Stated Income Loans are Back for Investors!!
I recently had a transaction wherein the Homeowner was attempting to use a Stated Income Loan Program which requires
1) that the property be purchased in a Limited Liability Company and
2) a 35% to 40% down payment. I was very concerned, yet excited about the Loan, due to the fact that these lenders are very picky and it was a new loan product for Investors.
The mortgage broker that I was working with had “NO doubt” that this Buyer would be entitled to this loan, considering that he was giving such a large down payment.
Well … that is when it all started. After the appraisal was done, survey completed and the loan was being submitted to this Lender in St. Petersburg, Florida, all we were waiting for was the hazard insurance policy. However, the lender decided to use a program called CoreLogic which tracks if the Buyers currently have or previously had any outstanding mortgages and guess what? Yep, they did, and I was furious! This mortgage should have shown up on his credit report and when title work was pulled for a name search for the Buyer, we should have been notified that he owns another home. However, there was a HUGE lack of communication with the mortgage broker and the Buyer. The mortgage broker did not speak the native language of the Buyer.
So … when the mortgage broker asked the Buyer “do you have any outstanding mortgages on any homes,” the Buyer replied “no.” However, they did say that the old mortgage they had on their personal house was “” and since the Bank wasn’t reporting it on their credit, the mortgage broker never mentioned it to anyone! This was a big mistake and costing the Sellers, the students and I, lots of time, money and effort to get this deal to happen.
On the day of the closing, the Stated Income Loan Lender declared that because the Buyer still has a property in his name and that there is a lawsuit for foreclosure pending, that they would not be able to fund him. In addition, the property was being purchased by a Limited Liability Company, yet the Buyer intended to occupy the home. Yet, pursuant to Dodd Frank Laws and this Stated Income Loan, this would have to be a rental. This specific Stated Income Loan does not qualify for owner occupant homes, it only applies to investment properties. Pursuant to the FARBAR contract, should the Buyer be denied for a loan, they may reapply within 5 days for another loan. After looking at this contract, the Buyer’s Agent indicated that this is a ‘Cash Offer’ with no financing contingency. Therefore, the Buyer’s earnest money deposit should not be returned to the Buyer. it should be returned to the Seller. In addition, the Buyer already waived the inspection clause. However, here is the downfall; when there is a dispute about the earnest money deposit, it ties up the property and prohibits it from being sold to a new buyer. Since the earnest money deposit is held with a title company, it now becomes a small claims matter. The Buyer’s Realtor gave me full consent to re-list the property as active during this time. In the end, a decision will have to be made ie. fight for the $5,000 earnest money deposit and not be able to sell the house, split the $5,000 between Sellers, Buyer and Realtors or just give it back to them so that the Sellers can sell the house. What would you do?
The mortgage broker again reached out to many of the hard money lenders that she knew who all drove by the house and came to the same conclusion. They would not be able to fund the transaction because the Buyer planned to live in the home and it was not an investment property and they didn’t want to break any of the Dodd Frank Laws.
Dodd Frank laws were created to protect homeowners against being forced into loans on their owner occupant homes with higher points and higher interest from Lenders, when they are not savvy as Investors.
So … what can you do to avoid this in the future? Always question the mortgage broker as to whether or not the Buyer owns another house. Even if it is a short sale, they are still responsible for the Loan. Also, make sure that your title company is pulling a full title search on the new Buyer’s name and not just an “update,” as it would have showed up if we would have had a full title search again.
It is a great house and I look forward to closing it soon!
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