (which is the real reason for this posting and my other credit posting, is that my parents need more help (medicaly) than I can offer them and they will need to be moving into a assisted living center soon. The current lease is up end of this May and they are planning to go into one by then (I already know that they are in touch with a couple centers and have visted them already). So naturally, I need a place to live as I cannot live with them in the center. This is were my problem lies. I have almost zero time to build any kind of a history before I need to have a place to live or I am homeless. I have also contacted our leasing office (it's a small complex privately owned) and they were willing to possible help me out in some way provided my current credit situation did not change for the worse, but as of the 1st of this year, the complex is under a new ownership by a large corporation and after discussing my problem with them and what the previouse owners where going to do, they said that since I do not even come close to meeting their requierments, that they are not going to do anything for me. So I am in a real pickle.

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Now, for the "pre-approval" from Chase. This was a stupid thing for them to do, your scores do not qualify for their programs, and they should have told you so.

I agree with you on this now that I understand credit and the loan process better. But why would they do this, not once, but twice? How could this possible benifit them to just 'play' with me? Why would I ever want to do business with them again or are they banking on the fact that in my situation will never improve and I am someone they never want to do business with anyway?

Now, to get your scores up. Get 3 credit cards. There are links on this site on where to get them if your bank does not want to work with you. Credit scores are a reflection of your credit history, so you need to develop some good credit history.

Well, I would like to get my scores up and get credit cards, but that is easier said than done. I CANT get ANY credit cards, let alone 3! (see my other posting about my credit situation). I know I need a history which is something that only time can provided and time is something I am out of (see above reply).

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Thank goodness you are discovering all of this at age 29 instead of when you are older. I think that it is wonderful that you have been helping your parents. They need and needed you, and the memory of how you treated them will be more important than your living arrangements for the next year.

My suggestion of a "game plan" is to get your own apt. or place to live. Have your parents write a Letter of Explaination (Now so you have a record of this-in case something happens to them) just stating that you have lived with them since ___ date, and helped them financially in lieu of paying rent. Keep your rental checks. VERY important. Your student loan and car payments being made on time will improve your scores. Take some of your assets and find a bank or credit union that will report your credit history to the bureaus, and arrange a secured loan with them.

There is a credit card-limited I know-that flashes a banner above that will help you get a trade line established.

This is not easy, but in a year you can begin ownership of your new home. It can be done. I have seen it done many times over the years.

Blessings will come to you because of the way you have treated your parents.

Charles

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Based on my situation, bad/no credit/no renters history; and income level, around $32k, is there any goverment services that I can try like Sec. 8? I am pretty sure that I don't qualify for Sec. 8 becasue I make too much.

Heh, here's a thought, would I be better off finding a different job that pays LESS so that I would qualify, just so I can get a place to live? I wouldnt want to do this unless I have no other option. Though I am not sure if there is a program that can help me, does anyone know?

Also, as I stated earlier my DTI level of 55% is fixed, I only have two debts that I am not able to get payed off if full, auto and students loans. In my situation, would I be better off cashing in my IRA, taking a penalty, so that I MIGHT be able to get rid of my student loans to bring down my DTI? This will completely liquidate ALL my assets!!! I know there is no point on thinking about saving my IRA for my downpayment on a home purchase, so is this a better option for me?

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Here is another thought on your situation. Let's say that there was a lender that would give you a loan based on a 55% DTI (and there are some). That means that of every pre-tax dollar, .55 goes towards bills that are reported on credit reports and your house payment including taxes and insurance, etc. . You tax bill is probably a real 30% range, so that means that you are left with "discretionary income" of 15% of what you make. So you will have roughly 280 after taxes per month for all of your other costs. Car or transportation, food, clothes, everything.

My feeling is that you would be putting yourself in a situation that would be a very difficult one.

I know that you don't want to rent, but that is still my suggestion. Rent an apt for a year or so. Work on getting establishing a credit history. By this I mean keep copies of all of the payments you make to anyone on a regular basis, ie cell phone, etc.

Lastly, get an estimate of what your house payment including taxes and insurance might be-at a 55% dti - and put the difference between that and your apt rent into a savings account. At the end of the year you will know how much you can comfortably spend.

I know that this is not what you want to hear, but I want to encourage you to keep your goal of home ownership alive, and work towards it.

Charles

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Here is another thought on your situation. Let's say that there was a lender that would give you a loan based on a 55% DTI (and there are some). That means that of every pre-tax dollar, .55 goes towards bills that are reported on credit reports and your house payment including taxes and insurance, etc. . You tax bill is probably a real 30% range, so that means that you are left with "discretionary income" of 15% of what you make. So you will have roughly 280 after taxes per month for all of your other costs. Car or transportation, food, clothes, everything.

My feeling is that you would be putting yourself in a situation that would be a very difficult one.

I know that you don't want to rent, but that is still my suggestion. Rent an apt for a year or so. Work on getting establishing a credit history. By this I mean keep copies of all of the payments you make to anyone on a regular basis, ie cell phone, etc.

Well. there are two problems with this. First, I have tried to rent before in the past and recent past. I was denied each time due to lack of credit and renter's history. Two, I cant get credit!!! God knows I have tried enough times and places. So my next step was to look at buying a place. You hear about bad credit mortgages and bankuptcy mortgages all the time, so I figured what do I have to lose? I should be better off than someone who went bankurpt! But as I found out, it is better to have been bankupt wiht bad credit than to have no credit at all.

What about my section 8 question? Thanks!

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I really don't know much about the Section 8 programs. I think that they work from income near the "poverty" range, but not certain. I did some research few years ago (Isn't the web wonderful?) and remember that no only does this apply to rentals, but there was a program for purchasing also.

I will look around this weekend to see if I can find that info again.

Charles

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  • 1 month later...
Well. there are two problems with this. First, I have tried to rent before in the past and recent past. I was denied each time due to lack of credit and renter's history. Two, I cant get credit!!! God knows I have tried enough times and places. So my next step was to look at buying a place. You hear about bad credit mortgages and bankuptcy mortgages all the time, so I figured what do I have to lose? I should be better off than someone who went bankurpt! But as I found out, it is better to have been bankupt wiht bad credit than to have no credit at all.

What about my section 8 question? Thanks!

Try looking for a private individual to rent from - check your local newspaper for possibilities. Before we were home owners, we rented from several that did not pull a credit report. An individual would likely more understanding too about your lack or rental history. You could also possibly look at ads of those looking for roomates. There are some that will rent out rooms in their home for a portion of their rent/mortgage. If you go this route, be sure you can get some sort or written receipt each month or keep copies of your rent checks as you made need them to qualify for your home loan in the future.

Nearly anyone can get a secured credit card to help build credit history. Try Capital One, Orchard Bank, etc... Do a search on these forums and you'll find more possibilities. Worse case scenario - you will have to secure the account with an amount equal to your new credit line. $300 towards savings account = $300 credit line. You will NEED to get some sort of credit history established if you want to buy a home so I would recommend you do this ASAP.

Finally - Section 8 is a program for families with very low income or those with disabilities

http://www.hud.gov/offices/pih/programs/hcv/index.cfm

I believe the current single (1 person) poverty level defined income is 12441 so you defintiely wouldn't qualify.

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