Author Topic: Forced to justify purchase of less expensive house  (Read 8615 times)

Emg03063

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Forced to justify purchase of less expensive house
« on: February 05, 2015, 05:35:51 PM »
My situation:  recently relocated, kept my previous home as a rental for various reasons, and am currently buying a house for just under 1/4 what I paid for my last one (Mustachian for the win!)  Two days before I'm scheduled to close, I get the following email from my loan processor:

Quote
Mr. 03063,
 
I have your loan out of underwriting and there are several items we need to clear before we can go back to the underwriter. I need...[several items omitted]...

4.       Provide detailed motivation letter for purchasing a home of lessor value and construction for primary residence.  (since you are retaining the property in XX valued at $170K+ the home currently renting is in neighborhood with home values > $100K)....

Thanks,
Ms. Loan Processor

After getting over my astonishment at having to justify the purchase of a less expensive house, I crafted the following response:

Quote
Dear Ms Loan Processor:

My motivation for purchasing a home of lesser value is my desire to meet my housing needs in the most cost-effective manner possible, thus preserving a greater portion of my income for other uses than would be possible were I to purchase a more expensive home.   Given that I found the property at [address] to be satisfactory for my housing needs for the foreseeable future, I did not deem it to be in my interest to spend any more money for a more expensive property.  Please feel free to contact me at [my phone #] if you have additional questions regarding this matter.

Sincerely,

Emg03063

I did manage to refrain from including references to mustachianism and from offering a lecture on the potential for declines in real estate value. 

« Last Edit: February 05, 2015, 05:39:49 PM by Emg03063 »

deborah

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Re: Forced to justify purchase of less expensive house
« Reply #1 on: February 05, 2015, 05:52:41 PM »
Poor loan processor - she probably has a list of things that raise alarms - maybe you are buying this house because you are going bankrupt or something (maybe as a love nest?)...

It is silly that some mustashian things are so unusual that they do raise questions.

tomsang

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Re: Forced to justify purchase of less expensive house
« Reply #2 on: February 05, 2015, 06:00:11 PM »
Looks reasonable to me. There are a lot of people that say they are going to move into this new cheaper house, but in actuality it is a new rental that they want the lower primary residence rules for a down payment and the better interest rates.

Nice work on your new house.

irishbear99

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Re: Forced to justify purchase of less expensive house
« Reply #3 on: February 05, 2015, 06:03:01 PM »
Wow. Just wow. I doubt I would have even given the loan processor that much information. I would have just said, "Of the houses I viewed, the one at [address] is the one I liked the most and $X is the purchase price the current owner accepted."

I mean, really. Any more than that is none of their business.

Oh, and before my head explodes...congrats on your new, Mustachian home purchase!

mdc

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Re: Forced to justify purchase of less expensive house
« Reply #4 on: February 09, 2015, 08:24:38 AM »
Looks reasonable to me. There are a lot of people that say they are going to move into this new cheaper house, but in actuality it is a new rental that they want the lower primary residence rules for a down payment and the better interest rates.

Nice work on your new house.
Agreed. More worrying that she can't spell "lesser".

On the other hand, strictly a home of "lessor value" is a home that is valuable to a person who is leasing it. So perhaps it's all a clever legal ruse!

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Re: Forced to justify purchase of less expensive house
« Reply #5 on: February 09, 2015, 08:32:57 AM »
Looks reasonable to me. There are a lot of people that say they are going to move into this new cheaper house, but in actuality it is a new rental that they want the lower primary residence rules for a down payment and the better interest rates.


This is EXACTLY what I figured flagged it.  It looks like you are purchasing a rental home (because it says you are retaining the other house?)- and you can't purchase rental homes at the same rates as a primary mortgage.

KD

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Re: Forced to justify purchase of less expensive house
« Reply #6 on: February 09, 2015, 08:53:41 AM »
Good for you!  I would've probably said 'none 'ya!!'

I think the previous poster is correct and they may come back to you and more explicitly need to hear that you're keeping the other as a rental and will actually be living in the new one.

zephyr911

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Re: Forced to justify purchase of less expensive house
« Reply #7 on: February 09, 2015, 09:43:09 AM »
Looks reasonable to me. There are a lot of people that say they are going to move into this new cheaper house, but in actuality it is a new rental that they want the lower primary residence rules for a down payment and the better interest rates.

Nice work on your new house.
Agreed. More worrying that she can't spell "lesser".

On the other hand, strictly a home of "lessor value" is a home that is valuable to a person who is leasing it. So perhaps it's all a clever legal ruse!
As a small-time landlord looking to make it big, I can attest that all my properties are of "lessor [landlord] value" or I'd sell them off. They also have lessee [tenant] value as well, as evidenced by the rent I continue to receive...

I have encountered this request myself twice and the above replies are correct - it is just to verify that you're not gaming the system for cheaper investment financing. Most institutions will run this check any time you buy in the same area and don't sell your previous residence, with extra scrutiny for downsize moves. The idea of renting out the "better" house is so alien to them that one mortgage broker advised me to just list my old home for sale and then delist it after completing my purchase. (He actually did believe me and thought it was a great idea, but felt it was easier to get it past underwriting if we just faked it)
Good for you!  I would've probably said 'none 'ya!!'

I think the previous poster is correct and they may come back to you and more explicitly need to hear that you're keeping the other as a rental and will actually be living in the new one.
Exactly.

When we downsized in October and received this same request, I listed all the quality of life factors - in our case, walkability was a big thing so I named the businesses and public services in the area, as well as other location benefits. I also mentioned the fenced yard for our dogs and the reduced cleaning burden. I kept it short and sweet, maybe 3-4 sentences, and invited them to contact me for any questions or clarifications. It worked.

I don't know if they even read these, TBH... sometimes I think it's just CYA in case the S hits the F later.
« Last Edit: February 09, 2015, 09:49:44 AM by zephyr911 »

Emg03063

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Re: Forced to justify purchase of less expensive house
« Reply #8 on: February 11, 2015, 03:53:16 PM »
Probably.  If I wasn't two days from closing without an underwritten loan, I probably would have said nunya, but at that point, placating the underwrites impressed me as the path of least resistance.  They did accept my explanation, and we closed on time.  My monthly housing cost is now $300 for PIT&I!  This probably makes me FI at this point (I haven't run the numbers to see), but I'm still 'staching to get debt free and have to ability to upgrade lifestyle a bit in the future.

arebelspy

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Re: Forced to justify purchase of less expensive house
« Reply #9 on: February 12, 2015, 01:44:54 PM »
Hah, thanks for the laugh.  Well played.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
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gimp

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Re: Forced to justify purchase of less expensive house
« Reply #10 on: February 12, 2015, 01:50:17 PM »
My monthly housing cost is now $300 for PIT&I!

Fuck you, I pay like 6x that in rent. Fuck.

Mod Edit: Really?
« Last Edit: February 12, 2015, 02:26:51 PM by arebelspy »

clarkfan1979

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Re: Forced to justify purchase of less expensive house
« Reply #11 on: February 13, 2015, 07:07:39 AM »
Great news. I thought the post was going to be pressure from peers to buy as much house as possible. Buying a more affordable house and having to justify why are you are choosing to be responsible is a very weird experience. 

I also struggled with my last loan officer. They told me that I couldn't qualify for a new house because I owned a second home. I told them that it was a rental and had rental income. The loan officer said that it didn't matter. I asked them if it was possible for an owner of a 100 unit apartment complex to buy a house. They said, "yes, but that is different because the owner of an apartment complex will claim their rental income." I closed with, "why are you assuming that I don't claim my rental income on my taxes? I have claimed rental income for the past 4 years." They ended with, "Well most people don't claim the rent on their taxes, so I guess that you are different." The loan officer was very insistent that I couldn't qualify. I wonder how many other people she talks out of loans based on false assumptions. The loan was from a credit union with really good rates and my assumption is that they don't make a commission so they don't lose anything if the loan doesn't go through.   

Debtless in Texas

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Re: Forced to justify purchase of less expensive house
« Reply #12 on: February 13, 2015, 07:14:49 AM »
Quote
"Well most people don't claim the rent on their taxes, so I guess that you are different."

Was that loan officer high? So most people who rent out a home commit tax fraud? Not likely.

KD

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Re: Forced to justify purchase of less expensive house
« Reply #13 on: February 13, 2015, 07:35:42 AM »
Clarkfan1979, ask to talk to the Manager of the Credit Union.  They should be able to bypass this loan officer and/or explain their policy to you in a more useful fashion.  Can you override their objection by bringing in copies of past years tax returns? 

BDA_Moose

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Re: Forced to justify purchase of less expensive house
« Reply #14 on: February 13, 2015, 09:35:07 AM »
My monthly housing cost is now $300 for PIT&I!

Fuck you, I pay like 6x that in rent. Fuck.

Mod Edit: Really?

I pay 11x that... $1800/month doesn't seem terrible depending on area.  High yes, but things can vary widely

For all those saying "nunya" in this one... are you serious?  This is EXACTLY "ya".  The company extending the loan is taking a risk, they want to understand their risk.  This is by definition, their business.

BDA_Moose

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Re: Forced to justify purchase of less expensive house
« Reply #15 on: February 13, 2015, 11:02:05 AM »
My monthly housing cost is now $300 for PIT&I!

Fuck you, I pay like 6x that in rent. Fuck.

Mod Edit: Really?

I pay 11x that... $1800/month doesn't seem terrible depending on area.  High yes, but things can vary widely

Agreed. I find it a bit humourous when people arbitrarily declare a particular rent figure as being "high" or imply the same. My rent is also a lot higher than $1800/month. I don't feel the need to curse at people paying that little. High rent areas are not great for retirement, but they are fine for the accumulation phase when your salary dwarfs housing costs anyway.

One of the reasons I never really read the forums, and have never bothered to post until now... too many very vocal and narrow-minded views - "if you don't do THIS then you're a terrible baby-eating monster from Mars!  Kill the monsterrrrrrrrrr!!!!! AAAGhghghghahghGHG!" MMM is about freedom and conscious choice, at least to me.  The whole point is that there's a "better way" but there's also wiggle room for your circumstances etc.  It's a philosophy, not a formula.  The forums are often (I find) dominated by the formula rather than the principle

LucyBIT

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Re: Forced to justify purchase of less expensive house
« Reply #16 on: February 13, 2015, 11:13:21 AM »
My monthly housing cost is now $300 for PIT&I!

Fuck you, I pay like 6x that in rent. Fuck.

Mod Edit: Really?

I pay 11x that... $1800/month doesn't seem terrible depending on area.  High yes, but things can vary widely

Agreed. I find it a bit humourous when people arbitrarily declare a particular rent figure as being "high" or imply the same. My rent is also a lot higher than $1800/month. I don't feel the need to curse at people paying that little. High rent areas are not great for retirement, but they are fine for the accumulation phase when your salary dwarfs housing costs anyway.

There's this part in The Devil Wears Prada novel where the narrator's mother asks her if $2,200/month for a 1-bedroom apartment (in Manhattan) isn't an awful lot of money, and the narrator narrates (paraphrasing most of it): "$2,200/month will get you a 3-bedroom house in Houston, a brownstone in Chicago, or a goddamn castle with a moat in Cleveland. We knew [it was a lot of money]."

Like, you mean, different areas have different rent figures? Like, omg NO WAY

clarkfan1979

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Re: Forced to justify purchase of less expensive house
« Reply #17 on: February 15, 2015, 07:05:40 AM »
Clarkfan1979, ask to talk to the Manager of the Credit Union.  They should be able to bypass this loan officer and/or explain their policy to you in a more useful fashion.  Can you override their objection by bringing in copies of past years tax returns?

I apologize for any confusion. This loan happened 3 years ago and I was able to get the loan. She stated that if I claimed my rental income on my taxes that I could qualify.

Another thing that was a little disappointing but more understandable was that they go off of your rental income from your taxes, not your currently rental payment. If it's February 2015 and you didn't do your 2014 taxes yet, they will go off of your 2013 tax return, not your current rental rate. 

KD

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Re: Forced to justify purchase of less expensive house
« Reply #18 on: February 15, 2015, 08:17:46 AM »

For all those saying "nunya" in this one... are you serious?  This is EXACTLY "ya".  The company extending the loan is taking a risk, they want to understand their risk.  This is by definition, their business.

:)  Yes, I'm fairly serious...only I probably would've just thought 'nunya' and asked "Why do you need that information?"  At this point in the process they've likely already pulled my credit score and been supplied with a net worth statement and have a fairly decent idea of whether the house would meet appraisal.  To go further than that into 'probing' my honesty and veracity and even further into my private financial world would require much more information on their part as to WHY. 

I understand fully where you are coming from, but just trotting my entire financial picture out for them is suspect on my part.  Of course I did work in Credit/Collections before FIRE so I'm old school and new trends have come about.  Yes THAT kind of old school...my word is my bond.  You've already seen my excellent credit score and you know my net worth and the house either stands good for the balance of dollars I'm asking them to put into the deal or it doesn't.  Yes, I know 'covering their butt' is their business.  I equate it to 'I'm letting you see my smile, and we might make it to a passionate kiss, but just because I let you in here doesn't mean you get to tickle the entire back of my tonsils too!"  Keeping my private business private is MY BUSINESS.  I suppose it doesn't help that we were once the victims of a break in at a mortgage company we had recently applied to years ago where our financial info was 'violated'.

NEED to know is important to me.  Once they explain why I would try to assist them in reaching their goal w/o violating my own trust.

Seems like OP worked it out! 
« Last Edit: February 15, 2015, 08:19:18 AM by KD »

BDA_Moose

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Re: Forced to justify purchase of less expensive house
« Reply #19 on: February 15, 2015, 11:33:45 AM »
You understand you're asking a company to take a risk on you right?  To them, there's a very real (though hopefully remote) chance that they lose money in this deal.  Again, it is by very definition their business to understand the agreement they're entering in to.  In fact, there's an extremely good chance that they're legally obligated to, to protect their owners/investors/shareholders. 

It's not some sort of moral or otherwise objection to the potential borrower's philosophy or objectives on the part of the load officer, it's not personal, it's ensuring they're not giving away money on a bad risk.  To the "normal" world, it's a pretty strange scenario so it flags up a "hey, check this out!" as part of their internal controls, which are likely reviewed as part of an annual audit.   It sounds like OP had a pretty easy time complying and satisfying the requirement. 

If you're looking to buy a car and the salesman is asking for specifics of why you're renting out one house and living in the other, sure tell him to pound sand.  If you're looking for money to facilitate a transaction, the party providing that money has every right to understand what's going on, to that counterparty that part of your "private financial world" is no longer private.

Since you're cool with words being bonds and all that.... my credit is impeccable, umm.... can I like, borrow $100K?  I'll TOTALLY pay you back next year!  Just a little liquidity problem, that's all... yeah, that all...

KD

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Re: Forced to justify purchase of less expensive house
« Reply #20 on: February 15, 2015, 12:50:01 PM »
hahaha!!  I forget to report that I was living in a small town and borrowing from the same man (banker) at 50+ that I borrowed from when I got my first car on credit at 16, who also has access to the amounts of dollars I've kept on deposit for years at his 'banking emporium'.  So, um, yeah, we have some history...and major family ties in the industry and town and he knows I wasn't about to bust loose and move on anytime soon, but at any rate I'd still want to understand WHY they needed the info. 

A 'it's a rent house Bob' or a 'we're keeping the other one for a rent house, Bob' and the value in the house for us to partner up on this deal at that point wasn't enough?  Ehhh.  Bob wouldn't get to play in my sandbox and I wouldn't get to play in his anymore.  You have to understand this would be a bigger loss for Bob than me.

I've made Bob himself privately and his bank LOTS of money thru the years and helped his son get into some places he'd otherwise not be privy to go.  Bob & I have a history.  Bob wants more info?  Bob tells me why.  Otherwise I tell him to just cut me a check for the cash and pay for the house outright w/my own money or go elsewhere for a loan and Bob doesn't earn any portion of that deal or any others I do in the future.  Bob loans me money.  His is a service industry.  I don't work for Bob.  Bob sees that I have a line of credit to do the deals I want done.  Bob wants to get tight fisted?  I move on to another lender who wants to play with me and my deals.  I explain this to Bob.  Bob explains it to the BofD.  They like their protocol more than my business?  So be it.

Bob knows I influence my family.  They don't want to see me (& those trust funds of my cousins of which I am the trustee & multimillion dollar business accounts of my family's grocery stores/mortgage businesses) go elsewhere cause some one gave the stink eye on the too damn nosey side of the line over a measly little deal.  My family can make money but are piss poor managers of it.  I MAKE & KEEP MONEY.  I am the family financial adviser. 

Maybe it is a rural thing but either we've been good to each other or not and at this historical stage of the game?  Nunya Bob is a good answer for me.  Bob steps up and finds out what will make me STILL want to do the deal with him or he steps out and someone else gets into the 'play banker w/KD' seat.  Perhaps I'd have to remind Bob of his place.  Sometimes it's nice to be sitting on your high horse just because you can.  Some times it's nice to live in a smaller town where you know everyone's business including the name of Bob's last three mistresses, know his wife, Mom & his now quite elderly (she's 103) grandmother all of whom would skin him alive if they knew what all Bob did.  Including the fact that Bob made an illicit proposition to me when I was 14 years old (turned down).  Ahhh. Bob. Bob. Bob.  tsk tsk  Some times it pays to keep your own nose clean and/or not sh*t where you eat.

KEY:  Besides which either the house stands on it's own two feet and is good for the loan (would sell for over the price of the deal) or I'm not buying anyway with a mortgage. Bob knows this.  We have a history.  We are good to each other.  Aren't we, Boooooooob?  I could just as easily go 'in house' to family mortgage company and do the deal.

Everyone may not have a Bob by the short hairs.  But I do.  Thanks Bob.  The key here is not needing Bob.  I don't need him.  He needs me.  On his good side.  Bob & I have talked about my family being in a good place to start our own family bank.  Bob goes pale. 

Step up or step out.

Bracken_Joy

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Re: Forced to justify purchase of less expensive house
« Reply #21 on: February 15, 2015, 06:20:03 PM »
My monthly housing cost is now $300 for PIT&I!

Fuck you, I pay like 6x that in rent. Fuck.

Mod Edit: Really?

I pay 11x that... $1800/month doesn't seem terrible depending on area.  High yes, but things can vary widely

Agreed. I find it a bit humourous when people arbitrarily declare a particular rent figure as being "high" or imply the same. My rent is also a lot higher than $1800/month. I don't feel the need to curse at people paying that little. High rent areas are not great for retirement, but they are fine for the accumulation phase when your salary dwarfs housing costs anyway.

There's this part in The Devil Wears Prada novel where the narrator's mother asks her if $2,200/month for a 1-bedroom apartment (in Manhattan) isn't an awful lot of money, and the narrator narrates (paraphrasing most of it): "$2,200/month will get you a 3-bedroom house in Houston, a brownstone in Chicago, or a goddamn castle with a moat in Cleveland. We knew [it was a lot of money]."

Like, you mean, different areas have different rent figures? Like, omg NO WAY

Exactly! When I moved to my area, I felt SICK paying $1600/mon for a 1br/1ba. Until I looked up and realized the average was $1650/mon. I feel better now.

riverffashion

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Re: Forced to justify purchase of less expensive house
« Reply #22 on: February 16, 2015, 12:12:43 AM »
Nice move.

LouLou

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Re: Forced to justify purchase of less expensive house
« Reply #23 on: February 16, 2015, 10:03:03 PM »

One of the reasons I never really read the forums, and have never bothered to post until now... too many very vocal and narrow-minded views - "if you don't do THIS then you're a terrible baby-eating monster from Mars!  Kill the monsterrrrrrrrrr!!!!! AAAGhghghghahghGHG!" MMM is about freedom and conscious choice, at least to me.  The whole point is that there's a "better way" but there's also wiggle room for your circumstances etc.  It's a philosophy, not a formula.  The forums are often (I find) dominated by the formula rather than the principle

I think you have just described the essential problem of any group attempting to follow a philosophy, concept, or religion together.

I confused a bank about my recent home purchase. We just a bought, in my opinion, an expensive house.  But as nearly nearly as much as we can "afford" in the mainstream sense. Our loan guy was genuinely confused, and even said so.

gimp

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Re: Forced to justify purchase of less expensive house
« Reply #24 on: February 18, 2015, 12:56:24 PM »
@rebs:

Wow, maybe I should put up some sarcasm tags, since apparently people think I'm seriously mad at someone for paying less rent than I am.