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Thread: Question about buying a house

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    Veteran Member Luxurious1's Avatar
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    Default Question about buying a house

    If I have enough money for 20% downpayment on a home, but I dont have 3 years worth of taxes to show(well I do have the tax returns but all under 10,000/year)

    If my mom buys the house with my downpayment, could she switch the papers onto my name? so it would legally be mine? Just curious.

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    Veteran Member angelicat's Avatar
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    Default Re: Question about buying a house

    I didn't realize that you needed 3 years worth of taxes... Is this common information that I just wasn't aware of?

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    Banned Melonie's Avatar
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    Default Re: Question about buying a house

    Since the 'subprime' housing crash, statistics show that a much higher percentage of mortgage defaults occurred when the loans were approved without verification of the borrower's actual income. As a consequence, regulations have now been changed that require lenders to verify the income of would-be borrowers. Since dancers or any other self-employed persons do not have a 'regular paycheck', about the only way that lenders can verify income is by examining the amount of income reported on past years' tax return filings. Even so, the incomes of dancers and other self-employed persons are less stable and less predictable than people with 'straight jobs', such that they are categorized as 'Alt-A' rather than 'prime' borrowers.

    I would add that, just yesterday, Fannie Mae announced that they will no longer buy 'Alt-A' mortgages ... i.e. mortgages with reduced documentation, mortgages where the borrower has an irregular or unconventional income etc. ... beyond the end of this year



    What this means on the surface is that after the end of the year, any bank that wishes to approve a new Alt-A mortgage loan will be unable to resell it to Fannie Mae (and presumably Freddie Mac and other secondary market mortgage buyers). As a result, this will mean that the bank wishing to write a new Alt-A mortgage will have to invest the bank's OWN MONEY to make the loan, as well as the bank having to take ALL RISK OF LOSSES should the borrower default.

    Undoubtedly there will be banks and/or financial speculators who will continue to make new Alt-A loans despite the fact that these loans cannot be resold. However, it is also a virtual certainty that these lenders specializing in Alt-A borrowers will charge an interest rate that is 2-3 percentage points higher than the going interest rate for fully documentable fully verifiable straight job 'prime' mortgages. As such, after the first of the year, dancers and all other self-employed persons should be prepared to ...

    - show three years worth of past income tax returns as a means to (partially) establish probable income level, with that probable income level being sufficient to explain / cover the purchase / mortgage payments you wish to apply for

    - have a credit score in the 680+ range to even be considered for an Alt-A loan

    - come up with a 20% down payment plus another 3-5% in fees, with these funds being sourced from savings / investments not other loans

    - make a monthly payment that is significantly higher than a 'prime' borrower, due to the higher interest rate that will apply to riskier Alt-A loans. For example, a 'prime' borrower would perhaps have a $600 a month mortgage payment on a 30 year $100k balance mortgage at 6% interest. In comparison, an Alt-A borrower with the same $100k balance mortgage, but at 8.5% interest, would have a $769 a month mortgage payment.

    Let me put this another way. After the first of the year, dancers and other Alt-A borrowers will need to do some hard math to see whether or not the purchase of a house still makes financial sense given the vastly more difficult to obtain and vastly more expensive Alt-A financing which will be available after the secondary mortgage market abandons Alt-A loans. Consider the following ...

    cash purchase of $120k house. Total cost $125k with $5k in fees

    30 year 'Prime' mortgage with 20% down. Initial cost $20k down + $5k fees. Cost of mortgage 360 months * $600 = $216k. Total cost $241k

    30 year 'Alt-A' mortgage with 20% down. Initial cost $20k down + $5k fees.
    Cost of mortgage 360 months * $769 = $277k. Total cost $302k (not counting any other expenses that the lender may also mandate i.e. additional mortgage insurance)

    It would appear that one of the results of the 'subprime' bailout package will be making the future availability of mortgage credit for 'subprime' borrowers practically non-existant. A side effect will also be increasing the costs for Alt-A borrowers to more closely represent their increased statistical risk of default. In the case of dancers, the 'back room boys' at the mortgage lenders are aware that while a dancer may be earning $100k this year, that their income could drop to $50k next year if the city passes a new strip club ordinance or if a major industry in the city closes down. The 'back room boys' are also aware that dancers can rarely continue to work for 30 years ... and can rarely sustain their income levels if they do work for 30 years ... thus they start asking questions as to what the girl intends to use for income to make the last 10-15-20 years worth of payments on a 30 year mortgage ! Where the latter is concerned, if the dancer has a 4 year college degree the 'back room boys' may approve the loan, based on the assumption that once the girl retires from dancing she will be able to obtain a fairly decent paying fairly secure job with an income level that will allow her to continue making mortgage payments. However, if the dancer is a high school dropout or GED or even high school graduate, the 'back room boys' are likely to assume a future scenario where the girl is no longer able to dance after say 10 years, at which point the jobs available with her low skill level will not provide sufficient income for her to continue to make her mortgage payments - resulting in delinquency / bankruptcy plus financial losses for the lender.


    In regard to your other question, i.e. involving your mother in the purchase of a house, there are really two scenarios. The first is for your mother to 'pose' as the one and only buyer in hopes of being approved for a 'prime' mortgage loan. However this would require that your mother be able to fully document her income, that the income level was sufficient to cover the new mortgage payments on top of existing loan and mortgage payments, that your mother would still be of 'working age' 30 years from now, etc. With this scenario, your mother could either 'give' you the house or 'will' you the house ... but in either case, additional taxes would potentially apply. There is also the remote possibility of some sort of seller financed resale based on you making 'rent to own' monthly payments to your mother, but the bank or Alt-A lender may stand in the way of any such arrangement if there is still an outstanding mortgage balance owed to them by your mother.

    The second scenario is for your mother to act as co-signer for an Alt-A mortgage in your name. This would improve the chances for your approval. But it would not result in a lower interest rate.

    ~
    Last edited by Melonie; 08-09-2008 at 03:33 AM.

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    Veteran Member angelicat's Avatar
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    Default Re: Question about buying a house

    Could verification of income include regular deposits into a money market account? For example, putting in say $1000 a week into an account that is never withdrawn from. It shows income coming in... But, since it is cash is it still questioned? Sorry for threadjack!

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    Banned Melonie's Avatar
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    Default Re: Question about buying a house

    bank records showing regular deposits is worth 'something' ... but not as much as a tax return, since the bank has no way of knowing where that cash is coming from or if it is likely to keep coming next month or next year.

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