All Forum Posts by: James Zettelmeyer

Hello, my wife and I will be attending the next meetup.  We are in the market to start purchasing/rehabbing homes and are looking for local lenders or a good national lender that understands Clevelands market.  Does anyone in Northeast Ohio have any good leads on lenders to get started with?  Looking forward to any responses!

The Alta 9.1 is an endorsement to the standard title policy that covers a couple things.  But mainly, at least here in Cleveland, the endorsement can be added in place of doing a site survey as it will basically cover if there are any encroachments found somewhere down the road that a survey would have otherwise found.  Some lenders will allow to just do either the survey or add the endorsement, some will require both.  Just up to the lender. 

Hello everyone,

      Im just starting to get my feet wet with analyzing MFP's and was wondering if there are any sources of sample scenarios, or transactions, that can be used to get the basic understanding of how to read the numbers and what works and what doesn't work.  Obviously you wouldn't be able to get accurate market analysis to make comparisons, especially if the samples are completely fictitious, but some general reference points should be enough to make an educated decision on whether a deal is feasible or not.  Any great sources for this kind of info would be great, thanks!

Ok, Im assuming this property is in Michigan so I cant speak to what title charges are like in that area, but I can tell you other than the title insurance and settlement fee, there don't appear to be any of the normal title charges listed.  There's no endorsements for things such as the ALTA 9.1, no survey (although not always required, especially if there is endorsement to cover it), no county recording fee, no courier fee, no wire fee, no tax stamps, no doc prep, no Patriot Act, theres a few more Im not thinking of right now.  Everything else appears to be there, whether they are accurate (such as prepaids) or not I have no clue, but at least he has something there so Im just taking the assumption he is being honest. 

For example, he has 3 months of taxes for prepaids totaling $500, which means taxes are $167/month, if that is correct then that should be about right.  15 days of prepaid interest would be right if you closed on the 15th of the month, but consider that an open ended charge as it could go up or down depending on what day of the month you actually closed. 

I do not see the VA funding fee (VA's version of upfront MIP) so I don't know if VA is not requiring it (unlikely) or if he just didn't put it in there, so I would ask about that.

Everything else looks to be at least accounted for, but just based on the lack of a complete list of title charges, I would say you're at least a few hundred dollars short.  It could be that he just doesn't have the charges from the title company yet to input them.  If you already bought the house and the contract has a title company that is to be used, make sure the loan officer gets a prehud of their charges and updates his breakdown as this looks incomplete to me. 

My apologies Frank, was checking my phone on this and didn't realize you were quoting Bill. Borrowing money from "Bank of mom and pop", seasoning it and using as a down payment later is definitely loan fraud. Even if the new debt is already reported and included with the DTI, the 4th of page of the loan app asks if any of the down payment is borrowed, if you're checkin' no, you're committing loan fraud. In that scenario, it wouldn't be impossible for an underwriter or auditor to start connecting dots when they see the debt on the credit report was opened 2 or 3 months prior to the loan and then just so happened to have roughly that amount in the bank. That's playing with fire for sure...

Failure to disclose a secondary liability is absolutely fraudulent and there is no argument there. If a lender specifically has a guideline that states gift funds are not to be used for the purchase of an investment property and you season those funds to get around it, thats mortgage fraud. As I stated, if you are talking about a Fannie/Freddie/HUD loan with a lender that has no overlays and therefore allows gift funds to be used, then seasoning of the gift funds is not fraudulent. Part of a conditional loan approval is writing an LOE on recent credit inquiries within 120 days and if any new debt was opened as a result. If debt was opened but hasn't been reported on the credit report and you deny that any debt was opened, that's fraud. If you privately borrow money so that it doesn't show as an inquiry on your credit report or as a trade line and fail to tell the lender about it, that's loan fraud. However, we are talking about gift funds and gift funds are not considered as a liability, which is what I was referring to. If you receive gift funds, which are considered a grant or non repayable funds, you can season it and have it be considered yours and its not fraud (so long as that lender allows the use of gift funds). If you are dealing with a commercial loan, then its up to that lenders rules and you have to play by whatever those rules are. Now, in reality, most people pay back the gift funds out of respect or courtesy, but not as a debt in the traditional sense. Chances are if you personally borrowed money from your parents, you would probably assure them you will pay them back, but that's getting into the grey area of gifting and whether or not its really a GIFT or a liability. There are others way to go about handling gift funds or other assets that aren't sourceable that's also legal and ethical, but as far as Fannie/Freddie/HUD goes, I was just answering the original question pertaining to gift funds. Point is to make sure you understand that lenders specific guidelines so that you aren't doing anything illegal or unethical because no two lenders are exactly alike in what they allow, even on the conforming loans.

The variances in answers you are getting here is the result of overlays versus actual Fannie/Freddie/HUD rules. Perfect example is FHA, where most banks will cap the minimum credit score at 640 or even 660 with a max 43% or 50% DTI, whereas HUD will allow a max 56% DTI and go as low as 580 on mid FICO with just 3.5% down. You can go as low as 520 with a minimum of 10%. Although HUD tightens everything once you drop below 640, point is many lenders, specifically banks will put overlays on these programs as they just don't want the risk that goes along with underwriting to the bare minimum. On the commercial side, its different and you are just dealing with that lenders specific guidelines. But as a far as Fannie/Freddie/HUD goes, the seasoning guidelines are there for a reason, you season money for 60 days and now its considered yours. Often times, people will have cash stashed away in a tin can at home. Even though they can tell me as the loan officer, or the underwriter, that it was HIS cash in that tin, there is no way he can actually prove it. So if thats' all he's got, he'll have to put it in the account and let it season for 60 days. Since there is almost no way to document large cash deposits, they put the rule into place because as far as they are concerned, it COULD be his money from a tin can, or it could be from his uncle, or maybe he robbed an ATM machine, who knows. So, despite all the possibilities of where that money could have actually come from, they have decided that having the money in the account for 60 days is long enough to consider it his own funds for the use of a purchase of a property. Its a common issue we run into a lot where a client got a bunch of money from a relative before speaking to us about how to properly source it, or maybe they just got married and deposited all of their wedding money, or maybe they sold their car for cash to a buddy and did it all under the table so they dont pay any taxes on it, etc. Whatever the case may be, once those funds are fully seasoned, Fannie/Freddie/HUD considers those funds to be YOUR funds, regardless of how you came across it(within reason, meaning it was acquired legally). So, assuming a lender has no overlays and goes by the letter of the law, depositing a cash gift into your account and seasoning it for a full 60 days is not fraudulent and is something that is done on a regular basis for a reason because that's what the rules allow for.

Moral of the story here, talk to the people who live on the street you are interested in buying a property on.  They will know if the area itself is safe or if the next street over causes problems.  Suburbs are a lot more consistent, but if you are in or near the city limits, the more important it is to start talking to neighbors if you are unfamiliar with Cleveland.  I lived in Tampa for 5 years and one thing I noticed is its rare to have those neighbors that have lived in the same house for 20 or 30 years, whereas in Cleveland, you can find at least a few people on a given block or street that have been there for years and have seen the transformation of that area, good or bad.  So talking to those people will probably give you the best info.  Just ask someone if they know of any neighbors that have been in the area a while and they will know who to send you to. 

I agree with Matt in regards to those areas.  Another thing to keep in mind, if you are looking to buy and hold, areas such as Cleveland Heights, University Heights, Shaker Heights, Beachwood all have very high property taxes so its going to eat into your cash flow a good bit.  I know a lot of guys buying, rehabbing and flipping in the Cleveland Heights, University Heights areas as the city is generally a good area to raise a family (except some pockets which are really not good areas) and there still are plenty of homes to be found for good prices the can be cleaned up and sold for a good profit.  If you move further out such as Mayfield Heights, Lyndhurst, Parma, Bedford, Euclid, South Euclid, you will find the taxes are a bit more manageable.  Keep your eye on Little Italy as its a little pocket of town that holds its value really well because of its history and culture, yet because its in the city of Cleveland, the taxes are low (in relative terms) and its mostly multifamily homes.  It brushes up with some rough areas but given its strong Italian Heritage, the town does a good job of keeping the unwanted out.  Im doing a loan for a client on 6 unit right off the main strip and even at $200k, the taxes were only about $100/month and its a high demand area so there's really good cash flow for a 6 unit. 

On the West side, the Tremont fad I would say is already in full swing as you can make the argument that it was part of the beginning of the resurgence of the West Side in the last 5-10 years.  Prices are already up and with Ohio City and West 25th coming along, it's still growing but kind of hitting a wall because other options are opening up for the yuppie crowd.  You should also look at Gordon Square and the Battery Park area.  Those are upcoming areas that were kind of hidden gems that have seen good development but not much publicity.  However, the city has been doing a major redesign of the shoreway/Rt.2 which runs just north of Gordon Square, and right now they are knocking out a huge hole in the bluff that used to separate Gordon Square from Rt. 2 and they are adding a whole new entrance/exit which will allow direct access to the area right off Rt. 2.  They just finished the over pass for that entrance and it has GORDON SQUARE in huge letters so I would say that's pretty good publicity.  Most importantly, on the other side of Rt. 2 is Edgewater Park which is the only beach in town (Cleveland proper) that's about to get a 1.5 million dollar beach house.  So basically if you live in, or near, Gordon Square, you can walk out your front door, get on your bike and be at the beach in about 5 minutes.  Crime is a drawback though because of its surroundings, however, I drive through there every day for work and not a day goes by where you don't see hang gliders, para sailing, SUP boarders, dogs, runners, bikers...  Its a very active area that the Metroparks have really transformed in recent years....

Anyways, that's my 2 cents....