A NEW Problem With My Buyer--Now The Mortgage

LoveInTheHouseJune 16, 2011

We solved one problem with my buyer. To update those who don't know the story, my buyer's buyer was refusing to go forward on their deal because he found out my buyer's house was in a flood zone and required flood insurance. His lawyer advised him to ask for twenty grand off the price to "remedy the situation." I offered my buyer some money to help him lower his price and both real estate agents kicked in some money and he was able to salvage the deal.

Now it turns out there might be trouble getting the mortgage. When I lost my first buyer because of an out-of-state bank who didn't understand our agricultural zoning, I found a local guy who was familiar with horse farms and making loans for them. I asked him what the requirements would be for a buyer from out of state who was self-employed and would have to restart his business. He told me they would need 20% down, plus one year of mortgage payments put in escrow and if their credit and loan to debt ratio is good, no problem. I was clear about my buyers not having "real jobs." And that's what he told me.

So I've been giving this guy's brochures out to all my lookers (who are mostly from out of state because I'm in a touristy/retirement low-cost-of-living area everyone is relocating to) including the buyer I am now in contract with. Now that it looks like we have the flood insurance thing solved, my buyer says the bank wants him to put 40% down, not 20%. He can put 35% down, but not 40 since he had to lower his price for his buyer. Are banks not giving out loans to self-employed people who relocate unless they have 40% to put down and a year's worth of mortgage payments? Am I going to lose him because of this?

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Love, this guy has NO JOB! If I were a bank, I would have him come back after 6 months of working at a new job. These were the types of people that the banks used to give high risk loans to. Maybe it is time now to ask his buyer for some help...

    Bookmark   June 17, 2011 at 7:02AM
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You already had another thread about this. The responses indicated that your buyer was going to need way more than 20% to get a loan.

"Are banks not giving out loans to self-employed people who relocate unless they have 40% to put down and a year's worth of mortgage payments?"

Your potential buyer isn't self-employed if he moves - he will be unemployed. Hoping to start a business and having a profitable business are two very, very different things. If he has enough cash to put down, he'll be able to find someone to lend the rest. "Enough" is going to depend on the lender, but I haven't heard of anyone dong 20% recently. He might be able to find someone who will do 35% though.

    Bookmark   June 17, 2011 at 8:43AM
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I gotta say, at what point do you think the universe is maybe trying to tell you something? Perhaps now is not the time to move?

    Bookmark   June 17, 2011 at 9:49AM
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maybe you lend him the 5% and get a 2nd motgage lien for it? set up payment plan, record everything at county, etc.

    Bookmark   June 17, 2011 at 10:19AM
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That's funny badgergrrl. This IS a beautiful place...

Guys, I called this local mortgage broker after I lost the first buyer and not only described the nature of the property, a horse farm, but told him that I am attracting out-of-state buyers, all of them but one have been out of state, because they want to get out of the rat race up north and come down to the country. People are relocating here in droves. There was one retiree with a fixed income and there was a couple who thought they could line up jobs in a hospital (those ones have been unable to sell their house), but the rest have been self-employed people. I specifically asked him what those people would have to do to be able to get a loan for my house. He said they'd need 20% down, one year's worth of mortgage payments in escrow, good credit and loan-to-debt ratio. When my buyer, the Smiths, first started working with this mortgage broker, I spoke to him again. At that point I didn't know if the Smiths and I were going to make a deal so I asked him what the other people who inquired would have to do. I stressed that they wouldn't have jobs. I wanted to be sure. I didn't want to go through the whole process again and then my buyer gets declined right before closing. He told me, "They'll need 20% down, one year's worth of mortgage payments in escrow, and if they are as strong as the Smiths, there will be no problem." So I've been giving out his brochures and business cards to everyone who comes to see it and telling them what will be required just in case I lost the Smiths. Now the Smiths said the broker told them they'd need more money than we were told. 40%. Not 20%. The Smiths only have 35%. No one can cough up more money. We all coughed up more money when the Smiths' buyer demanded twenty grand off for the flood zone issue. I'm hoping the Smiths misunderstood. Of course it's Friday and I can't reach my lawyer or the mortgage broker so I'll have to worry all weekend. I have to start the title work on my new house and now I don't know if the Smiths are going to be able to get a mortgage or not!

    Bookmark   June 17, 2011 at 4:03PM
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will this be better for a loan: maybe buyer plans on staying in old location and still running the company he owns up there. and your place will be a 2nd home for eventual retirement/vacation.

this is very common in tourist areas - where out of state buyers buy a 2nd home to eventually live in many years in the future. then they qualify on their current income in current location. but then they qualify keeping their current home up north, plus the new vacation home.

    Bookmark   June 17, 2011 at 4:30PM
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Love, you keep repeating that the loan officer told you parameters for someone who is self employed. Those parameters are probably correct. The big deal breaker is that your "Buyer" is UNEMPLOYED.
Did another agent bring this buyer to you? If so, they failed to bring you a pre qualified buyer.

    Bookmark   June 18, 2011 at 9:40AM
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Sophie Wheeler

20% down is pretty standard these days for almost any regular loan. Self employed usually requires between 20-60, depending on their income history. They are high risk, and the bank wants a good stake in the game in case of default. For self employed people without an well established business in the buying locale, well they're out of luck to get a loan at all. They have no source of income, so they'd better be an all cash offer. Yes, they have a past source. In a new location, it will take them the same 3-7 years with a successful business in order to qualify for one of the 30-60% down loans. Handing out loans to people with nebulously documented incomes is part of the reason the housing market is like it is.

Your broker was blowing smoke your way. And you were unfortunately buying the bull. There's no way he can guarantee the terms of any loan until the paperwork is filled out and all of the factors are known. And even then, the bank may change something at the last minute. He can give you general guidelines about the past loans, but there is no predicting someone's credit and employment history as well as individual bank requirements.

Do not even consider fantasy offers from self employed non lo cal people to be valid offers unless they are a cash sale. To believe otherise is to believe in the tooth fairy. Why don't you get a pro involved on your side. It would save you a lot of this emotional roller coaster by buffering the transaction and having them prescreen any offers before you review them.

    Bookmark   June 18, 2011 at 11:54AM
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ncrealestateguy hit it on the head. Your buyer is not currently self-employed, he's unemployed. Until he restarts his business and has income, he is unemployed.

I don't think he'll be hard pressed to find any mortgage at all, no matter the percentage down.

Perhaps a land contract would be a better option, if you are able to swing it.

    Bookmark   June 18, 2011 at 2:04PM
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Never make the assumption that banks are in the business of making loans. They are in the business of making money, which is quite different.

For every loan they make, they have to reserve actual cash, put it away and not use it for anything else. Thus, making a long-term loan like a mortgage, especially these days when it's a difficult resell, LOSES actual cash for the bank.

Unless a buyer has already filled out the paperwork and been actually approved for a loan amount, any potential sale is strictly 'writing fiction' until the property appraisal matches the actual loan approval amount.

    Bookmark   June 18, 2011 at 2:23PM
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Ncrealestate guy, yes, an agent brought me this buyer. I'm a FSBO but I will pay an agent's commission. It doesn't seem to make a difference who finds them. I can't blame her and say that she didn't pre-qualify this buyer. She did. She also talked to the mortgage broker. This is what we were told. What more can we do? And whatever you want to call it NC, self-employed, unemployed, I DESCRIBED it to the loan officer--I said they were self-employed and would have to "restart" business down here.

Holly, the loan guy didn't actually GUARANTEE anything. I told him who I was attracting and asked what would be required so I could avoid this. I specifically said these are not retirees with an income. We talked about that. When the buyer applied for the loan, he didn't tell him anything different. Now I know. It's going to take 40% or more if someone is coming down here to start over. And even then it's going to be iffy. I can see I really need a cash buyer.

Sweet tea, no that won't work because he needs to sell his house up north to buy this one. Even if his income could support both houses, I don't think he has 20% saved up. Fifty grand is a lot of money for most people to save in this economy. And then he'd need even more for closing expenses, moving, etc.

What's a land contract Badgergrrl?

    Bookmark   June 18, 2011 at 8:01PM
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Hmm, I'm self-employed and buying in a new state. I anticipate no loss in business because my business is completely virtual. My loan is currently in underwriting, so I hope I am not jinxing it! Anyway, why would a self-employed person necessarily take 3-7 years to build back a business? Doesn't it depend on the kind of business? Relocating a restaurant, maybe. A flee market dealer--no problem. In my case, freelance editor? I have clients who are 2 miles away whom I have worked for as many as 12 years and never met face to face. I have no reason to believe they will not be with me next year just because I am moving my location.

    Bookmark   June 18, 2011 at 8:53PM
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Teched, you are exactly right. I was thinking that and wanted to explain the nature of many self-employed businesses but hesitated to get into it. But now that you've mentioned it, I am also self-employed. We have a flooring business. We go to customers' houses and show them samples, they buy something and then we install their flooring. It's similar to what my buyer does. He's a home improvement guy. When we finish a job, we have to find another job next week. Technically, we are unemployed every time we finish a job. Sometimes we get nervous because no calls come in. Sometimes we get busy and can line up work for a few weeks. But it's never a given, no matter where we live, or how long we've been there, like a nine-to-five job at someone else's company. It really depends on us and how hard we work. In the end, we make out better on average so that's why we do it. I moved to a different state three times in the last 8 years and each time we had to restart business all over again. It didn't even faze us because in essence, we do this every week. Yes, when we're at a place for a while, we start to build up some referrals. But that is a tiny part of what we sell because these are big ticket items. When we go to a new place, we simply start advertising and that's how we get work. That's what my buyer is going to do. Successful self-employed people are go-getters and know that half the business is GETTING the work. It's probably just like the real estate agents on this board. Nothing is guaranteed. You have to work to get the work. But no job is guaranteed. I would rather count on myself than move to a new state and count on some company who I have no control over staying in business, holding up their end of the bargain... I have much more confidence in myself and what I can control. We've done MUCH better working for ourselves than we have working for other companies. So yeah, it kind of frustrates me to hear people saying self-employed people are unemployed, in a bad way, like they don't work. It's ironic because if I ever counted on the jobs I had for other companies to pay my mortgage, I would be one of those people in foreclosure too! Luckily, this unemployed person counts on herself.

    Bookmark   June 19, 2011 at 7:19AM
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Why not have the buyer shop around at 3 different lenders and see what they have to say. If all 3 say the same thing, you know the deal is dead. Not all have the same criteria for self employment buyers.

    Bookmark   June 19, 2011 at 8:14AM
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What lender did the buyer's agent use to get this guy pre qualified, and why is the buyer not using this lender?

    Bookmark   June 19, 2011 at 7:23PM
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That's a good idea NC.

It's the same lender that I called. Farm Credit. I guess I'll find out tomorrow because I'm going to call him again.

On a good note, I had a great showing today. It was a cash buyer. No mortgage. They were here for quite a while so we'll see. I'm showing it again because I don't have high hopes for my buyer. I also had a drive-by who pulled in after they cruised by a couple of times and so I showed them the house too. They seemed positive. Then I had a call back from one of the people who looked at it right before I took the current offer. She told me she wants it BUT has discovered she's going to have some mortgage difficulties as well. So close but yet so far... lol

    Bookmark   June 19, 2011 at 10:32PM
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Sounds like a good weekend for you. How is it that you are still getting showings if you are currently under a Pending status?
Hang in there...

    Bookmark   June 20, 2011 at 7:36AM
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sounds like you hsve a lovely property that is priced well and is in-demand. good situation to be in. i thnik the current buyer really wants the place and will somehow get that extra 5% to be at 40%.

    Bookmark   June 20, 2011 at 10:19AM
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Ncrealestateguy, I just tell them what the status is. It doesn't look good.

I called a couple of other mortgage brokers today. One of them said that an out-of-state buyer who has to "start over fresh" wouldn't be a problem as long as last year's tax returns support the loan and it would depend on the details of the specific buyer's credit, loan-to-debt ratio, etc., that would determine the amount of the deposit. He said it would be above 20% and could be as high as 40%.

Thanks Sweet tea, I hope you're right!

    Bookmark   June 20, 2011 at 10:13PM
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Good luck ... an internet business is quite different than a home improvement business. Yes, getting a loan with an established internet business when moving to another state would be OK.

    Bookmark   June 21, 2011 at 12:34PM
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Well, it's over. Now we're back to the original reason--the buyer suddenly can't come to an agreement with his buyer again. No mention of mortgage problems. But it's over. I'm really upset because I'm going to lose the house I'm trying to buy. I'm getting lots of activity but unless a miracle happens, I won't be able to sell it fast enough to salvage the deal I'm in.

    Bookmark   June 21, 2011 at 10:38PM
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Sorry to hear the bad news.
Chances are the house you had under contract will be there for you once you do sell.

    Bookmark   June 22, 2011 at 7:06AM
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I'm sorry for your problems. It's taking you on an emotional roller coaster ride that's doing nothing but playing havoc with your life. But, really, you sound pretty naive about the selling game and it sounds like you need professional help to get you through this. Agents have many contacts on the financing end to help qualified buyers, plus they understand what a qualified buyer IS. If your agent dealt with this buyer, you wouldn't have gotten your hopes up because they would have explained that they were not really a qualified buyer. Without a professional to help you through the process, you're going to end up really stressed, but with no sold house to make it worthwhile.

    Bookmark   June 22, 2011 at 12:16PM
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Thanks Ncrealestate guy. I hope you're right!

GreenDesigns, I don't think I'm naive. This is the fifth house I've sold by owner. I've actually "sold" this place three times, twice for the full asking price, and that's pretty darn good in this economy. There was nothing more anyone could have done to prevent this. This buyer was brought to me by an agent and both she and I did everything we could to pre-qualify him. His not being able to get the mortgage was because he had to lower the price for HIS buyer due to something they found (THAT HIS AGENT MISSED), and that left him with a lot less money for his down payment than planned. Listen, I understand real estate agents can be invaluable. I have thought of becoming one myself. Most people need one. But not everyone does. I know how you guys feel. I hate it when people go down to Lowe's and buy hardwood and then put it in themselves. (We're in the flooring business.) We always say to ourselves, "Ha! Let's see how this comes out..." Many times they mess up. But sometimes they're educated and experienced about flooring and they don't. And they save a lot of money. I LIKE selling my houses myself. I have a strong sales background and I enjoy figuring out how to market it, etc. Even with all this stress, it's a challenge and it's interesting. That's why I come on here. I like talking about real estate. If I didn't think you all had such a hard job, I'd become an agent myself.

    Bookmark   June 24, 2011 at 11:21PM
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I don't think you are naive at all. You just have a very unique property and your area gets many buyers that are relocating from other states. That makes for challenging loans.

However, your terminology that you "sold" your current home X times is slightly "off" for true real estate terminology. The home is only sold once closing has taken place. In your case, you had several contracts to sell that were agreed upon, but the final and most important thing - the closing (exchanging money, change deed, sign all papers, etc)- never took place, as the potential sales fell through beforehand.

Nevertheless, you will get this home under contract again very soon, IMO, and hopefully next time it does not fall through. Hoping you get a cash buyer next time.

    Bookmark   June 25, 2011 at 11:19AM
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Thank you Sweet tea.

You're right. "Sold" is not technically the correct terminology but it's just simpler to say and I know what I mean and I figured everyone else would too.

    Bookmark   June 25, 2011 at 10:01PM
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You now have a little taste of what we, as agents, deal with on a daily basis. An old agent friend of mine told me, when I first got in the business, to never spend the commission check until the deal is closed!

    Bookmark   June 26, 2011 at 8:45AM
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I know Ncrealestateguy. It's got to be a frustrating job for a lot of reasons! I've thought of doing it myself because I really like some parts of it but I don't think I have the heart... I can tell you're a good one.

    Bookmark   June 26, 2011 at 11:05PM
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