Please help! I am three months in to looking at properties, finding one, negotiating the deal, getting under contract, clearing inspection items and seller credit, getting the lender appraisal, etc etc. Closing date it this coming Tuesday with the walk through scheduled Tuesday morning. Everything was set and I got the loan officer every last piece of information requested and needed from the underwriters. I get a call last night at 8pm from the loan officer. She stated that she screwed up, and is terribly sorry, and not sure how this happened or how it was not caught by anyone....but that the loan product (Freddie Mac home possible) that they are using...went through everyone, passed underwriting, and then was selected for quality control and was noted that one of the home possible policies stipulates that:
Ownership of other residential property
The Borrower must not have an ownership interest in any other residential property as of the Note Date, or the Effective Date of Permanent Financing for Construction Conversion and Renovation Mortgages, except as stated below.
Freddie Mac Single-Family Seller/Servicer Guide Chapter 4501 As of 11/15/17 Page 4501-7
The Borrower may have an ownership interest in a residential property other than the Mortgaged Premises if the Borrower does not occupy the property, and the Seller documents the following in the Mortgage file:
- The Borrower inherited their ownership interest in the property and shares ownership with another party, or
- The Borrower owns the property with another party and the debt associated with the property was assigned to the other party by a court order (e.g., a divorce decree), or
- The Borrower is a cosigner/guarantor on the related Mortgage debt and someone other than the Borrower has made payments on the debt associated with the property for the most recent 12 months, as documented with copies of canceled checks or a statement from the lender
See Section 5401.2(b)(i) for requirements for excluding liabilities, including Mortgage debt, from the monthly debt payment-to-income ratio.
Well - this is my third property that I am acquiring. I have a first property (two flat), and then a second property (three flat) and then this one, which I would be moving into - which would be my third.
This is a basic policy that should have been caught right up front. I am not $3000 in, five showings on my current apartment where I live set for tomorrow, and a closing date set for this Tuesday.
Any thoughts on how to make this deal happen? I am scouring the Freddie Mac guidelines, and I can only think of three possibilities right now, two of which make the deal happen, one of which would take a while if the seller is willing to wait and IF the numbers work.
1. I put my two properties into an LLC on Monday morning, and therefore I do not technically have any direct residential real estate interest in my name at closing. I will be out of the apartment when I sign the note.
2. From what I can tell right now (I still have more reading to do) the Home Possible guideline above states: "or the Effective Date of Permanent Financing for Construction Conversion and Renovation Mortgages" - the key terms being for Construction Conversion and Renovation Mortgages - well, this is a straight purchase....so??? Can it maybe not be applicable?
3. I refinance my current loan, an FHA, into conventional (my FHA is at a 3.35 APR...hard to beat) at a higher rate, PMI will come off, and then the loan payment may be the same or slightly lower by $50-$100, and then immediately use FHA again to buy the new property, which is a four unit property.
Please, please - any advice or thoughts on the above is truly appreciated. I am staying surprisingly calm considering how crazy it is that this is happening.
Thanks so much.
Sorry but I don't have any good news for you. The point of the Home Is Possible program is to allow individuals who can't really afford (or currently own) a house to buy one. As a homeowner already, you have demonstrated that you have the capability and means to purchase a home, so you aren't the target for this product. Placing your properties into a LLC isn't going to solve your problem and this could easily be deemed as mortgage fraud. The permanent financing is the loan for your purchase, so it is applicable.
The easiest (and possibly only) solution is to see if your loan officer can get you a conventional loan in place of the existing loan. This won't be possible in the time frame given, but you may be able to get an extension. You could also possibly look into some bridge financing to hold you over until you can get that conventional loan.
It sounds like the program requires the mortgage to be the only mortgage you hold.
@Christopher Brainard What about quit claiming my interest over to my parents? It would all be disclosed of course. And in your opinion, why would putting them in an LLC not satisfy the underwriting requirement? And why do you think it may be considered fraud? Everything would be disclosed. I actually planned on putting them in LLC's anyway - so I am not trying to deceive anyone whatsoever, just meet the underwriting criteria. It is very upsetting that I was put into this product to begin with, if this is the criteria and was not caught right up front.
Any loan officers, or underwriters or even attorneys that can speak to creative ways that I may be able to meet this requirement, or if it is even applicable (based on how I am reading/interpreting it)? Anyone very familiar with Freddie Mac underwriting guidelines? Can this be escalated up to someone who can over ride it in anyway, etc?
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