My brother is just in the process of buying his first house. At first everything seemed to be going well, but now things are getting complicated and just don`t seem right.
After shopping around and putting in several offers, he had his fist one accepted a few days ago.
It seemed like he was going to be able to buy the house with 20% down but that number seems to be increasing everyday. Now they are telling him he will need at least 50% down to be approved for his mortgage. 50%? This seems ridiculously high. They say his problem is that he does not have two years worth of credit. But the credit that does come up when he does a credit pull is around 750.
Are they out to lunch? I`ve never heard of needing 50% down. The most of heard is up to 35% and then the bank has enough money to work with if you default on your payments and they have to sell the house. And chances are a person is not going to walk away from 35% of an investment.
The banks make the rules or "He who holds the gold makes the rules". Certain banks require more of a deposit for revenue properties than others. I`m not sure if your brother is dealing with the bank directly or working with a mortgage broker. i suggest that he should work with a mortgage broker. The broker can shop the deal around to multiple lenders and therfore possibly find a mortage at 20% down.
He should definitely work through a mortgage broker.
It is not uncommon for banks to change the rules in the middle of the deal and in your brothers case I would guess they would not be disappointed if he took his business elsewhere.
I would agree with Vince and Greg. The bank is obviously not interested in this deal so you may want to take it to a mortgage broker to see what other options could be available for him.
This is already a mortgage broker and not through the bank. It is his first home. It`s also not a revenue property. It`s his first home to live in. The revenue properties are planned after getting a place to live/home office.
We managed to basically resolve the problem our selves though. He used a co-signer. He now has the option of putting as low as 5% down. He was hoping to get by without a co-signer but that didn`t really seem like an option.
I`m not sure, but I think they were just trying to push him to 50% down because they knew he had that much in available funds. But he doesn`t want that much money tied up when it could be used for other investments.
QUOTE (Opulentus @ Nov 23 2009, 02:58 PM) Looks like I left out some details.
This is already a mortgage broker and not through the bank. It is his first home. It`s also not a revenue property. It`s his first home to live in. The revenue properties are planned after getting a place to live/home office.
We managed to basically resolve the problem our selves though. He used a co-signer. He now has the option of putting as low as 5% down. He was hoping to get by without a co-signer but that didn`t really seem like an option.
I`m not sure, but I think they were just trying to push him to 50% down because they knew he had that much in available funds. But he doesn`t want that much money tied up when it could be used for other investments.
If your brother wants to use extra funds for other investments he should put as much as possible into his principal residence. Then he can set up a Home Equity Line of Credit (HELOC) The bank will give him 80% of the value of the home less what he owes on it. He should make sure he gets a re-advanceable HELOC which means as the mortgage gets paid down more funds are available through the HELOC. Essentially this is aggresively paying down non tax deductible debt and replacing it with tax deductible debt by using the HELOC for investing purposes - a common strategy for RE investors.
