Advise please... having trouble with the preferred lender for new home

NEW -> Contingent Buyer Assistance Program
I

Irvine Seeker

New member
Appreciate all the posts that I read.  I realize that Soylent Green Is People is recommended as a loan officer here but here is my situation and any tips or advices would be greatly appreciated.

We are in the process of buying a new construction condo.  We had to get pre-qual and pre-approved by the preferred lender.  I expected it wouldn't be easy and short since I'm not a cash buyer and only have 20% down payment. 

Long story short, we still have several months go to before our move-in date but we are not getting much progress with the preferred lender.  No conditional approval yet and it's been several months since we signed purchase agreement.

The preferred lender kept asking for updates and latest statements.  When I finally got the good faith estimates, most of the information were from last year. The folks I am dealing with seem unorganized and not even spending much time on my case.  I was told that we would get an answer "next week" several times and nothing came through...  The emails not replied for days.

Finally a couple of weeks ago, the loan officer told me that we are very close but if we get denied, he wanted me to go with the back up loan broker that the builder has...

Since this is our first time buying new construction home, what options do I have now?  I have not been denied yet but if I am, do I stick with the back up broker from the builder or go for an outside lender?  The builder sales office told me that I need to let them know sometime in August if I'm going to use the outside lender.  Then should I tell the builder ASAP and go with an outside lender or wait until the possible last minute?

I've done some asking around and found out that the preferred lender is a lot more strict than a comparable big bank lender while the interest rate and closing fees are almost identical...

We met DTI requirements, have 20% plus closing cost, and have good income source and history.  However, the preferred lender was using wrong numbers which yielded a much higher DTI ratio. I've corrected them and supplied all the documents several times but still no answer.  Also the latest wrench thrown in to the whole mess is that they require 12 months of mortgage cash reserve now when other lender only requires 6 months...  It's been very frustrating...
 
Irvine Seeker said:
Appreciate all the posts that I read.  I realize that Soylent Green Is People is recommended as a loan officer here but here is my situation and any tips or advices would be greatly appreciated.

We are in the process of buying a new construction condo.  We had to get pre-qual and pre-approved by the preferred lender.  I expected it wouldn't be easy and short since I'm not a cash buyer and only have 20% down payment. 

Long story short, we still have several months go to before our move-in date but we are not getting much progress with the preferred lender.  No conditional approval yet and it's been several months since we signed purchasing contract.

The preferred lender kept asking for updates and latest statements.  When I finally got the good faith estimates, most of the information were from last year. The folks I am dealing with seem unorganized and not even spending much time on my case.  I was told that we would get an answer "next week" several times and nothing came though...  Emails not returned for days.

Finally a couple of weeks ago, the loan officer told me that we are very close but if we get denied, he wanted me to go with the back up loan broker that the builder has...

Since this is our first time buying new construction home, what options do I have now?  I have not been denied yet but if I am, do I stick with the back up broker or go for an outside lender?  The build told me that I need to let them know sometime in August if I'm going to use the outside lender.  Then should I tell the builder ASAP or wait until the possible last minute?

I'm done some asking around and found out that the preferred lender is a lot more strict then a comparable big bank lender while the interest rate and closing fees are almost identical...

We met DTI requirements, have 20% plus closing cost, and have good income source and history.  However, the preferred lender was using wrong numbers which yielded a much higher DTI ratio. I've corrected them and supplied with all the documents several times but still no answer.  Also the lasted wrench thrown in to the whole mess is that they require 12 months of mortgage cash reserve when other lender only require 6 months...  It's been very nerve wrecking....
Click to expand...

You really should start reaching out to an outside lender to get the loan squared away.  Once you are within 45-60 days from closing, it'll be too late to use an outside lender.  Many in-house/builder lenders suck unfortunately and think that because they have a captive audience they can get away with high rates and/or poor service.  Reach out to Soylent ASAP. 
 
You need to look outside asap. I just bought a new build condo and learned in the process that condos require different approvals than sfh. The bank will need time to gather material from HOAs. If you wait, you risk paying fines for delaying close.

Is the in-house lender offering credit? What's making you wait around for them?
 
The credit is minimal.

I would've gone with the preferred lender if they kept the time lines and commitments.  It's been like,

"I'll work on your case tomorrow and submit it in 2 days," then  a week passes buy,
"you should hear from the processor this Friday", then next Friday approaches,
"We'll work on first Monday morning and the submit the paper work to underwriter", then another week passes,
"We need your most up to date statements since what we have is already 1 month old..".
"Finally got the disclosures that you need to sign", I do that within hours and submit them, then no update for another week then I hear the underwriter has issues with my DTI ratio, later I find out that they double count my debt payments and used unreasonable tax rate and insurance premium... so I fix them, calculate them and show the numbers with yet another set of statement and pay stubs, ... no updates... and status pending...

I still got a couple of months before the deadline to let the sales office know when I decide to go with the outside lender but parts of wanted to get the conditional approval so at least I'm banked with one lender and really can work with the other lender but I guess it was just wishful thinking...

I'm sure the preferred lender folks are piled on with all the paper works including pre-qual would be buyers paper works but still it's been less than stellar and very disappointing...
 
Something to keep in mind is that the builder is likely providing a closing cost credit for using their preferred lender. Many just lump everything together as the "cost of the home" and think about what that net number is they need to pay on closing day.

The reason the distinction is important is that closing costs are tax deductible anyway. So in reality the closing cost credit is really only worth about 60-80% of its face value.

In other words, if the builder is offering you $5K in credits, its worth about $3K. That's the benchmark you should use when shopping around with another lender.
 
acpme said:
Something to keep in mind is that the builder is likely providing a closing cost credit for using their preferred lender. Many just lump everything together as the "cost of the home" and think about what that net number is they need to pay on closing day.

The reason the distinction is important is that closing costs are tax deductible anyway. So in reality the closing cost credit is really only worth about 60-80% of its face value.

In other words, if the builder is offering you $5K in credits, its worth about $3K. That's the benchmark you should use when shopping around with another lender.
Click to expand...

Would one of the TI accountants chime in on this?  Closing costs, or just points, are tax-deductible?

TIA
 
Only interest, property taxes, private mortgage insurance and points included in the closing costs are tax deductible.
 
qwerty said:
Only interest, property taxes, private mortgage insurance and points included in the closing costs are tax deductible.
Click to expand...

Mortgage interest is fully deductible, to the extent you itemize, and your mortgage interest doesn't exceed $1M. You're buying an Irvine condo, so that's a safe bet. Property taxes are deductible, but the AMT takes-back a lot, depending on your situation. You're probably in the AMT, considering you have sufficient income to buy a new Irvine condo.

PMI is not fully deductible. There are income limits. You probably cannot deduct any PMI. Points are fully deductible, to the extent you itemize.
 
So are closing cost credits assumed to offset non-deductible costs only? For example if you had 5k of deductible, interest-related costs and 5k of other closing costs. Builder offers you 5k of credits.
Would IRS expect that the 5k of credits be applied pro-rate across the deductible and non-deductible expenses?

Couldn't find anything on Google. Anyone ever run into this?
 
acpme said:
So are closing cost credits assumed to offset non-deductible costs only? For example if you had 5k of deductible, interest-related costs and 5k of other closing costs. Builder offers you 5k of credits.
Would IRS expect that the 5k of credits be applied pro-rate across the deductible and non-deductible expenses?

Couldn't find anything on Google. Anyone ever run into this?
Click to expand...

Interesting question. I'll speculate the IRS would argue that specific lender credits offsetting specific origination points, results in those costs not being incurred by the taxpayer, and therefore not deductible. However, a general lender credit not specifically offsetting origination points on the Closing Disclosure could reasonably be argued as deductible.
 
acpme said:
So are closing cost credits assumed to offset non-deductible costs only? For example if you had 5k of deductible, interest-related costs and 5k of other closing costs. Builder offers you 5k of credits.
Would IRS expect that the 5k of credits be applied pro-rate across the deductible and non-deductible expenses?

Couldn't find anything on Google. Anyone ever run into this?
Click to expand...

 
acpme said:
So are closing cost credits assumed to offset non-deductible costs only? For example if you had 5k of deductible, interest-related costs and 5k of other closing costs. Builder offers you 5k of credits.
Would IRS expect that the 5k of credits be applied pro-rate across the deductible and non-deductible expenses?

Couldn't find anything on Google. Anyone ever run into this?
Click to expand...

I just closed on a loan last November 2015.  I did not pay any points.  On my Settlement Statement (HUD-1), the loan origination charges from my lender were $1,590.

On my Mortgage Interest Statement (Form 1098) for 2015, I had Points Paid on Purchase of Principal Residence of $1,590.
 
acpme said:
So are closing cost credits assumed to offset non-deductible costs only? For example if you had 5k of deductible, interest-related costs and 5k of other closing costs. Builder offers you 5k of credits.
Would IRS expect that the 5k of credits be applied pro-rate across the deductible and non-deductible expenses?

Couldn't find anything on Google. Anyone ever run into this?
Click to expand...

Any credit (either it be from a lender, builder, seller, agent) just reduces your cost basis in the home and does not impact the tax deductible items (interest, points, and property taxes). 
 
Does it though? Your tax assessment will be based on the recorded purchase price - will that include a closing cost credit?
 
acpme said:
Does it though? Your tax assessment will be based on the recorded purchase price - will that include a closing cost credit?
Click to expand...

Property tax assessment and IRS tax basis are two completely different things.  Property tax assessment is solely based upon the recorded purchase price and that does not include an closing cost credits.  Why do you think new home builders loathe to reduce purchase prices?  That's because they much rather use design center and closing cost credits because they never show up in the recorded purchase price. 
 
USCTrojanCPA said:
acpme said:
So are closing cost credits assumed to offset non-deductible costs only? For example if you had 5k of deductible, interest-related costs and 5k of other closing costs. Builder offers you 5k of credits.
Would IRS expect that the 5k of credits be applied pro-rate across the deductible and non-deductible expenses?

Couldn't find anything on Google. Anyone ever run into this?
Click to expand...

Any credit (either it be from a lender, builder, seller, agent) just reduces your cost basis in the home and does not impact the tax deductible items (interest, points, and property taxes).
Click to expand...

So, if there's a specific credit on the Closing Disclosure offsetting a specific charge to the borrower, the charge is still deductible?

e.g. $1,000 Origination Fee paid by borrower
($1,000) Credit for Origination Fee
 
It'll depend on how the lender reports it on their 1098 to the borrower.  If they don't reduce the "points paid" amount then you'll just reduce it against your taxable basis.
 
You must log in or register to reply here.
Back
Top