CASE STUDIES

Examples of loans for clients with difficult financial situations / history:

Two years after bankruptcy dismissal, couple purchases home with 100% financing.

Sounds improbable, but it’s a true story. We were approached several months ago by a couple (lets call them the Smiths) in their late thirties with three young children who were living in a house rented from Mrs. Smith’s mother. While they appreciated the accommodations made available by the family and the rent was reasonable, the two-bedroom house was becoming increasingly unbearable. They had simply outgrown the small home. The Smiths wondered if there was any way they could be approved for a mortgage in order to purchase a place of their own.

There were several problems that had to be surmounted: one, the husband’s restaurant like many restaurants had eventually failed and two years ago he was obliged to file for bankruptcy in order to clear a mountain of business related indebtedness. Two, the business had depleted their personal savings account and the Smiths were living hand-to-mouth as Mr. Smith struggled to find gainful employment. And, three, as they emerged from the bankruptcy proceedings, their credit rating, not surprisingly, had suffered.

But all was not hopeless. Mrs. Smith was able to maintain her employment through the bankruptcy ordeal and had even managed a promotion. Her wages advanced to $36,000 per year at a local home for the elderly. And, Mr. Smith finally found a job although not at the same level of income as his wife’s. They had by this time been dismissed from bankruptcy just over two years and Mrs. Smith decided to call Buckeye Mortgage to see if they might qualify for some type of loan.

Mr. Smith’s credit score had been more severely damaged than his wife’s, whose middle score came in at 641, not stellar, but not all that bad. So we decided to leave Mr. Smith off the application altogether and proceed with his wife as the primary borrower. The pre-qualification processes showed that the Mrs. Smith’s could in fact be approved and afford a mortgage of $103,000 that would result in a back end ratio of 44.9%, just under the investor’s maximum threshold of 45.0%. With the assistance of a local real estate agent the Smiths found a suitable house for $102,900 with a seller who agreed to pay $2,900 in closing costs.

The loan, a 100% financing option provided by a national lender, was close with literally no cash out of the Smith’s pocket. The lender was able to use a private party verification of rent and undocumented income of up to 25% of the total income used on the loan application. The loan was fixed for thirty years with no prepayment penalty at a rate of 6.25%, only slightly higher than the conforming rate at the time. At the end of the day the Smith’s out-of-pocket expense for the entire transaction was the cost of their prepaid homeowner’s insurance, approximately $400. The Smiths paid none of our income on the loan, which was covered entirely by the lender and the seller-a win-win transaction for all parties involved.

Young attorney purchases first house with $1,300 utilizing 100% financing and avoiding expensive mortgage insurance.

Here’s a good example of a first-time home buyer utilizing a 100% financing program to get into a house and avoid paying any more rent. A young lawyer, we’ll call him Mr. Lincoln, was recently graduated from a prestigious law school in the metropolitan Washington, D.C. area, where he and his new bride were renting a townhouse apartment near the school for $1,100 per month. Upon graduation he was offered an opportunity to practice in his hometown in West Virginia at a salary of $58,000. The young couple was eager to purchase a house so they could move out of his parent’s home that had been their temporary quarters upon returning.

The Lincolns had very little money, only $1,000, to put down on a purchase, but they had several things going for them. Although Mr. Lincoln had accumulated over $84,000 in student loans while attending undergraduate and law school, he had maintained an excellent credit rating, a 715 middle score. And, importantly, he had a contractual employment commitment for an established law firm. His wife had not yet found a job but was in the process of interviewing with prospective employers.

We received a call from Mr. Lincoln who wanted to ascertain whether they might be eligible for a mortgage despite the fact that he had only two weeks on the job and only $1,500 of cash available. After completing the prequalification procedures, Buckeye Mortgage was able to issue a certification of eligibility that stated that the Lincolns were qualified buyers. It didn’t take long for Mrs. Lincoln to find a house for $128,900 that suited both their pocketbook and their location preference.

Mr. Lincoln put a $1,000 down as earnest money and reinitiated the loan process. Our loan originator at Buckeye Mortgage was able to put together a combination first and second mortgage program that eliminated the need for mortgage insurance, which would have amounted to over $103 per month, but provided 100% financing. The first mortgage for $103,820, 80% of the purchase price, was a conventional 30 year fixed rate loan at 6.50%. The remaining $25,780 was put on a second mortgage amortizing over 15 years at 8.375%. The total mortgage, including $102 for hazard insurance and taxes, amounted to $1,005 per month, less than their college apartment. Because of the relatively short amortization of the second mortgage the Lincolns will build up equity in their new home at a faster rate. The somewhat higher note rate on the second is more than offset by the fact that the need for expensive mortgage insurance is eliminated.

The seller in this example agreed to pay $1,500 in closing costs and the Lincolns were able to close the transaction with a total cash outlay of only $1,300. Buckeye Mortgage’s fee was paid entirely through the mortgage lender and a portion of the seller’s contribution. And our clients now have room for family expansion.

Widow determined to remain in her home despite heavy debt load.

She lost her husband, lost her job, and nearly lost her home. At age 60 things couldn’t have looked much more bleak for this grandmother and healthcare provider. Her husband of over forty years suddenly died of a heart attack. The hospital where she had been employed for over twenty years was sold, resulting in her being laid off. Spending more than she knew she should, she maxed out her credit cards living, not lavishly but well beyond her income. At one point she was as much as 120 days late in making her first and second mortgage payments, had let her homeowners insurance lapse and was seriously delinquent in paying her property taxes. The possibility of foreclosure was not far away.

After being unemployed for several months she finally managed modest re-employment earning $910 per month, which added to her $750 Social Security award brought her total income to $1,660 per month. By liquidating her 401-K she was able to bring her mortgage payments and other obligations current for twelve consecutive months and was at least in a position to be considered for refinancing. Her credit rating had understandably suffered (middle score dropping to 572) and her non-mortgage debt had risen to $27,600, which, except for a $4,700 auto loan, was all in high interest credit cards. Her debt payments, amounting to $1,588 including credit card debt being made at the minimum allowed, exceeded her monthly after-tax income.

But, she was absolutely determined to not relinquish her home and came to Buckeye Mortgage for help. Fortunately, there was equity in her house, which appraised for $140,000, well beyond the first and second mortgages balances of nearly $70,000. After some heart-to-heart counseling, credit and otherwise, we were able, somewhat to our surprise (her front and back end ratios were both 51%), to get our client qualified under Fannie Mae’s Expanded Approval program, which is essentially a sub-prime loan. The interest rate for the fixed 30-year loan was 7.75%, but, unlike most other sub-prime products, there is no prepayment penalty involved. Borrowing $103,500 allowed her to refinance her first and second mortgages and pay off all of her credit card debt while reducing monthly principal and interest payment to $741, or $847 less than before.

We at Buckeye Mortgage understand that moving credit card debt into a 30-year mortgage obligation is not necessarily the best option for all borrowers. Aside from lowering the borrower’s primary mortgage interest rate, the reduction in monthly outlays is largely due to the substantial lengthening of the debt’s amortization. But in this case the best pure financial option (selling the house and moving into something less expensive) was totally unacceptable to our borrower, who was mature enough to appreciate the consequences of her decision. It requires more discipline than many borrowers have to clean up past credit abuses by re-financing them into a long-term mortgage.

Widow with no credit score and no down payment relocates to her hometown.

Having his 78-year old mother purchase a house and return to her hometown seemed like an impossible dream to Jim Rodriquez. His mother, widowed for the past ten years and living in a modest apartment in Arizona, had no money to put on a purchase. In addition, as it was her habit to pay cash for nearly everything, she had absolutely no credit rating. Not surprisingly, a local financial institution and mortgage broker when asked if they could arrange a mortgage responded in the negative. Mrs. Rodriquez and her son were understandingly disappointed and she assumed that she might have to give up on the idea of relocating. She was tired of apartment living and was not interested in returning if she could not have her own home.

Local realtors were reluctant to spend time locating prospective properties without some assurance that financing could be arranged. This long distance search went on for some time before her son, at the suggestion of a real estate agent, contacted Buckeye Mortgage. We immediately set out to obtain an alternative credit evaluation by providing proof of satisfactory rental payments for the past twelve months. In addition, we managed to find three other trade references: her TV cable provider, her telephone company and the insurance carrier for her Medicare Part B supplement. The lack of a credit score was overcome.

Mrs. Rodriquez had modest but steady income from a combination of her husband’s retirement and Social Security, which in aggregate amounted to $16,700 per year. But, happily she had no debt, no credit cards and no automobile loan. Our loan originator set out to find a suitable loan program and quickly located a lender who had a product tailor made for Mrs. Rodriquez. They offered 100% financing, accepted alternate credit, permitted seller concessions of up to 3% of the loan amount and approved a $1,000 gift letter from a family member to cover a portion of the closing costs. Her front and back end ratios of 31.6% also fit their underwriting standards.

Her son located a small house that only needed cosmetic improvement. A 30-year loan for $51,500 was done with no points and carried a fixed rate of 6.375% resulting in a monthly payment of $453 including principal, interest, insurance, taxes as well as mortgage and flood insurance. All of this amounted to virtually the same as her previous rental obligation. So there was no payment shock involved. Mrs. Rodriquez was ironically required by the lender to attend credit-counseling class, which she was happy to do. With virtually no out-of-pocket expense, she is finally in a home she can call all her own, close to her family and near the area where she grew up.

Buckeye Mortgage didn’t make great deal of money on the transaction, but we had the satisfaction of helping a disserving borrower achieve a small part of the American dream – the joy of independent home ownership. We’d do it all over again.

LET BUCKEYE MORTGAGE COMPANY GIVE YOU THE RESPECT & PROFESSIONALISM WE OFFER ALL OF OUR CLIENTS. CALL US TOLL-FREE TODAY FOR ALL OF YOUR MORTGAGE LOAN NEEDS! (866) 700-4290

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