You Can't Steal In Slow Motion-Real Estate Deals Wait For No One
BATTLECALL GUEST EXPERT: Dale Rogers,
BrokenCredit.com
Charlene and her daughter Tanya wanted more out of life than their small two
bedroom one-bath apartment could provide. Tanya had been begging for a cocker
spaniel puppy for two years now. Apartment rules would not allow a dog. The
laundry facilities were downstairs and at the far end of the building. Laundry
tended to back up until the weekends when at an odd hour, in order to schedule
an uninterrupted couple of hours as to avoid the rush on the washer and dryers.
Many times the dollar changer was out of change.
So upon leaving work, Charlene would need to make a special trip to the bank
to load up on quarters. She had her paycheck direct deposited so this was a real
pain. Anyway, with thin walls sleep was a real luxury and many a night, in spite
of complaints to management, she got little sleep. Last week, someone had broken
into her car by breaking her window and stole her radio. How no one had seen or
heard the commotion was amazing. The police theorized that the thief must have
wrapped something around the striking tool to blunt the sound. Insurance only
covered a part of the loss. The apartment scene was really wearing thin on
Charlene's last nerve.
It was 6:00 AM and the fun was about to begin.
Tanya, being in the fourth grade had qualified for a special magnet school with
advanced studies but was almost an hour away. They would have to leave no later
than 7:00 AM to arrive at the school and allow for time to get to work.
Work was going fantastic for Charlene. With a base salary of $36,000 at
a local well-known health maintenance company which allowed Charlene to make an
additional $50,000 in sales commissions. Charlene had been rewarded with sales
awards for performance for the past two years. With the divorce and protracted
child custody issues, Charlene's credit had hit bottom. Chapter 13 bankruptcy
had been considered, but with the great years at work, Charlene pleaded with her
creditors to set up a payback program so that she could dig out of the deep
financial hole.
In mediation, Charlene had made a deal in the custody that her ex-husband
would keep the house but would relinquish his battle for full custody.
Demetrious, her ex-husband was slow on the mortgage payment, and further put
Charlene's credit rating under attack. Eighteen months ago, Charlene went back
to court to enforce the property settlement where her ex-husband was to
refinance the mortgage and get Charlene off the mortgage obligation. Demetrious
was fighting this as the rate on a B/C subprime loan with six thirty-day lates
was going to be 3% higher than the sweetheart loan he had. The judge ordered him
to make it happen.
It had been fourteen months ago since the mortgage
obligation showed a paid status on her credit report. It was a tough road
rebuilding Charlene's credit but she was getting close to getting things paid
off. She had not been able to save anything due to the credit payback plan.
Demetrious had run up a lot of the credit card debt, but Charlene was fully on
the hook for it as they were joint accounts. Charlene and Tanya felt like they
were getting close to making big changes.
Charlene had been attending a
Home Buying Clinic sponsored by her church for the past year. Fortunately,
childcare was available at the church during the three hour sessions. Tanya was
able to do a little studying as well in a far corner of the large room.
Budgeting, credit repair, together with the home buying advice was all being
discussed. Charlene had been doing well on her plan, but her middle credit score
still hovered around 570.
At the last meeting Mr. Wilson discussed many of the opportunities to buy a
home with creative financing. Charlene pressed Mr. Wilson for more details.
Charlene asked Mr. Wilson, who happened to be a Real Estate Broker and a
Mortgage Broker, if that might work for her. After class, Mr. Wilson took
Charlene's information and shared with her that she may have a shot at doing
something right away. Charlene went on to explain, she wanted to get something
closer to work and to Tanya's school.
Mr. Wilson said he would call
tomorrow with some possibilities. Charlene had already shared with Mr. Wilson
that she needed a minimum of three bedrooms, two baths with a large garage and
fenced in back yard in the area previously mentioned.
At work the next
day, it was 10:00 AM and Mr. Wilson was on the line sharing with Charlene that
he had identified six vacant home in the area with some good sales pressure on
the seller to do something ASAP. Mr. Wilson had called each listing agent and
explained that he had a qualified buyer and went on to share that if the buyer
paid the listing price inquired whether the seller would pay all the closing
costs and prepaids AND would hold a 5% Loan To Value second mortgage. Charlene,
with her credit score and history could get a 95% Loan To Value loan.
Four turned Mr. Wilson down flat. Two owners indicated through their
agents that they may have an interest. There was a three and a four-bedroom home
available. Charlene looked at both of them and preferred the four bedroom as it
would allow for an in home office and a separate bedroom for her mom when she
visited from out of state. Tanya was excited with her room and large yard. The
owner had left a washer and dryer. No quarter slots were visible. Charlene asked
Mr. Wilson if he could make this happen. Mr. Wilson emphatically yes. He went on
to explain if not this one another one in this soft real estate market. Mr.
Wilson asked Charlene if she wanted to think about it. Charlene said no, let's
do it, now. Mr. Wilson wrote up the offer on the spot.
The list price was $245,000 with taxes of $3,500 and insurance of $2,400. Due
to the 570 credit score and past history, the new mortgage would need to be a
subprime B/C loan with a 2years fixed at 8.75% then becomes adjustable for the
next 28 years. The first mortgage of $232,750 at 8.75% would give a payment of
$1,831.05/month. The seller held second mortgage would be $245,000 x 5% =
$12,250 with a rate of 9.0% on a 10 year term and a three year balloon would
have a payment of $144.18/month. The total payment then would be $1,831.05/month
on the first mortgage + $144.18/month on the 2nd mortgage + $291.67 in taxes +
$200/month insurance with a total payment of $2,466.90/month for principal
interest (on both loans) and taxes and insurance.
Charlene's gross income of $7,166.67 verifiable over a two year period with
current year to date income indicating the commissions continuing and now with
minimal debt her debt to income ratio to qualify for the loan was calculated at
$2,466.90 PITI + $350 debts = $2,816.90/$7,166.67 = 39.30%. The lender guideline
was at 50% Debt To Income Ratio. Charlene had made her rent on time for the last
12 months and although her payment shock was $1,400 higher per month over the
rental amount, her fully documented income more than demonstrated the ability to
repair. The seller accepted the offer with a three week closing.
Charlene had to write a Letter Of Explanation (LOE) explaining what had
happened in the past for her credit problems and what she had done to turn it
around and have given it to Mr. Wilson to share with the lender underwriter. Mr.
Wilson explained with a good two year mortgage history and other good credit
payments that her score would go up and on the two year mortgage anniversary he
would be able to seek a much better rate and a lower payment through a rate and
term refinance. Mr. Wilson explained the area would experience some appreciation
even in the current soft market.
The listing agent had called Mr. Wilson
explained the owner was moaning about the fact that two other offers had come in
slightly less than the list price without the benefit of the owner holding a
second mortgage. Mr. Wilson shook his head confirming once again, deals wait for
no one.
It was moving day. Charlene and Tanya left the apartment for the
last time and met the movers at the new home. Charlene put the key in the door
and pushed it open to view her new home. Charlene picked up Tanya with a big hug
and swung her around with her legs flying in the air for three full turns. Big
grins were plastered on their faces. A door slammed and Charlene and Tanya went
back to the door. It was Mr. Wilson. He had a box with him and a huge smile. He
knelt down to Tanya and slowly opened the box. It was a six-week-old cocker
spaniel. Charlene, put her hands over her mouth to conceal her joy and just
nodded in Mr. Wilson's direction and said, "thanks for everything Mr. Wilson.
Thank you."
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