Am I Missing A Rough Jewel In This Deal Gone Bad?
I was to close on a HUD foreclosed SFR this month, but will more than likely not as the lender will only fund 95%, and I was approved for 100% but now that it came time to process the contract, the mortgage broker says my debt to income ratio is too high for 100%. SInce June when I was pre-approved for 100%, my financial picture has not changed at all. Nothing! He had all the information then andhas the same info now!
So, I allocated funds for another project now, funds I had set aside for RE investing so I can only fund the closing costs. I offered the contract for assignment to my RE club but no takers. I even offered to take in a partner and no takers either. I cannot get the 5% down either at this time as I am tapped out and would lose holding costs, rehab $ and such. Am I missing an opportunity here for another avenue? This was to be my 1st deal so I am not seasoned.
Here is the deal, in a nutshell:
$85K contract price
$105-108K comps
Leg work and negotiation done
Needs literally less than $1500 work, mainly cosmetic
In a growing area here in Hutto, TX, a Home Depot is just about to open as the 1st major anchor store in the 1st plaza for the town.
I know the equity is small, but I was intending on holding as a rental or L/O. I put $1000 earnest cash down and will probably lose it if I don't close. We already tried and HUD will not raise the contract price to include the closing costs, as I would've used the cash I have as the DP. I put the cash up because I thought I had 100%LTV, as that's what my pre-approval letter says. That's another point of confusion for me too.
Any thoughts are welcomed! :-?
[addsig]
You shouldn't lose your earnest money because you were not able to obtain financing. I'm sure your purchase agreement has that clause.
It looks like a good deal.
There MUST be a way you can make it work.
Is there any way you can borrow 5% (around $4K)
Can you get owner to carry this amount?
Are you buying thru a realtor or directly by owner?
When is the close of escrow supposed to take place?
You can also find a tenant/buyer and use the option deposit for a down-payment.
Hope you will make it work.
Alexander.
[ Edited by reinatalie on Date 09/04/2004 ][ Edited by reinatalie on Date 09/04/2004 ]
Know that preapprovals are worthless documents. Only a loan commitment from the lender itself has some weight...
You should get your earnest money back and don't worry--you only had a marginal deal here anyway if your plan was to simply retail it.
Well, let's first start with the advice that has been given.
)
You WILL lose your earnest money if you do not close the deal with HUD. There contract specificly states that a preapproval letter or proof of funds letter is required before the offer will be accepted. In short, there is no financing contigency.
reinatalie,
The owner is HUD. They will not carry a note, and there is always a real estate agent involved with a HUD foreclosure sale. Finding a tenant will be hard if you aren't able to show them the property. HUD frowns upon the buyer making improvements before the sale, and I doubt that you'll get too many tenants putting down an option fee on the hopes that the property will look better before they move in.
Now, on to your problem.
First, sit down with this lender and find out what has changed that is preventing you getting the 100% as promised. This may still be an issue that can be resolved, but you'll need to know why they suddenly can't, or won't do it. Make sure that you talk to the decision makers, not just the loan officer.
If this is a mortgage broker, as if they will reduce their commissions/fees or hold a note for them shortterm in order for you to close the deal. Afterall, it's their backpedaling that is causing the problem, and they won't get anything if you don't close.
Don't wait. Find another broker/lender that might be able to pull this off. If you got one to offer 100%, then there is another out there.
You likely won't get a partner or a buyer because this deal is too thin for that. However, you might be able to get someone to loan you the money short-term. Probably have some stiff terms, but the access to the money is key.
Finally, have you truly exhausted all of your possiblities with getting the money. Do you have a credit card with that much available? A car that you can refinance? Anything that you can sell? Any equity in your home? Look around and you might find some more creative ways to come up with the cash (legal, no robbing banks, okay
Roger
Roger,
Good post!
I ran into a similar situation awhile back. My credit is great but my debt to income ration was just barely over the required mark. I ended up doing a refi on my vehicle and pulled out some equity in that. I then used the equity I pulled out to wipe out my student loans. The new lower payment on the vehicle and not having a payment on the school loans put me just below the acceptable debt to income ratio and the loan went through. Of course, now I'll be paying on my truck for 7 more years but the money I'm making on the new property is paying it for me.