July 4, 2010 | It was all going so well. Too well.
Before I even started looking for a house, I began investigating options to finance the transaction. In a nutshell, I have more than enough assets to simply pay cash for a house in the price-range I was looking at, but I didn't really want to do that: it would have meant drawing money out of IRA accounts, which can be done without real penalty only if you can put the money back within 60 days. But in this market, I knew I could never time the sale of my current house and the purchase of a new house so that both would close within a 60-day window.
What I wanted was to nail down a deal on a new house, then put my current house up for sale, and after it sold, pay off both houses with the proceeds of the sale. For that scenario, what I needed was a small pile of money for a relatively short term, maybe a few months, probably less than a year.
I first explored taking out a home equity loan on my current house and using it to buy the new house. When the old one sold, both the mortgage and the loan would be paid off, rendering me debt-free. I have far more equity in my current house than the price-range of houses I was considering. But, banks will use only a percentage of the equity when making an equity loan.
That didn't work out because I don't have enough "income." Bankers really have a very hard time with retired people without regular salaried income that can be documented with W-2 forms and tax returns. The best they can do is take your investment assets and divide it by 360 (months in 30 years) and pretend that an arbitrary percentage of the resulting number is "income."
The old saying is true: Banks are only willing to lend money to people who can prove they don't need it.
So, I went looking for mortgages. My friend Réal had had a fantastic experience refinancing his mortgage with QuickenLoans, so I thought I'd give them a try.
I carefully explained the whole scenario: Buy a house, using financing. Sell a house with a small existing mortgage. Pay off both mortgages with the proceeds.
Once I had an accepted offer, QuickenLoans started working at mind-boggling speed. Within just days I had an approved loan (with conditions — there are always conditions). Hurrah, break out the champagne.
Then they started demanding tax returns, bank statements, proof of assets, etcetera, etcetera, etcetera. One of the things on the list was the closing papers for the sale of my current house.
No, no, no! I explained to you that I would sell my current house after I was sure I had a place to move to. In fact, if I had closing papers, I wouldn't be needing a loan at all, I'd just be writing a check!
Well, if you're going to carry two mortgages, that makes your "debt-to-income ratio" too high for a conventional loan. I'll ask for an "exception" since you have so many assets.
Exception denied. But not to worry, we'll make it an FHA loan, because an FHA loan allows a higher debt/income ratio.
The "approved" loan is now back in underwriting for the final crossing of Ts and dotting of Is.
Oh, we just realized that the seller has not owned the property for more than 90 days. Since it hasn't been owned for 90 days we will have to wait 90 days before we can close.
Never mind that the FHA waived the 90-day rule effective February 1, 2010, to make it easier for buyers of foreclosed properties:
FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties. This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity.
The waiver notwithstanding, QuickenLoans still insists on waiting 90 days. Incredible!
Fortunately, the seller of the property knows a bank that has done loans on several of his other properties and does not require a 90-day wait.
We get in touch. Provident Bank can do it: You want to close in 17 days? That's no problem, we can do that.
I withdraw from QuickenLoans.
Then the avalanche of documentation began all over again. Fortunately, I had almost everything already sitting on my hard drive in PDF files, so it was easy enough to just email the same documents.
Next came the "California universal loan application" — which for this bank is different from the "California universal loan application" used by QuickenLoans. Right! And I notice that on this one they are asking me how much rent I am going to charge on my current house.
No, no, no! I am not going to rent out my current house, I am going to sell it.
Oh, I see. Well, never mind, we'll make it an FHA loan because they allow a higher debt-to-income ratio.
So, they re-did all the numbers and decided that instead of putting 1/3 down on the new house, I should put down only 25% and use the extra money, already set aside, to pay off my car loan, because that would reduce my monthly debt payments.
Fine. Whatever works. I just want the house.
I have been assured that we are still on-target to close on July 16.
The old paradigm, back in the "good old days," was that you put your house up for sale, found a new house, and made your offer contingent on selling your old house.
In this market, that no longer works. But that paradigm still has bankers' minds in a veritable straightjacket. They are simply unable to deal with a slightly-out-of-the-box situation. They can buy and sell mortgage-backed derivatives that nobody understands, but a straightforward plan to borrow-a-little-bit-of-money-to-get-out-of-debt is utterly beyond them.
(Plans A, B, and C have already been tried.) I have reached the conclusion that if this bank deal falls through — not counting on anything at this point — I will simply take out the extra money, pay cash, and have it over with.
Come to think of it, that was Plan A. Déjà vu all over again!
Last updated on Apr 13, 2018