What Corcoran Agents Need to Know About Financing (July/August 2014)
HOT TOPIC FINANCING QUESTIONS
Q. My client is planning on buying a 2nd home and renting it out right away. The loan originator she spoke with is telling her she can’t do that. Why not?
- The standard loan application requires the applicant to check a box for how she plans to use the property she’s purchasing. There are 3 choices—the property can either be bought as a primary residence, a second home, or an investment property. Each option comes with rules that regulate that property’s use. Lenders expect purchasers to rent out investment properties, not primary or second homes. So expect to pay a higher rate and put down a larger down payment to reflect the lender’s increased risk on an investment property loan. After you close don’t be surprised if the lender checks up on you to see if the electric bill on your second home purchase is actually in your name. They can pull the loan if it’s not. ( N.B. Some cond-op and condo boards require a lender’s permission to rent out the unit.)
Q. I thought banks were now accepting the cash portion of bonuses without reservation. My client, a Wall Streeter with a base-bonus salary structure, recently switched employers. I’m now hearing that his loan is being turned down because the lender is refusing to credit him with any bonus income.
A. Some lenders are still following old Fannie Mae guidelines. Those rules state that in order to credit a borrower with bonus income the borrower must be able to document receipt of 2 annual bonuses from his current employer. If borrower received two bonuses from, say, Goldman and then recently moved to Morgan Stanley where he’s only received one bonus, that borrower will not be given credit for any bonus income. This can present a big problem given that most buyers with base-bonus income structures need their bonus counted in order to qualify for the loan they are seeking. Happily, Luxury Mortgage deals with over 40 investors, many of which have moved on to “common sense” underwriting.
Q. The financial advisor for my client is telling him to buy a co-op in a trust as an estate planning vehicle. Are loans available if he proceeds in this way?
A. Yes. We offer loans for co-ops being bought in a trust but the bigger issue is whether or not the board will permit that structure. Neil Garfinkle, REBNY’s Residential Counsel, says that given that a trust can’t physically occupy the apartment a board may allow the shares to be owned by a trust if the trustee or the occupant:. 1) executes an Occupancy Agreement defining who has permission to live in the unit, 2) signs a personal guarantee that maintenance will be paid and board rules complied with, and 3) designates an individual for service of process of legal papers on behalf of the trust.
CLOSE MORE DEALS WITH THE LATEST FINANCING TOOL
Reverse Mortgages. They are NOT available for co-ops. They are available to purchase and refinance both single family homes and FHA-approved condominiums that are primary residences in Manhattan and Brooklyn.
To check for FHA approval for buildings in Manhattan and Brooklyn go to:
Many financial planners are now recommending a reverse mortgage line of credit as a safety net for those who are 62 and older.
There really is a sweet spot where a reverse mortgage is an excellent option for many people.
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