Thursday, October 18, 2012

New Rental Mortgage Closing Issues

The closing date for my new rental property is fast approaching, and so far it looks like my mortgage lender may get the deal done after all.  I have been anxious that they may decline my loan request at the last minute.  Few people realize that mortgage loans aren't actually submitted for final approval until a few days before the closing date - once the appraisal is back and the final credit check has been done and just before documents need to be printed.  Until then the mortgage banker is just going on assumptions; the underwriter can always ask for more info or decline a request once they get it.  And of course usually clients are shocked when they are asked for more income documentation or to explain credit checks a mere day or two before closing.  I know all this because I am a banker who used to originate mortgages - at this particular company to boot, my former employer.  So I'm as well aware of all the rules and regulations as anyone, and I'm also aware that balls get dropped and potential underwriting issues are often overlooked until the underwriter points them out or comes up with a weird ratio.  Then it's the poor banker left scrambling to soothe the client and document away the problem as quickly as possible.

My issue is that this new property is vacant, and I can't lease it until I own it of course.  Also I just refinanced my homestead into a 15 year fixed loan. Also I just financed a new car purchase.  And most importantly, 2011 was by far my worst rental cash flow year yet due to large and unusual vacancy and repair costs at one rental (some tenants I evicted trashed the place and later came back and vandalized it again; it was vacant for months while I cleaned up the damage and struggled to re-lease it).  On top of that I just started a new job and they won't count my bonus income until I have 2 years of history with this new firm.

In short, my debt-to-income ratio isn't looking so hot.  But so far they are acting like it will get approved.  I talked to my mother though, and she assured me that she will lend me the money to pay cash for the home if it comes to that at the last minute.  If that were to happen I would just borrow the money from her for a few months - long enough to get tenants in there and pay off my car loan - and then I'd reapply for bank financing.  Even though it would be more costly to go that route (with rate and closing costs), I'd feel better about having a loan I don't have to worry about for 30 years.  I don't want to owe my mom too much money, and I certainly don't want to have a family loan outstanding for that long.

But assuming that I close with the bank on the latest rental, I also am planning to ask her if I can borrow the money to pay off my 6.875% mortgage on one of my older rentals.  She's willing to give me a 4% rate (far more than she's earning on her cash and bonds now), and that would save me several hundred bucks a month on that loan alone.  I have expressed my concern about her lending me more money than she could lend to each of my sisters if we all needed/wanted funds, but she brushed my concerns aside.  She wants the higher interest rate, she wants to feel like she's helping me get ahead, and she swears she could afford to do the same for all of us if we all wanted or needed money.  

So, I'm going to let her.  

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