I have written about five or six columns about the nuances of the mortgage industry showing borrowers and would be borrowers what they can do to improve their situation with loans and programs that are already on the books. This column is dedicated to practices that you, the borrower can't do even though it makes sense to you. This will give you a view of how the lenders think and about how far you can go.
For the most part you cannot pull out unlimited amounts of cash from your property even though you have the earnings, the loan to value is in line and in reality it's your money anyway. I once did a loan with a sub-prime lender where I pulled out about $1.8 million in cash from a property that was valued at about $5.5 million. The cash came out in a $3.2million dollar loan on the borrower's primary residence and the cash was used to purchase land for his business. The lender had a very difficult time trying to sell the loan and will not allow more than about $500,000 in cash out at this time.
All lenders have limits on cash and my best guess is because once you reach $100,000 over the current loan the interest isn't tax dedcutible. Deep down I believe they feel that the borrower may be "selling" them the property by taking maximum cash out. I have never been able to get a definitive answer from any lender. Conforming loans up to $417,000 for a single family residence allows 100% cash out up to generally 80% of the value of the house. There are exception"s up to 90%.
Second homes are harder to pull cash out of and rentals (1 to 4 units) are the hardest properties from which to pull dollars.
If your house is on the market you cannot refinance the property. Some lenders will allow you to pull the house off the market and refinance immediately or within a short period of time. It isn't unusual to have the lender insist on a one year prepayment penalty on the new loan, although I know of a major bank which allows immediate refinancing without a prepayment penalty.
When it comes to stated income loans certain rules apply. If a couple applies for a stated income loan and both are working then the one with the lowest score rules, not the highest score. That is why many lenders suggest you quit claim off the lower score borrower if the stated income for the remaining borrower will carry the loan.
There are sub-prime lenders that will allow you to use the higher score, up to 100 points higher, for a cost of 1/2 point. It is an easy decision to make by comparing the results both ways versus the cost .
Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom.
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