Your Mortgage : How Lenders View Applicant With Bankruptcy : Financing: Mailbag also contains questions about reverse mortgages and loans to veterans.
Letters about bad credit, sad stories, reverse mortgages and loans for veterans of the armed services recently fell out of the mailbag and onto our desk.
Steve Adams says he and his brother have saved a combined $30,000 for a down payment on a home.
“The trouble is that my brother filed for bankruptcy about a year ago, and I’m afraid that it’s going to screw up our chances of getting a loan,” Adams said. “Do you have any suggestions?”
Bankruptcies and other serious problems with your credit record won’t exactly dazzle any loan officer. But with some effort, you’ll probably still be able to get a mortgage loan.
“Most lenders like to see two things before they’ll make a loan to somebody who has filed for bankruptcy,” said John Nevin, a loan underwriting expert with the Federal National Mortgage Assn.
“First, they usually require that the bankruptcy has been discharged by the court and that everything has been settled.
“Second, they like to see that the borrower has re-established his credit record--that he has gotten a new credit card and is making the monthly payments on time, or that he’s been making timely payments on a car, TV or even just a microwave oven.”
Ralph Mozilo, an executive with mortgage banker Countrywide Funding Corp. in Pasadena, adds that the reason for the bankruptcy also plays a big role in determining whether a borrower gets a loan.
“We can understand if someone had to file bankruptcy because he had a serious accident that resulted in huge medical bills, or if he lost his job and couldn’t get a new job soon,” Mozilo said.
“But if he simply ran up a bunch of bills and then refused to pay them, his application isn’t going to look very good to us.”
If you can’t find a lender willing to make a loan, you might consider looking for a house financed with an assumable mortgage. When you assume a mortgage, you buy out the homeowner’s equity and then take over his monthly payments.
Many adjustable-rate loans that were made several years ago can be assumed without a credit check.
Fixed-rate loans insured by the Federal Housing Administration or guaranteed by the Veterans Administration generally are also assumable, although the lender that made the loan might want to examine your credit record before you can make the assumption.
One more thought: If you buy a home for about $125,000 or less and put your full $30,000 down, you might qualify for a so-called “low-documentation” loan.
Some lenders will cut the paper work and be more sympathetic about past credit problems of borrowers who make a 20%-plus down payment, in part because big down payments reduce a lender’s chances of losing money if it must eventually foreclose.
Several readers, including Claire Huntington of San Francisco and Richard Wills of Redondo Beach have asked for the names of lenders that make reverse mortgages.
Reverse mortgages are home loans that work backwards. Instead of a lender making a loan to a buyer who will repay the money in monthly installments, the lender typically sends a check to an existing homeowner in monthly increments.
The owner typically doesn’t have to pay the money back until the term of the loan expires or the borrower sells the home. If the homeowner dies, the loan is repaid by the estate.
Unfortunately, there’s really no “clearing house” for information on reverse-mortgage lenders and the true cost of the loans that they make.
Three of the biggest companies that do business in California and other states are New Jersey-based American Homestead Mortgage Corp., (800) 233-4762; San Francisco-based Providential Home Income Plan, (800) 441-4428, and Kentucky-based Capital Holding Corp., (800) 333-0967.
A list of all reverse-mortgage lenders in California is available for $1 from the nonprofit Independent Living Resource Center, 70 10th St., San Francisco, Calif. 94103. Requests must include a self-addressed, stamped, business-sized envelope.
If you’re an older person who’s thinking about taking out a reverse mortgage or tapping your equity through some other method, you’ll want to get your free copy of the American Assn. of Retired Persons’ “Consumer’s Guide to Home-Equity Conversion.”
Requests should be sent on a post card to “Home-Made Money,” AARP Fulfillment Center, 1909 K St. N.W., Washington, D.C. 20049. Delivery takes about six weeks.
John Warren of Los Angeles has a sad tale.
Warren wrote that he recently made “a really good deal” to buy a three-bedroom house for $220,000, even though “it was worth at least $240,000.” He applied for a mortgage, but the lender turned him down after an appraiser said the property was worth only $200,000.
Two weeks later, Warren says, the house sold for $235,000. His question: “Can I sue the appraiser and/or the bank, because the house was obviously worth more than the appraiser’s estimate?”
Sure, you can sue both the appraiser and the bank. However, winning the suit is an entirely different matter--and I don’t think you’d win this one.
“The chances of Warren (successfully) suing the bank aren’t good, because the bank isn’t under any obligation to make a loan that it thinks would be unusually risky,” said Pat Breen, a partner in the Los Angeles-based law firm of Allen, Matkins, Leck, Gamble & Mallory.
“The chances of winning a suit against the appraiser are a little bit better, but not much,” Breen said. “Warren would probably have to prove that the appraiser wasn’t qualified to do the job, and that he didn’t do all the things that were necessary to provide an accurate appraisal.
“Finally, you’ve got to remember that appraising is an art, not a science. You could have two totally competent appraisers evaluate a property, and come up with two totally different answers.”
Breen said that in the unlikely event that Warren won his case, he’d probably only be awarded a maximum of $15,000--the difference between what he would have paid for the property and how much he could have sold it for.
“After you’re done factoring-in the attorney’s fees, potential resale costs and other expenses, there wouldn’t be much of that $15,000 left over,” Breen said.
One other note: Just because someone else has offered to pay $15,000 more than you did doesn’t necessarily mean that it’s worth that much. There’s a chance that the home will once again be appraised for less that the proposed purchase price and that the new buyer will also have his loan application rejected. If it turns out that your appraiser was right and his estimate prevented you from overpaying for the home, you owe him your thanks--not a lawsuit.
Bob Kennedy, who reads this column in the Cleveland Plain-Dealer, says he’s a war veteran who’s been looking to buy a duplex or triplex. His question: “Can I get a loan from the Veterans Administration, or does it only make loans on single-family houses?”
Many vets don’t know it, but the VA will guarantee loans on buildings with up to four dwelling units. Importantly, VA limits were recently raised: Most lenders will now loan up to $184,000 under the program.
The $184,000 limit applies to any property, whether it’s a single-family home, condominium, duplex or four-plex. You must also occupy the property to get the loan, so you can’t be an “absentee landlord.”
Local lenders and mortgage brokers can give you more information about the VA loan program. Or, you can contact the nearest office of the U.S. Department of Veterans Affairs, which is listed under the “United States Government” heading of your local white pages.
