I cant get approval for this mortgage!!! Help anyone????

I need advise on a little creative financing. I am having trouble getting financing for a property. I have a 700 score 30k in the bank bring home about 28k pre-tax, and i have 2 student loans 15k and 7k. The property is 85k. Currently this house is non-homestead, which is what is creating the problem. Since it is non homestead the taxes are VERY high, almost equal to the mortgage payment (payment would be around 430 and the taxes are 380). I can qualify just fine with a cosigner but not by myself.
Any ideas on what path I should be taking?

Can the seller homestead it and lower the taxes… Feeling rather stupid here… the reason for the non qual is your debt to income ratio… Make more money… Find a hard money lender… Buy a different property…

Added to Michael’s list: pay off the student loans. That will help your debt ratio and raise your credit score.

How does homestead work in your state? Can you move into the house, get an owner occupied loan, and get it homesteaded?

As far as I know, “homesteading” is for owner occupied, and also as far as I know, you can only have one homestead property. But each state is different.

Why are taxes so high? Can you appeal the appraisal? Can you rent it out and make expenses with taxes so high?

Is it a good enough deal that you can get it under contract and wholesale it to someone else?

The assumption here is that you are not buying this property for your primary residence. If this is the case, then your income is probably too low to qualify for a conventional loan.

Lenders don’t like your debt to income ratio to exceed 41%. With a $2333 monthly income, this means that all of your recurring obligations to include your housing expense can not exceed $956 per month.

Add up what you pay each month for rent or mortgage, plus the minimum required payment for your credit cards, auto loan, and student loays. Now subtract that amount from $956. The result is the amount of money you can afford for a new mortgage loan payment (PITI) on your investment property purchase.

One solution is to ask the seller to finance the sale for you. Get a second job to increase your income. Borrow from family or a life insurance policy. Look for a less expensive property that you can afford. Take on a partner for a share of the equity in the property. Negotiate a lower sale price.

If you want the property as your prmary residence, consider using your cash on hand to pay off your student loans to improve your debt to income ratio. Then buy the property for your primary residence and use an FHA first time homebuyer loan to finance 96.5% of the purchase price. If you are a first time homebuyer, you can get up to $8000 back from the federal government as a refundable tax credit on your 2009 tax return. At your income, lenders will not want to see your monthly housing expense (PITI) any higher than $653. Is this number in the ballpark for this property?

Talk over all these options with your loan officer to see which works best for your situation and your intended use of the property.

BTW, an annual property tax of just $480 for an $85K property in my area of the country would be a steal. I bought a property in NC a couple years ago for $35K. The property taxes were $526 this year. If a $4 per month difference in the property tax (homestead vs non-homestead) is enough to break the deal, then you can’t afford this property.

A rule of thumb that my parents used back in the 50s is still viable today. The maximum amount you can comfortably afford to pay for your primary residence is about 2.5 times your annual gross income. This rule suggests that you need to get the seller to reduce the price of the property to $70K or less

Dave T, thanks for all the ideas. I eventually got financing locked under the property. I paid off some of the student loans and made the debt to income ratio acceptable.
The trouble is that the property was bank owned therefor non homestead. Doing this boosted the taxes substantially. Once the home is in my name, homestead will change to me and the taxes will lower. But for the time being, I had to qualify for the mortgage as-is.
This is my second property so Im still learning a ton!

Dave T- taxes are 380 PER MONTH. Not for long tho, thank the lord!

Thanks for the help!


Homesteading the property is not going to drop your tax payments by much. Based on the numbers you presented you are not going to be saving that much monthly.

How do you figure? My last rehab was nearly the same (price, size, location) and taxes were the same situation. I paid a visit to the tax assessors office and homesteaded the property and the taxes were cut in half. If I was just having the propertys taxable value reassessed, then yes, I would agree with you, but i am goin to disagree and say homesteading makes a considerable difference.

Here in Texas it saves you a few dollars a month, but in your case based on your income it won’t make a big difference. In fact I think you are confused. It sounds like your taxes are based on a higher value than what you bought the house for. In addition to that just because you go visit the tax assessor you are not going to realize an immediate savings. You will have to pay the current taxes for this tear and most of next until your tax bill comes out.

Lastly, you said previously…

My last property was the exact same scenario, non homestead, high appraisal and super high taxes. I had it reassessed, homesteaded, and the taxes were cut in half.

That is quite a bit more than just paying a visit to the tax assessor. Homesteading is more for protection of the property from lawsuits and foreclosure than it is to save you money on your taxes.

I thought “homesteading” only applied to owner occupied property. Sounds like you don’t plan to live in this place, so how can you claim homestead status (truthfully)?

A person can only legally homestead one property in the USA. If you own multiple homes even in several different states, you can only homestead one of those homes which should be your primary place of residence where you live more than 50% of the year.

Also I remember in FLorida, when you goto homestead a home, your drivers license address needs to match the homes physically address.

I do plan to live in this property, only for six months to a year. After that I will deside to either sell or rent it out. I’m still debating on leaving it non homestead and renting it out right away. Although it does fit the 1% rule, I haven’t extensively run the numbers yet. It would be my first rental property so I am a bit nervous, but everyone has to start somewhere. I close on the property on thursday so the excitement is building expotentially :biggrin

If your property is 85k, you need to be getting a LOT MORE than $850/mo rent to do ok. If those are your numbers, this is not going to make a good rental.
You should be seeking 2% or higher for rentals to have sufficient cash flow.