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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127777  
Subject: Re: question: down payment on my first home Date: 5/15/2013 1:14 AM
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I am about to buy a property and I do plan to live there, but I travel a lot for work.... so what happens if I need to move to another country for a few months just 3 days after I purchase the property?

Are you going to rent it out when you are out of the area? If so, that could be an issue. If you are not going to rent it out, then you are probably okay, as there are generally some weasel words in the occupancy clause - but you need to get the occupancy clause that your lender uses.

And it would be short-sighted from the lender not to allow me to rent it under those conditions.

Well, the expectation is that if that's the way your job/life is, that you would buy a house that you could afford to pay for even if you are out of the area, without having to rent it out, since it's *supposed to be* your primary residence. I would say that with your situation, it would be short-sighted of you to buy a house that you can't afford to pay for when you get called out of town unexpectedly.

By the way, PMI is evidently a scam in itself born out of greed and banks making the rules. Why pay mortgage insurance? If i stop paying the mortgage they get my house, keep my down payment and kill my credit. Isn't that enough?

No. Mortgage insurance is to protect the lender. When foreclosing, the lender generally loses at least 20% of the value of the home, between legal costs, carrying costs, possible damage repair and selling costs. Since you are choosing to buy with less than 20% down, the lender is requiring you to buy PMI to protect them against loss. If you had chosen to put 20% down, they would not require it.

Another way that you can avoid PMI is to do 80/10/10 or 80/15/5 financing, if you can find it. You will get a first mortgage for 80%, and then a second mortgage or HELOC for 10% or 15% of the value, and do a downpayment for the rest. The hook? The 2nd mortgage/HELOC is generally at a higher rate, because it's more risky to the lender holding that loan, as they generally recover very little, if anything, in a foreclosure. This type of financing was all the rage during the real estate bubble, but is difficult to find and qualify for now, as lenders are much more risk averse now.

Of course, if you don't like those options, you always have the option to wait until you can put 20% down to avoid PMI or 2nd mortgages/HELOCs.


Moreover, when you talk about the form 1003 where you are required to say that "you intend to move to your new property within 30 days".... well yes I do intend to do so, but with my luck I could get fired or demoted the day after signing that 1003 form and I cant move into the new house even if i have all the best intentions to do so... So what happens then? what are my options? Do I have to stop eating to pay the mortgage, or else risk pulverizing my hard earned credit and be foreclosed?


Well, here's a link to a Form 1003 that you can peruse yourself: https://www.fanniemae.com/content/guide_form/1003rev.pdf It says 'intend' - so I guess the question is, how can you prove your intent?

Finally, do you have to sign something that specifically says that "you cannot rent for a year"?

Different lenders have different occupancy rules, so you would need to get a copy of the forms that they will have you sign at closing. Here's what the occupancy rule on my most recent mortgage (Oct, 2012) said:

6. Occupancy. Borrower shall occupy, establish and use the Property as Borrower's principal residence within 60 days after the execution of this Security Instrument and shall continue to occupy the Property as Borrower's principal residence for at least one year after the date of the occupancy, unless Lender otherwise agrees in writing, which consent shall not be unreasonably withheld, or unless extenuating circumstances exist which are beyond Borrower's control.

So, there is some weasel wording in there, but again, what will be considered an extenuating circumstance beyond your control? Loss of job? Pretty likely. Being asked to leave the area for 3 months when the same thing happened 3 times during the last year? Not so probable.

If so, it occurs to me that you could cross out that part and put your initials there (that's how you legally modify a document).

Then you are unlikely to close on your closing date, as (1) nobody at the closing table is likely to have permission to agree for the lender to the changes you unilaterally want to make; (2) without agreement from the lender, the closing funds won't be released; and (3) the lender is likely to be willing to offer you an investor/2nd home loan at different terms, if you don't want to agree to the occupancy clause.

I've done that with non-compete and IP agreements in employment contracts which are obviously abusive and outrageous and are illegal in most countries.

Again, it still takes agreement by both parties. See above about the lender being willing to make you a loan under different terms, if you don't want to sign the occupancy clause.

While you may think it's 'unreasonable' - it's what you told the lender when you applied for the loan. If you want to change what you told them, they have a right to change the loan they are offering you.

AJ
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