Real Estate Matters

Even with good credit, purchasing a home these days can get complicated

By Ilyce R. Glink and Samuel J. Tamkin
Saturday, September 11, 2010

We live in Alexandria. We found a townhouse that we were interested in purchasing for about $720,000 (it was listed at $775,000). We talked to a broker, who said we qualified and had a good credit score, but he found out that the developer still owned either four of the 12 or four of the 20 units. As a result, he didn't think we could get a lender to finance us unless we put 20 percent or more down -- and still, it would probably be at a high rate. The Realtor strongly advised against pursuing the purchase.

We understand lending has tightened considerably, but we have never heard of this. Can you help confirm whether this is true or offer some advice? The townhouse has been on the market for a while. It is now listed with a different Realtor. The couple that owns the home is trying to relocate. Before this came up, the Realtor thought it was a great place that we could probably get a good deal on. We're told the listing agent's contract is about to expire, and the couple might then have to turn the property over to their employer's relocation department. This all sounded suspicious to us.

In my new book, "Buy, Close, Move In!," I spend 60 pages talking about how tight lending has become -- even for people who have good credit. Buildings have to be approved by Fannie Mae, Freddie Mac and the Federal Housing Administration, or you cannot get financing for your purchase. And even then, there are rules that prohibit a building from gaining lender approval.

For example, a condo association with more than 15 percent of homeowners behind on their monthly payments won't be approved for new financing that relies on Fannie or Freddie. You can have financing difficulties when one unit owner or the developer owns multiple units in the condominium building.

If your Realtor and broker are strongly urging you not to purchase this property, listen to them. There are plenty of other homes for sale. Find one where financing will not be an issue -- or you might have trouble reselling the unit down the road.

For more information about specific issues relating to this building, talk to a mortgage lender or broker. Have that person walk you through the numbers. Explain the building's situation, and see whether the lender can explain the financing problem and your options. Once you have that information, you can decide how to move forward.

My wife and I are thinking of refinancing. We have done so once before and have been in the house for 10 years. Our loan has a balance of $238,000, and we have almost $100,000 of equity in the house now. We pay 5.5 percent interest, and we are thinking of getting a new 30-year fixed-rate mortgage at 4.1 percent. I realize haggling with them for a 'free' refinance is useless, but how do we know whether it is the right time to refinance?

We do want to reduce our monthly payments and would see some money down the road should we decide to pay off early. Can you offer any advice?

I think you should refinance -- but only if you can cut the remaining term on your loan. You also need to compare loans on an apples-to-apples basis. In other words, you may want to trade in your 30-year fixed-rate mortgage at 5.5 percent for a 15-year loan at or below 4 percent. What you're suggesting will add an extra 10 years of interest onto your loan.

You can ask your lender to run a comparison between the two loans and bump up your new loan payment to an amount that would pay it off on the same date as your current loan. If your current monthly payment is about $1,700, your new monthly payment for a new 30-year loan at 4 percent will be about $1,150. That's a significant monthly savings. But over the long term, you'll wind up paying a lot more money by keeping that loan an extra ten years.

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