Loan on a house for comm activity, does this make sense to you?

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docmirror

Touchdown! Greaser!
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Cowboy - yeehah!
So, I'm buying another house, the loan company wants to know if it's a second home, or an investment. I tell them I'll make it a second home. They require insurance of course, so I get a quote for a homeowners policy, just like my primary. They look at the place, location, amenities, and my portfolio and THEY decide it's not a second home, but an investment property for commercial use. OK, so they are going to add 1 discount point up front to the loan we agreed on.

I said fine, and changed the insurance to a fire/liability policy which covers the structure but not the contents, and extra living place in case of damage, and all the other stuff that homeowners policy covers. They then call back and say I have to have homeowners policy on the house. WTF? If it's commercial, and rented, why would I have homeowners? In fact, my homeowners policy on my primary specifically excludes commercial use. This is the nuttiest loan company I've ever dealt with.

So, bottom line, they want to charge 1 percent for a commercial loan, and they also require I get homeowners insurance which is significantly higher than the fire/liability.
 
Shop around, you may find a better offer. Look here:
http://www.bankrate.com/mortgage-e.aspx

The loan market pre 2008 was wide open. After 2008 even with credit scores over 800, LTV over 80%, cash flush, very high income to debt ratio, etc. it became difficult to get approved through the online brokers. It seemed like many banks did not have the liquidity to remain solvent let alone lend. Your local bank became your best, or possibly your only source.
 
Can't. The seller let the loan lapse, and the house goes into foreclosure auction 4 days after my closing date(Aug 1). The bank has been dinking around for 38 days, and I just got the underwriting approval on Friday. No time to change lenders before the auction.

So, this leads back to my original question. Does this make sense to you?
 
Does the lender have a deal with the insurance company? Require X insurance and get a kickback? As I'm sure you know the short/bankruptcy deals are full of funky bank behavior.
 
Of course it makes sense, you want a market driven economy, the market will take a piece of every bit of action you get. This is the result.
 
Henning said:
Of course it makes sense, you want a market driven economy, the market will take a piece of every bit of action you get. This is the result.
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Actually, even though I am a proponent of a (predominately) market driven economy, I do agree with this. I say "predominately" because in no way would I want a "regulation free" market.

The proper thing to do in this case is to walk away from the deal and then work with someone else that will give you more of what you want and expect. If enough people did this then the sleazy companies would dry up.
 
JOhnH said:
Actually, even though I am a proponent of a (predominately) market driven economy, I do agree with this. I say "predominately" because in no way would I want a "regulation free" market.

The proper thing to do in this case is to walk away from the deal and then work with someone else that will give you more of what you want and expect. If enough people did this then the sleazy companies would dry up.
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I just upped the ante. I told the bank we will not be talking directly anymore. I'm represented and I need their legal team to call mine. I'm fed up. If this deal crashes, we'll let a judge decide. Eff this. The loan co has sent 38 emails, and about 30 calls over the last month, with one question after another. I should have given them the heave ho after two weeks, but they started with a very good rate, and it was bait and switch. I'm not taking it anymore.
 
docmirror said:
I just upped the ante. I told the bank we will not be talking directly anymore. I'm represented and I need their legal team to call mine. I'm fed up. If this deal crashes, we'll let a judge decide. Eff this. The loan co has sent 38 emails, and about 30 calls over the last month, with one question after another. I should have given them the heave ho after two weeks, but they started with a very good rate, and it was bait and switch. I'm not taking it anymore.
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Good for you. If the property is a good deal, it is one of many. If you have to pass up this one, there will be another. (Now, I hope they don't find gold there after you pass it up).
 
No such thing as a simple, straightforward mortgage application anymore, and the more complex your financial situation (read well-off) the worse it is.

Two years ago we purchased a "second" home in Cedar Key, FL and as part of the application process with PNC they became aware of rental income that I have - leading to demands for the Lease Contracts, the credit worthiness of my lessees, etc; income that I had from timber sales on my farm - leading to demands for documentation all the way down to weight receipts from the wood yard; etc, etc.
Painful to the point of considering ending the application and taking my business elsewhere - but advised by those in the know that the process would be equally painful everywhere else.:mad2:

Certainly the pre-2008 status quo of getting credit if one could fog a mirror was not in anyone's long term interest, but the pendulum seems now to have swung way too far the other direction

Good luck!
 
wrbix said:
No such thing as a simple, straightforward mortgage application anymore, and the more complex your financial situation (read well-off) the worse it is.

Two years ago we purchased a "second" home in Cedar Key, FL and as part of the application process with PNC they became aware of rental income that I have - leading to demands for the Lease Contracts, the credit worthiness of my lessees, etc; income that I had from timber sales on my farm - leading to demands for documentation all the way down to weight receipts from the wood yard; etc, etc.
Painful to the point of considering ending the application and taking my business elsewhere - but advised by those in the know that the process would be equally painful everywhere else.:mad2:

Certainly the pre-2008 status quo of getting credit if one could fog a mirror was not in anyone's long term interest, but the pendulum seems now to have swung way too far the other direction

Good luck!
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Well, I've got a broker in the state that can turn a loan in 22 days. He did my last loan in Feb, no muss no fuss. But - your experience mirrors mine. I called the broker last week, and he told me his rate, and it was about 1.5 points over what the bank quoted. That's why I went with the bank this time. Now, the bank has balked. I got a call from my local branch mgr, and she's all apologetic and cuddly, but so far - hasn't changed the numbers. I asked her to call me back when the numbers changed, that I don't need apologies. She said she'll fix it, but I have serious doubts. The numbers are coming from underwriting, and they have to make the loan conform so they can resell it on the secondary market.

We'll see what happens. Friday is closing day, and it's going to be a cold day when I pay an added discount point for comm rate plus homeowners insurance policy. Stupid.
 
docmirror said:
Well, I've got a broker in the state that can turn a loan in 22 days. He did my last loan in Feb, no muss no fuss. But - your experience mirrors mine. I called the broker last week, and he told me his rate, and it was about 1.5 points over what the bank quoted. That's why I went with the bank this time. Now, the bank has balked. I got a call from my local branch mgr, and she's all apologetic and cuddly, but so far - hasn't changed the numbers. I asked her to call me back when the numbers changed, that I don't need apologies. She said she'll fix it, but I have serious doubts. The numbers are coming from underwriting, and they have to make the loan conform so they can resell it on the secondary market.

We'll see what happens. Friday is closing day, and it's going to be a cold day when I pay an added discount point for comm rate plus homeowners insurance policy. Stupid.
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But it is a commercial venture, so the point and a half for a commercial venture should be fair. As for the Homeowners vs. the Fire policy, that is normal for a mortgaged property as well as a Fire policy doesn't cover wind and hail damage and they can't trust you to keep their property in good condition.
 
docmirror said:
Can't. The seller let the loan lapse, and the house goes into foreclosure auction 4 days after my closing date(Aug 1).
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If the lienholder was willing to do the deal, they should be willing to postpone the auction a few more days/weeks.

I used to be a tenant in a rental house whose owner went into foreclosure. I went to the auction to see the results, and whom I might be dealing with as my new landlord, but it was postponed. In fact, probably half of the homes had been postponed. Some guy there who was big into buying foreclosed homes said that was typical, and that many times the lienholder postpones the auction because the owner is still trying to get the loan current, or there's a pending short sale that still needs to be wrapped up.
 
Henning said:
But it is a commercial venture, so the point and a half for a commercial venture should be fair. As for the Homeowners vs. the Fire policy, that is normal for a mortgaged property as well as a Fire policy doesn't cover wind and hail damage and they can't trust you to keep their property in good condition.
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Nope. Fire/liability includes wind, hail, any kind of natural disaster that homeowners covers, just not contents, alternate living, etc. As far as condition, that's a risk the insurer takes. If I don't take care of the house, they can decline the policy. I've done this a bunch already, and it's never been an issue except for this deal. The lender is not going to win this one.
 
LoneAspen said:
If the lienholder was willing to do the deal, they should be willing to postpone the auction a few more days/weeks.

I used to be a tenant in a rental house whose owner went into foreclosure. I went to the auction to see the results, and whom I might be dealing with as my new landlord, but it was postponed. In fact, probably half of the homes had been postponed. Some guy there who was big into buying foreclosed homes said that was typical, and that many times the lienholder postpones the auction because the owner is still trying to get the loan current, or there's a pending short sale that still needs to be wrapped up.
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Yeah - that would likely be the result. Since the property is under contract right now, and I've done all my part except the loan closing, the property would go into suspended pending. However, I don't want it to do that, and I really don't want to be forced into it by leverage from my bank. Even if they did run the auction, I would have an immediate action for lis pendens until it all got sorted out. The trustees won't like that, so it's one more arrow in the quiver should we get that far. Sadly, the seller is an idiot, proven by them letting it get to foreclosure in this market.
 
I guess I will ask the question: Is it a second home as you told the bank or an investment/rental property? :dunno:
I got into the mortgage hell in February, I have great credit, plenty of income etc. My wife and I found a condo in Athens GA for our college student son, getting him out of the dorm and into a nice place at a reasonable price. I used our local mortgage banker, she's a friend, after a week she told us she couldn't do a "condo". Went to a bank in Athens, they could do it, but the rate was higher, about a point higher than a conventional mortgage, they keep the loans in house. I didn't like that deal either. Finally I talked to a different lender at our original bank and she suggested a home equity loan, no points, a couple hundred bucks to close it and we were good to go. :D
Getting a mortgage is a PIA for folks with good income and credit, I can't imagine what people in marginal situations have to do to qualify! :mad2:
 
From a professional and a personal perspective, loan companies are the absolute pits to deal with these days. To an increasing extent, they want to dictate the terms, conditions, and procedures of your insurance.

If you'll rent the home out, a Homeowner (HO-3 or HO-5) policy is not appropriate. Above all other facts, this is a simple truth that someone in that loan department has to know. And if they don't, the whole lot of them are idiots. Ask your agent to make a call to the loan officer on your behalf.

  1. They decide it'll be a commercial venture
  2. You acquiesce and decide to rent it out
  3. They demand an insurance product that requires owner occupancy

Assuming I've got that right, these things do not compute. Is it possible that they're charging you an extra point for it being a "commercial venture" but still assuming you'll occupy it as a secondary residence?
 
N747JB said:
I guess I will ask the question: Is it a second home as you told the bank or an investment/rental property?

Getting a mortgage is a PIA for folks with good income and credit, I can't imagine what people in marginal situations have to do to qualify! :mad2:
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It is whatever they want it to be. Call it a second home, viola! it's a second home. Call it an investment prop, viola! investment prop. But - you can't have it both ways. Second home, no points, homeowners insurance - check. Investment prop, 1.5 discount point - comm rental policy - check. They want to bend me over and stick in then have me felate at the same time. Not gonna happen. Personally, I preferred the investment deal because the discount point is a one time fee, and the insurance savings is recurring. But no, they want the discount point AND the recurring insurance cost.

No relationship between the lender and insurance company.
 
N747JB said:
Getting a mortgage is a PIA for folks with good income and credit, I can't imagine what people in marginal situations have to do to qualify! :mad2:
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They can't, that's what's driving rents through the roof so once again, the rich will take advantage of the poor to increase their net worth.
 
Henning said:
They can't, that's what's driving rents through the roof so once again, the rich will take advantage of the poor to increase their net worth.
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Wife and I were making a joke the other day, our problem is net worth, and income. If we were destitute, a different color, and had crappy credit the lenders would be falling all over us to loan money, low rates, down payment assist, insurance assistance, etc. It would pay to be a homeless illegal alien these days, but I'll stop there...:mad:
 
docmirror said:
Wife and I were making a joke the other day, our problem is net worth, and income. If we were destitute, a different color, and had crappy credit the lenders would be falling all over us to loan money, low rates, down payment assist, insurance assistance, etc. It would pay to be a homeless illegal alien these days, but I'll stop there...:mad:
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Where do you find that happening? I couldn't get a loan on $90k condo with $60k down because I have no credit rating, I don't show up when Wells Fargo looked me up, and I had $80k in their bank, yet they couldn't write the loan.
 
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Henning said:
Where do you find that happening? I couldn't get a loan on $90k condo with $60k down because I have no credit rating, I don't show up when Wells Fargo looked me up, and I had $80k in their bank, yet they couldn't write the loan.
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Did you happen to miss the word "joke"? It's a commentary on the diametrically opposite situations of the conservative wealth, vs the liberal poor. I won't explain it further.
 
docmirror said:
Did you happen to miss the word "joke"? It's a commentary on the diametrically opposite situations of the conservative wealth, vs the liberal poor. I won't explain it further.
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Jokes have truth to them.
 
An elephant, a donkey and a parrot walk into a bar...
 
You may want to hire an attorney rather than getting advice online.
 
Did you get a good faith estimate?
The GFE is supposed to nail down these figures and serve to keep everyone honest.
 
FORANE said:
Did you get a good faith estimate?
The GFE is supposed to nail down these figures and serve to keep everyone honest.
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Oh yeah, I got the GFE. That's what they are trying to change now that it's gone through underwriting.
 
docmirror said:
Oh yeah, I got the GFE. That's what they are trying to change now that it's gone through underwriting.
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Sounds like you needed to hand it over to an attorney. Terms such as predatory lending and bad faith come to mind; these terms if used may help steer the lender toward abiding by the terms of the GFE.
 
FORANE said:
Sounds like you needed to hand it over to an attorney. Terms such as predatory lending and bad faith come to mind; these terms if used may help steer the lender toward abiding by the terms of the GFE.
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Amen, the words 'Bad Faith' in the conversation like "It really appears that you are acting in bad faith" scares insurance companies out of their skin because it typically will add tow zeros to any claim. I've never worked in the banking industry but I figure they have similar rules with punitive damages that apply.
 
When going through these reps purchaing our current home. I had at least half a dozen "because we said so" moments where the Mortgage holder, the mortgage broker and the insurance company had no argument. When I pointed out that they were breaking federal guidelines they just shrugged. My mortgage broker consequently lost his license and agreed to pay some stiff fines to stay out of the pokey. They all ***** and moan and complain about the stricts regs after the bailout but it's really nothing but a few more excuses for them to attempt to screw you over with nonsense and blame it on regulations.
 
bartmc said:
They all ***** and moan and complain about the stricts regs after the bailout but it's really nothing but a few more excuses for them to attempt to screw you over with nonsense and blame it on regulations.
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EXACTLY! This was the second excuse they trotted out; 'well, the federal regulations have gotten a lot tighter. Gee, sorry'. Well BS to that. I know some of the stuff was just fishing.
 
They know you are going to make money with the house and they want a piece of the action, the banking industry is no different from the Mafia.
 
I'm a banker. More specifically, I'm the Chief Compliance Officer for the bank I work for. There is a lot of misinformation and misunderstanding of applicable regulations floating around this thread. First and foremost, a GFE is not required and is not binding on a business purpose loan, which this loan is by Reg Z definitions. Second, are you dealing with a big bank, a local bank, or a non-bank mortgage lender? This can make a huge difference in how things get handled. I recommend dealing with a local bank as the best way to ensure the uniqueness of your personal situation gets considered in determining requirements. If I can be of more assistance, please feel free to send me a private message.
 
docmirror said:
It is whatever they want it to be. Call it a second home, viola! it's a second home. Call it an investment prop, viola! investment prop. But - you can't have it both ways. Second home, no points, homeowners insurance - check. Investment prop, 1.5 discount point - comm rental policy - check. They want to bend me over and stick in then have me felate at the same time. Not gonna happen. Personally, I preferred the investment deal because the discount point is a one time fee, and the insurance savings is recurring. But no, they want the discount point AND the recurring insurance cost.

No relationship between the lender and insurance company.
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What do YOU call it?

A second home or a rental home?
 
It's not whatever you call it. To be considered "owner occupied" and therefore a second home, there is a specific amount of time you must occupy the home yourself each year. If you a planning to do so, it is a second home. If not, it is a non-owner occupied rental property and subject to different underwriting and documentation requirements. It does seem unreasonable that they are not willing to work with you on why a homeowners policy doesn't make sense for a non-owner occupied rental property insurance policy.
 
What most probably should be required is landlord insurance which is kind of a blend between homeowners and commerial policies. This type of policy will provide both hazard protection and liability protection in the event that your actions or inactions as landlord lead to a claim for damages.
 
I'm still going back to the question that was asked. What will be the use of the structure? It does make a huge difference to both the bank and the insurer. A lot of people purchase a house for their kids to live in while they're going to college so that they don't just throw rent money out the window...and then insure the house with a homeowners policy. Since the named insured (the parent) doesn't live there...most HO policies will not provide coverage in the event of a loss. Then they call up calling their insurer a pack of liars and thieves when in reality they lied to their agent when filling out the application.

But I'm surprised that your Dwelling Fire quote was cheaper than the secondary HO quote. It's typically less expensive for a HO policy since it's owner-occupied (even though it provides a lot more coverage).
 
I'll tell you what. I've just decided that it will be my primary residence. Since y'all are interested in the comings and goings of where I live, I just moved there. So - put that in your pipe and smoke it. Now we'll see what other shenanigans they can come up with.

Oh, I do have banking established in the area, receipts for goods and services, pictures of me moving household goods in, utilities, and as of 11:00 today, my drivers license will be at the new house I'm buying.

Go ahead, make my day.
 
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