Real Estate Home Mortgages/fha 203k refinance

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QUESTION: We paid cash for a house with 3 apartments at the end of last year. We have been working on remodeling since, mostly cosmetic so far (although we have turned one of the 1 bedroom apartments into a 2 bedroom). We plan to obtain a cash-out, refinance mortgage to 1. Help with some of the larger rehab projects (like a new roof, new HVAC, etc.) and 2. Recoup some of our original funds to invest elsewhere. We have been wondering if  we might be eligible for an fha refinance mortgage or 203k Home Improvement Mortgage or a combination of the two. I realize that these come with owner-occupied requirements, but I feel like our situation would qualify. While I will not be living in the home, my wife is and will be. To further demonstrate that this is not simply an investment property, if necessary we can provide documentation that her primary residence for the previous year was a rented apartment in another town. In short, we have not lived together for a number of years, but have no plans for divorce (I know it's unusual, but we like it - everyone get's to be king of his/her own castle and we spend time together because we want to, not because we have to). Anyway, what I would like to do is a refinance for 75% of the homes value to avoid PMI, rolling the closing costs into the mortgage. The info I'm reading seems to indicate that I could get up to an additional $35,000 on top of this as a 203K home improvement mortgage, while still avoiding PMI. Other information that may be relevant-I have an fha mortgage on my primary residence. Plus, my wife is not listed on the title of either house or any mortgage. However, Indiana is a joint property state, so it is my understanding that she legally has equal ownership of all property regardless- (she simply seems to have no interest in finances and would rather that I just handle everything- but she does swing a mean hammer). Does all of this sound feasible? What are the holes in my plan ?

ANSWER: Robert,

I'm afraid I am not the bearer of good news. The situation you describe would normally preclude you from obtaining an FHA 203(k) loan, simply because there are too many red flags which need to be explained satisfactorily (most underwriters devote 30 minutes or less to underwriting a loan). However, if you are lucky enough to find an FHA underwriter who is willing to put some elbow grease into your case in order to see what comes out, you may be in luck. There is a saying in the mortgage industry that if you give a difficult loan to ten different underwriters, you'll end up with ten different decisions.

All the best,


Eric

---------- FOLLOW-UP ----------

QUESTION: Can you be more specific than, "too many red flags" ? What are the red flags and what would we be expected to provide in order to get around them ? It is my understanding that fha does does not require both spouses to live in the home to qualify as a primary residence, and that one or the other is adequate to fulfill this requirement.

Answer
By "red flags" I do not mean derogatory items; What I mean is items that need to be explained and fully documented. Since the situation you've described does not qualify you for an AUS (automated) approval, it falls into the lower tier of manual (human) underwriting. At that level, the requirements are more stringent, as are the requests for documentation.

The purpose of this Q & A service is not to do a dry-run underwriting of your loan request, but to give you a general idea of what obstacles, if any, you are facing. When a loan is underwritten manually, each questionable item in the application requires a higher-up signing off on it. The more eyes looking at your application, the more objectionable items can be expected to be found, with a corresponding need to explain them.

If I were a betting man, I'd put the probability of denial at 65%. That still leaves you with a 35% chance of obtaining approval.


Eric

About Real Estate Home Mortgages
This topic answers questions related to purchasing a home, owning a home, home ownership, mortgage education, mortgage applications, and mortgage needs whether buying a first home or refinancing a current loan. Issues related to home ownership, home equity, mortgage education, refinacing options, home improvment finacing, first time home loans, home equity loans, vactation home loans, and mortgages for investment homes are dealt with here also. Though not the primary focus of this topic, Home Equity Lines of Credits (HELOCS), reverse mortgages, and calculating home equity may also be asked. If you do not see your home mortgae, home finacing, or home equity question answered in this area then please ask a question here

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Eric Forster

Expertise

Did your last mortgage broker or lender trick you into a messy situation which could cost you your home? I've been close to 30 years in the mortgage industry, and I've seen it all. Believe me, it is not pretty. As the owner of a mortgage company I am called frequently to testify as an expert witness in mortgage fraud cases and other cases where lenders did not fully disclose the terms of the loans they were offering to the borrowers. I have seen fraud being committed by borrowers - and by lenders. It's a tough world out there. And by the way - you are invited to visit my website, www.real-estate-expert-witness.net.

Experience

More than 25 years in loan production and underwriting in Southern California.

Organizations
Mortgage Bankers of America (Southern California Chapter)

Publications
Former columnist for AOL Financial Center and the author of a mortgage primer.

Education/Credentials
MBA (Finance)

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