All Forum Posts by: Jeff Dulla

@John C. you should have the full gamut of options available to you. Cash out refinance will offer the most stable rates and lowest cost long term. You could do a HELOC which may present lower costs to close but higher costs the longer you keep the loan out there. Rates on HELOCs are set to rise quite a bit over the next year and a half. The proper route to take is based off your plans for the home, how long you will keep it leveraged, etc.

@Ravi P. FHA versus Fannie/Freddie is no indication of value. FHA does not mean the value will come in any lower. However - to do an FHA loan in a condo building, the entire building must be approved by FHA. Is that the case for your building?

@Ericka G. When you go through a residential mortgage lender - bank, broker, whatever, what you are typically trying to acquire is a Fannie, Freddie, FHA, VA, jumbo loan. Specifically for what you are talking about, your friend was probably trying to get a Fannie/Freddie loan for the condo. Fannie/Freddie posts guidelines on the make up of a condo building - how many units are investors, percentage owned by one entity, commercial space percentage, etc. If you violate one of those guidelines, the loan is considered non-warrantable - meaning Fannie/Freddie won't do the loan.

Buying an investment property in a building that has an investor concentration of higher than 30% of the units is a major no-no. For that you would need to go through a non-warrantable option. Typically these have high down payment requirements, higher rates, maybe points. 

Lenders/banks are notoriously unorganized. My guess would be that they didnt get the condo questionnaire back from the management company/association until very late in the process. That is why they didn't find out until the very last minute. A solid mortgage lender would do everything they could to get that form back asap in order to review it and protect your interest in the property. 

@Tim Boeving I think a basic way to look at it is aggregate cost of debt. What is the rate on your primary home? Do you know what the yield spread is that was used to calculate PMI (we can back into it if you remember your original loan amount and the $90/month figure)? If you add the two together, is that aggregate rate higher than the rate on your investment property?

That is a fairly simple look at it. You also need to ask yourself what the plan is from here. Do you plan to keep the investment long term? Are you trying to acquire more?

@Ericka G. That is just bad consultation for sure. Misinformation or just ignorance. Also another reason why I would recommend a mortgage banker - so that you have a bevy of options. It may not have helped you because 25% is the lowest I have seen for conforming mortgages on a three/four unit. But it probably would have helped your friend. A mortgage banker would likely have some non-warrantable options at their disposal. 

I am sorry to hear about everything. It does sound like the lender messed up. No idea if you really have any recourse or not. 

@Ericka G. I cannot speak on the legality of any of this as I am not an attorney. But given that I am a lender, maybe I can help decipher whether something went wrong on the lenders end. 

In IL, we have attorneys involved on every deal. People complain about it adding yet another cost but the attorney is there to ensure that contingency dates within your contract do not get blown. So 99% of the time, an attorney watching for contingency dates would not allow a contingency to be blown, putting your earnest money at stake (ideally). 

What exactly did the lender do to screw up? How did their mortgage contingency get cleared? If it was cleared by the mortgage company but truly wasn't clear to close, that is a pretty big issue. 

@Kajal Aggarwal When we spoke you talked about timing. Below is an example of the bond market during that time, highlighted by the green trend line. You can see the bond market continues to sell off during that time frame meaning rates got worse. 

Combine that with the changes in down payment and depending on paying points/not paying points, the rate change seems fair. Not to mention they finished the loan in three weeks. I would bet that the lender quoting you rates at 3.875% couldn't get your loan from start to close in three weeks in order to honor the legally binding contract you entered on the contract. 

You need to do whatever you feel is best but I agree with @Chris Mason. I don't see anything egregious with any of this. You mentioned that you continued shopping rates until almost three weeks from closing and that plays into this as well. The lender you did your purchase with moved very swiftly and to refinance now would be something that maybe isn't "unethical" but I would say it's  unjust/unfair. 

@Kajal Aggarwal When was this? If in the last two to three months, rates have been very volatile. But if she told you she was locking, you should have locked. It sounds like there was some back and forth on paying points, no points, lender credit, etc. 

@Kajal Aggarwal Did the lender who helped you close on the purchase do anything unethical or wrong to you? Did you feel coerced or anything like that? If so then maybe you have an ethical reason to proceed and I wouldn't argue with you at all. 

In my opinion, the new lender offering you that is doing something frowned down upon and at the very least has some karmic retribution coming his/her way. The reality is that if you refinance and close within the first 4 to 6 months after closing on the purchase, the lender who helped you with the purchase will forfeit 100% of the commission/revenue the company earned on the loan. The servicer will come back to them and tell them they need to pay back 100% plus any lender credits. It is a huge deal. And of course the new lender wants you to do it because they are going to get paid a decent amount. 

If you move forward with that, the lender who helped you with the purchase would have been much better off dropping your loan mid process and encouraging you to go with another lender who may or may not have got the loan done in time. 

Hopefully this helps. 

@Michael Masters I have yet to hear of any liquid reserve requirement for Freddie. They may take a discounted figure for your IRA (like 60%), but that doesn't seem like that would be an issue for you as 60% of $500,000 exceeds $200,000. So you should be OK.