Charlene and her daughter Tanya wanted more out of life than their small two bedroom one-bath apartment could provide. Tanya had been begging for a cocker spaniel puppy for two years now. Apartment rules would not allow a dog. The laundry facilities were downstairs and at the far end of the building. Laundry tended to back up until the weekends when at an odd hour, in order to schedule an uninterrupted couple of hours as to avoid the rush on the washer and dryers. Many times the dollar changer was out of change. So upon leaving work, Charlene would need to make a special trip to the bank to load up on quarters. She had her paycheck direct deposited so this was a real pain. Anyway, with thin walls sleep was a real luxury and many a night, in spite of complaints to management, she got little sleep. Last week, someone had broken into her car by breaking her window and stole her radio. How no one had seen or heard the commotion was amazing. The police theorized that the thief must have wrapped something around the striking tool to blunt the sound. Insurance only covered a part of the loss. The apartment scene was really wearing thin on Charlene’s last nerve.
It was 6:00 AM and the fun was about to begin. Tanya, being in the fourth grade had qualified for a special magnet school with advanced studies but was almost an hour away. They would have to leave no later than 7:00 AM to arrive at the school and allow for time to get to work.
Work was going fantastic for Charlene. With a base salary of $36,000 at a local well-known health maintenance company which allowed Charlene to make an additional $50,000 in sales commissions. Charlene had been rewarded with sales awards for performance for the past two years. With the divorce and protracted child custody issues, Charlene’s credit had hit bottom. Chapter 13 bankruptcy had been considered, but with the great years at work, Charlene pleaded with her creditors to set up a payback program so that she could dig out of the deep financial hole. In mediation, Charlene had made a deal in the custody that her ex-husband would keep the house but would relinquish his battle for full custody. Demetrious, her ex-husband was slow on the mortgage payment, and further put Charlene’s credit rating under attack. Eighteen months ago, Charlene went back to court to enforce the property settlement where her ex-husband was to refinance the mortgage and get Charlene off the mortgage obligation. Demetrious was fighting this as the rate on a B/C subprime loan with six thirty-day lates was going to be 3% higher than the sweetheart loan he had. The judge ordered him to make it happen.
It had been fourteen months ago since the mortgage obligation showed a paid status on her credit report. It was a tough road rebuilding Charlene’s credit but she was getting close to getting things paid off. She had not been able to save anything due to the credit payback plan. Demetrious had run up a lot of the credit card debt, but Charlene was fully on the hook for it as they were joint accounts. Charlene and Tanya felt like they were getting close to making big changes.
Charlene had been attending a Home Buying Clinic sponsored by her church for the past year. Fortunately, childcare was available at the church during the three hour sessions. Tanya was able to do a little studying as well in a far corner of the large room. Budgeting, credit repair, together with the home buying advice was all being discussed. Charlene had been doing well on her plan, but her middle credit score still hovered around 570. At the last meeting Mr. Wilson discussed many of the opportunities to buy a home with creative financing. Charlene pressed Mr. Wilson for more details. Charlene asked Mr. Wilson, who happened to be a Real Estate Broker and a Mortgage Broker, if that might work for her. After class, Mr. Wilson took Charlene’s information and shared with her that she may have a shot at doing something right away. Charlene went on to explain, she wanted to get something closer to work and to Tanya’s school.
Mr. Wilson said he would call tomorrow with some possibilities. Charlene had already shared with Mr. Wilson that she needed a minimum of three bedrooms, two baths with a large garage and fenced in back yard in the area previously mentioned.
At work the next day, it was 10:00 AM and Mr. Wilson was on the line sharing with Charlene that he had identified six vacant home in the area with some good sales pressure on the seller to do something ASAP. Mr. Wilson had called each listing agent and explained that he had a qualified buyer and went on to share that if the buyer paid the listing price inquired whether the seller would pay all the closing costs and prepaids AND would hold a 5% Loan To Value second mortgage. Charlene, with her credit score and history could get a 95% Loan To Value loan.
Four turned Mr. Wilson down flat. Two owners indicated through their agents that they may have an interest. There was a three and a four-bedroom home available. Charlene looked at both of them and preferred the four bedroom as it would allow for an in home office and a separate bedroom for her mom when she visited from out of state. Tanya was excited with her room and large yard. The owner had left a washer and dryer. No quarter slots were visible. Charlene asked Mr. Wilson if he could make this happen. Mr. Wilson emphatically yes. He went on to explain if not this one another one in this soft real estate market. Mr. Wilson asked Charlene if she wanted to think about it. Charlene said no, let’s do it, now. Mr. Wilson wrote up the offer on the spot. The list price was $245,000 with taxes of $3,500 and insurance of $2,400. Due to the 570 credit score and past history, the new mortgage would need to be a subprime B/C loan with a 2years fixed at 8.75% then becomes adjustable for the next 28 years. The first mortgage of $232,750 at 8.75% would give a payment of $1,831.05/month. The seller held second mortgage would be $245,000 x 5% = $12,250 with a rate of 9.0% on a 10 year term and a three year balloon would have a payment of $144.18/month. The total payment then would be $1,831.05/month on the first mortgage + $144.18/month on the 2nd mortgage + $291.67 in taxes + $200/month insurance with a total payment of $2,466.90/month for principal interest (on both loans) and taxes and insurance. Charlene’s gross income of $7,166.67 verifiable over a two year period with current year to date income indicating the commissions continuing and now with minimal debt her debt to income ratio to qualify for the loan was calculated at $2,466.90 PITI + $350 debts = $2,816.90/$7,166.67 = 39.30%. The lender guideline was at 50% Debt To Income Ratio. Charlene had made her rent on time for the last 12 months and although her payment shock was $1,400 higher per month over the rental amount, her fully documented income more than demonstrated the ability to repair. The seller accepted the offer with a three week closing. Charlene had to write a Letter Of Explanation (LOE) explaining what had happened in the past for her credit problems and what she had done to turn it around and have given it to Mr. Wilson to share with the lender underwriter. Mr. Wilson explained with a good two year mortgage history and other good credit payments that her score would go up and on the two year mortgage anniversary he would be able to seek a much better rate and a lower payment through a rate and term refinance. Mr. Wilson explained the area would experience some appreciation even in the current soft market.
The listing agent had called Mr. Wilson explained the owner was moaning about the fact that two other offers had come in slightly less than the list price without the benefit of the owner holding a second mortgage. Mr. Wilson shook his head confirming once again, deals wait for no one.
It was moving day. Charlene and Tanya left the apartment for the last time and met the movers at the new home. Charlene put the key in the door and pushed it open to view her new home. Charlene picked up Tanya with a big hug and swung her around with her legs flying in the air for three full turns. Big grins were plastered on their faces. A door slammed and Charlene and Tanya went back to the door. It was Mr. Wilson. He had a box with him and a huge smile. He knelt down to Tanya and slowly opened the box. It was a six-week-old cocker spaniel. Charlene, put her hands over her mouth to conceal her joy and just nodded in Mr. Wilson’s direction and said, “thanks for everything Mr. Wilson. Thank you.”
Dale Rogers
www.sellerhelpsbuyer.com
www.brokencredit.com
Dale Rogers is a thirty-year mortgage veteran and frequent contributor to the Broken Credit Blog. The BCB is a free website created to assist the general public with information about credit repair and responsible mortgage lending.
http://www.BrokenCredit.com
http://www.sellerhelpsbuyer.com
Tags: Chapter 13 Bankruptcy, Credit Repair, Debt To Income, Divorce, Seller held 2nd mortgage, Thirty Day