Mortgage application complications: my mortgage, her investment account
August 5, 2014 8:06 AM Subscribe
My partner and I are applying for a mortgage. Our credit union will only approve me for the mortgage, though, since my partner has no recent credit history. We're fine with just putting me on the mortgage, but there's a hitch: we are planning to use part of an investment account for the down-payment, and that account is only in my partner's name. We share (JTWROS) another investment account with the same firm. If we add my name to her account now, will we raise red flags? Is there a better approach we're not thinking of?
I acknowledge that we probably should have made the investment account in question a joint account *before* we started applying for a mortgage, given the general rule to not make major changes to one's finances while in the application process. We foolishly thought that she'd made payments on her loan recently enough for it to give her at least some credit, and therefore didn't foresee this particular mortgage situation. (My partner paid off her last student loan in January, having made on-time payments for years.)
We're also going to ask about manual underwriting to see if both of us can go on the mortgage, but my understanding is that a 15-year term is standard with manual underwriting, and that short of a repayment term would pose some serious financial difficulty for us. (If anyone has managed to pull off manual underwriting w/ a 30-year fixed rate, please let me know!)
I realize that rent/buy can be a controversial topic on AskMe, particularly post-recession, for good reason. However, we've talked over the rent/buy decision with both professional advisors and trusted family members, and we're reasonably confident that buying is the best move for us right now. We both have stable jobs and a long-term commitment to our city and neighborhood. The particular house we have in mind is in excellent shape. Even after a downpayment, we have sufficient funds for surprise expensive repairs. My tax bill is higher than average due to covering my partner on my employer-provided health insurance, so the mortgage interest tax deduction would be helpful for us.
We're aware that we can now get married in our state and this would mitigate some of the tax issues, but we're both just contrarian enough to not want to marry so soon after it became legal in our state. We'd like to make the decision in our own time.
I acknowledge that we probably should have made the investment account in question a joint account *before* we started applying for a mortgage, given the general rule to not make major changes to one's finances while in the application process. We foolishly thought that she'd made payments on her loan recently enough for it to give her at least some credit, and therefore didn't foresee this particular mortgage situation. (My partner paid off her last student loan in January, having made on-time payments for years.)
We're also going to ask about manual underwriting to see if both of us can go on the mortgage, but my understanding is that a 15-year term is standard with manual underwriting, and that short of a repayment term would pose some serious financial difficulty for us. (If anyone has managed to pull off manual underwriting w/ a 30-year fixed rate, please let me know!)
I realize that rent/buy can be a controversial topic on AskMe, particularly post-recession, for good reason. However, we've talked over the rent/buy decision with both professional advisors and trusted family members, and we're reasonably confident that buying is the best move for us right now. We both have stable jobs and a long-term commitment to our city and neighborhood. The particular house we have in mind is in excellent shape. Even after a downpayment, we have sufficient funds for surprise expensive repairs. My tax bill is higher than average due to covering my partner on my employer-provided health insurance, so the mortgage interest tax deduction would be helpful for us.
We're aware that we can now get married in our state and this would mitigate some of the tax issues, but we're both just contrarian enough to not want to marry so soon after it became legal in our state. We'd like to make the decision in our own time.
Best answer: At worst, the credit union will want a letter signed by your partner stating where the money for the down payment came from. At best, they won't even blink.
Have you spoken to other lenders besides your credit union? If not, why not?
posted by tckma at 8:13 AM on August 5, 2014 [2 favorites]
Have you spoken to other lenders besides your credit union? If not, why not?
posted by tckma at 8:13 AM on August 5, 2014 [2 favorites]
You really need a real estate attorney to codify all of this. You say partner, but unless you're married, owning property together, especially when one of the partners has invested cash money and the other is encumbered with all the debt...it's just not good.
People get married for just this reason. One married, you're both a financial entity together. The investment is shared, the mortgage liability is shared.
Marriage isn't a political statement, just. It's also THE institution that makes all of the real estate woes you're talking about disappear.
But, if you're going to stand on a principal, it will cost you. So hire a lawyer and navigate these waters correctly.
posted by Ruthless Bunny at 8:26 AM on August 5, 2014 [1 favorite]
People get married for just this reason. One married, you're both a financial entity together. The investment is shared, the mortgage liability is shared.
Marriage isn't a political statement, just. It's also THE institution that makes all of the real estate woes you're talking about disappear.
But, if you're going to stand on a principal, it will cost you. So hire a lawyer and navigate these waters correctly.
posted by Ruthless Bunny at 8:26 AM on August 5, 2014 [1 favorite]
Best answer: When I bought (in NC, 5 years ago), my partner at the time had the down payment, and I had the employment history and credit. The mortgage went in my name, we filed a letter with the bank stating that he'd "gifted" me with the down payment (I paid back my half [and more, but that's a story for another day] quickly, but on paper, it was a gift) and off we went. I don't even know what "manual underwriting" is! :) It was not a big deal, even though we weren't married. (It is a slightly more annoying deal now that we've broken up, but he's renting the house from me and will buy it in June, since he's now fixed his credit/employment issues. Still not a huge deal, even though we never married. Maybe we just got lucky. YMMV, IANAL, it was reasonably amicable, etc.)
Your best bet is to call your lender, explain what the situation is, and ask if they'd prefer to add you to the investment account, do the gift letter thing, or what. Odds are, they've dealt with this situation before and have procedures they prefer.
Good luck!
(I will also say, I know people love their CUs, but my CU was... not very cooperative, when we were trying to buy a house. At one point, I said "ok, what we can we do to improve our application?" and the broker spluttered "tell your husband to get a job!" even though I'd been very specific that he wasn't my husband throughout the whole thing. In the end, we went through the Bank of Evil and had a great experience. So, tckma has a great point.)
posted by joycehealy at 8:34 AM on August 5, 2014
Your best bet is to call your lender, explain what the situation is, and ask if they'd prefer to add you to the investment account, do the gift letter thing, or what. Odds are, they've dealt with this situation before and have procedures they prefer.
Good luck!
(I will also say, I know people love their CUs, but my CU was... not very cooperative, when we were trying to buy a house. At one point, I said "ok, what we can we do to improve our application?" and the broker spluttered "tell your husband to get a job!" even though I'd been very specific that he wasn't my husband throughout the whole thing. In the end, we went through the Bank of Evil and had a great experience. So, tckma has a great point.)
posted by joycehealy at 8:34 AM on August 5, 2014
Response by poster: Thanks for the suggestions. We're also applying to another credit union in our area, and to a couple of banks. We'd prefer to work with a cu/bank that will continue to service the loan rather than hand it over to a third-party servicer (interesting thread about that here). I've personally helped family members deal with difficult third-party servicers and would prefer to avoid these kind of problems, but I realize there are no guarantees with any option we pursue.
So far as marriage and shared property go, we're intending to work with a lawyer to set up an agreement about what would happen if we were to split up. Marrying wouldn't necessarily change the mortgage situation completely, though; it's not uncommon for one (legal) spouse to be on the mortgage and both spouses to be on the title, often because one spouse lacks the credit to qualify for a mortgage.
We'll definitely get some professional assistance with this question. It's helpful to hear some personal experiences, though, and to get a sense of what's possible, so as to be a bit more informed when we actually seek out said professional assistance.
Thanks again, and I'll stop thread-sitting now!
posted by brackish.line at 8:41 AM on August 5, 2014
So far as marriage and shared property go, we're intending to work with a lawyer to set up an agreement about what would happen if we were to split up. Marrying wouldn't necessarily change the mortgage situation completely, though; it's not uncommon for one (legal) spouse to be on the mortgage and both spouses to be on the title, often because one spouse lacks the credit to qualify for a mortgage.
We'll definitely get some professional assistance with this question. It's helpful to hear some personal experiences, though, and to get a sense of what's possible, so as to be a bit more informed when we actually seek out said professional assistance.
Thanks again, and I'll stop thread-sitting now!
posted by brackish.line at 8:41 AM on August 5, 2014
I've never heard of "manual" underwriting. Every loan these days is reviewed and approved by humans.
In my recent experience with a refi, they will look at your last 2-3 months of bank statements and question every large deposit that they see in there. If it's not a paycheck they will want an explanation. My lender asked us to fill out a "gift form" which is simply stating that the large sum was a gift given to you with no strings attached, which is really what their concern is about. They want to be paid first, not your grandma that lent you $20,000 to make the sale happen.
The nuance of this 2-3 month backstory is that if you placed a large deposit 3 months ago into your account before heading to underwriting, it would probably not be noticed.
But on a larger-scale note, I'm with Bunny here. You have other things to clarify before proceeding into joint ownership of a property with no other legal mechanism in place.
posted by JoeZydeco at 8:43 AM on August 5, 2014
In my recent experience with a refi, they will look at your last 2-3 months of bank statements and question every large deposit that they see in there. If it's not a paycheck they will want an explanation. My lender asked us to fill out a "gift form" which is simply stating that the large sum was a gift given to you with no strings attached, which is really what their concern is about. They want to be paid first, not your grandma that lent you $20,000 to make the sale happen.
The nuance of this 2-3 month backstory is that if you placed a large deposit 3 months ago into your account before heading to underwriting, it would probably not be noticed.
But on a larger-scale note, I'm with Bunny here. You have other things to clarify before proceeding into joint ownership of a property with no other legal mechanism in place.
posted by JoeZydeco at 8:43 AM on August 5, 2014
The nuance of this 2-3 month backstory is that if you placed a large deposit 3 months ago into your account before heading to underwriting, it would probably not be noticed.
Be careful here: our mortgage lender walked back 6 months and did far more than just looking at large deposits, going to the point of basically constructing an analysis of money coming into and going out of the household on a month-by-month basis.
Also note that "it's a gift" is not necessarily going to solve all of your problems. Many lenders require a certain amount of the down payment be your own money (not a gift or other loan).
posted by toomuchpete at 8:54 AM on August 5, 2014
Be careful here: our mortgage lender walked back 6 months and did far more than just looking at large deposits, going to the point of basically constructing an analysis of money coming into and going out of the household on a month-by-month basis.
Also note that "it's a gift" is not necessarily going to solve all of your problems. Many lenders require a certain amount of the down payment be your own money (not a gift or other loan).
posted by toomuchpete at 8:54 AM on August 5, 2014
In my recent experience with a refi, they will look at your last 2-3 months of bank statements and question every large deposit that they see in there. If it's not a paycheck they will want an explanation.
I just bought a place and they went back a year - and wanted an explanation for every deposit or withdrawal above $2k or so.
Getting a mortgage now is way way different than it was 5-6 years ago. There is far, far more documentation required and what used to be negligible details are now showstoppers.
To the OP, I would recommend finding a mortgage broker and working through them. It will be far less hassle (IME), and I feel you on the not wanting your mortgage sold, but that is out of your hands no matter where the loan originates.
posted by Pogo_Fuzzybutt at 8:59 AM on August 5, 2014
I just bought a place and they went back a year - and wanted an explanation for every deposit or withdrawal above $2k or so.
Getting a mortgage now is way way different than it was 5-6 years ago. There is far, far more documentation required and what used to be negligible details are now showstoppers.
To the OP, I would recommend finding a mortgage broker and working through them. It will be far less hassle (IME), and I feel you on the not wanting your mortgage sold, but that is out of your hands no matter where the loan originates.
posted by Pogo_Fuzzybutt at 8:59 AM on August 5, 2014
Best answer: I figured it might be useful if I expanded with some personal back story:
I have bought two houses. Both of these houses had significant portions of the down payment paid for with gift money from my parents.
First house, bought in late 2004, in my name only. Conventional mortgage, 30 year fixed. The lender (a mortgage broker who sold my loan to GMAC immediately at the closing) wanted a signed letter from my dad stating that the money was a gift and did not need to be repaid. They all but dictated the content of the letter.
Current house, bought in early 2011, my wife and I own the home jointly and we are both on the mortgage. Different lender. FHA loan, 30 year fixed. The lender only asked me over the phone what the source of the down payment was, and didn't make me document it at all. The lender made more of a big deal that my wife hadn't yet changed her name with Social Security, even though all of her credit history at that point was under her maiden name as we had only been married two months before buying the house. Refinanced with the same lender in early 2013, another FHA loan, 30 year fixed.
It depends on the lender (and perhaps on the type of loan - FHA or conventional) what they will want you to do. Don't worry about it, and just go with the lender who is able to get you the best combination of interest rate, mortgage terms, and closing costs. They'll tell you what they want once you've started the underwriting process.
For what it's worth, neither my mortgage with GMAC, nor my current mortgage (original or refinanced) has ever been sold to another lender. (I sold my first house in early 2009, so who knows what happens once you hit, for example, the 5 year mark.)
posted by tckma at 9:09 AM on August 5, 2014 [1 favorite]
I have bought two houses. Both of these houses had significant portions of the down payment paid for with gift money from my parents.
First house, bought in late 2004, in my name only. Conventional mortgage, 30 year fixed. The lender (a mortgage broker who sold my loan to GMAC immediately at the closing) wanted a signed letter from my dad stating that the money was a gift and did not need to be repaid. They all but dictated the content of the letter.
Current house, bought in early 2011, my wife and I own the home jointly and we are both on the mortgage. Different lender. FHA loan, 30 year fixed. The lender only asked me over the phone what the source of the down payment was, and didn't make me document it at all. The lender made more of a big deal that my wife hadn't yet changed her name with Social Security, even though all of her credit history at that point was under her maiden name as we had only been married two months before buying the house. Refinanced with the same lender in early 2013, another FHA loan, 30 year fixed.
It depends on the lender (and perhaps on the type of loan - FHA or conventional) what they will want you to do. Don't worry about it, and just go with the lender who is able to get you the best combination of interest rate, mortgage terms, and closing costs. They'll tell you what they want once you've started the underwriting process.
For what it's worth, neither my mortgage with GMAC, nor my current mortgage (original or refinanced) has ever been sold to another lender. (I sold my first house in early 2009, so who knows what happens once you hit, for example, the 5 year mark.)
posted by tckma at 9:09 AM on August 5, 2014 [1 favorite]
Response by poster: Great, thank you everyone. It's helpful to know that our experience could vary significantly from lender to lender, and i really appreciate having a few possible scenarios in mind.
We're not super picky about who *owns* our loan and don't have a problem with the loan itself being sold, we'd just prefer to have one consistent servicer. Having dealt with some difficult student loan servicers and having helped family through the process of trying to get a particularly exasperating mortgage servicer *cough* greentree *cough* to actually accept their monthly mortgage payment, all I want is someone who will take my monthly payment and process it in a timely, reliable, and well-documented matter. (Granted, it seems like the worst servicers focus on sub-prime loans, which we're lucky enough to be avoiding.)
Point being: we'll definitely be shopping around for good rates and cooperative lenders. Thanks again for all of your answers.
posted by brackish.line at 9:43 AM on August 5, 2014
We're not super picky about who *owns* our loan and don't have a problem with the loan itself being sold, we'd just prefer to have one consistent servicer. Having dealt with some difficult student loan servicers and having helped family through the process of trying to get a particularly exasperating mortgage servicer *cough* greentree *cough* to actually accept their monthly mortgage payment, all I want is someone who will take my monthly payment and process it in a timely, reliable, and well-documented matter. (Granted, it seems like the worst servicers focus on sub-prime loans, which we're lucky enough to be avoiding.)
Point being: we'll definitely be shopping around for good rates and cooperative lenders. Thanks again for all of your answers.
posted by brackish.line at 9:43 AM on August 5, 2014
Response by poster: Also, in case anyone is interested: manual underwriting is still a thing, at least for FHA loans.
posted by brackish.line at 9:52 AM on August 5, 2014
posted by brackish.line at 9:52 AM on August 5, 2014
Response by poster: In case anyone else finds themselves in this situation and would like an additional data point: the first lender we applied to just got back to me and said it's fine, that we'll need a letter from my partner indicating that she is contributing money from her solely-owned investment account for the down-payment.
I'll stop commenting on my own question now....
posted by brackish.line at 10:05 AM on August 5, 2014
I'll stop commenting on my own question now....
posted by brackish.line at 10:05 AM on August 5, 2014
Best answer: My (now, though not then) husband and I bought a house - in California - late last year. He had the money for the downpayment while I had the great job history and credit (he also has great credit but was not employed at the time). We got our 30-year fixed mortgage through my credit union and they were great in walking us through all of this.
Lots of paperwork ensued, but basically the money he had for the downpayment was gifted to me. We had a letter (based on a format our lending agent gave us) plus a lot of bank and investment statements showing the money in his account, the transfer receipts for it going into my account, my transferring it for the downpayment, etc. A big paper trail but ultimately that was the extent of it.
The mortgage and house purchase were made entirely under my name. At closing it was my name on the deed, but then our title agent immediately filed a change of title to put both of our names on it so we own it together. I joke that since he put in 20% of the purchase price and I've only made about 10 mortgage payments that technically he owns more of it than I do!
There are some tax implications possible from the gift - basically he has a lifetime allotment of money he can gift to me and that down payment amount counted against it. But of course this is now all moot as we got married this year (there were tax reasons why it made sense for us to buy the house when we did but not get married until this year. We got married on April 15th for a reason!) and spouses can gift each other unlimited amounts.
posted by marylynn at 1:03 PM on August 5, 2014
Lots of paperwork ensued, but basically the money he had for the downpayment was gifted to me. We had a letter (based on a format our lending agent gave us) plus a lot of bank and investment statements showing the money in his account, the transfer receipts for it going into my account, my transferring it for the downpayment, etc. A big paper trail but ultimately that was the extent of it.
The mortgage and house purchase were made entirely under my name. At closing it was my name on the deed, but then our title agent immediately filed a change of title to put both of our names on it so we own it together. I joke that since he put in 20% of the purchase price and I've only made about 10 mortgage payments that technically he owns more of it than I do!
There are some tax implications possible from the gift - basically he has a lifetime allotment of money he can gift to me and that down payment amount counted against it. But of course this is now all moot as we got married this year (there were tax reasons why it made sense for us to buy the house when we did but not get married until this year. We got married on April 15th for a reason!) and spouses can gift each other unlimited amounts.
posted by marylynn at 1:03 PM on August 5, 2014
also note that, even if you end up being the only name on the mortgage, you can both be on the deed. that is, you should both end up owning half of the house, even if she put in more cash and you took on more debt, officially...
posted by acm at 1:32 PM on August 7, 2014
posted by acm at 1:32 PM on August 7, 2014
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posted by goggie at 8:11 AM on August 5, 2014