Date November 29, 2004
Time 12:00 PM - 12:30 PM
Station CNNfn
Program Open House

WILLIS: Closing the deal on your new home can be the most exciting part of the home buying process, but until you have the keys in hand, there are plenty of things that can go wrong, like having your financing fall through at the last minute. But what would cause a lender to pull out so late in the game? For answers to that we turn to Bob Moulton, president of Americana Mortgage Group. And he's going to answer your mortgage questions, so give us a call at 1-800-304-3638.

Good to see you, Bob.

Mr. BOB MOULTON (Americana Mortgage): Good to see you too, Gerri.

WILLIS: How common is this that a banker decides at the very last minute that they're going to pull a loan?

Mr. MOULTON: A banker really looks at four areas on the application. They want to know how you're going to pay for the mortgage, where you're getting the money from, how has your credit history been, and what is the value of the house that you're buying. If everything is very accurate up front, it normally doesn't happen. But if things change during the process, it can happen a number of times.

WILLIS: All right. If it does happen, why does it most commonly happen, because people are just filling out the forms the wrong way?

Mr. MOULTON: Sometimes when people come to a mortgage broker or a loan consultant, they change or they sort of cover up things that they think a lender might not find out. So, if someone pre-interviews over the telephone, someone that is self-employed, for example, and they indicate what their income is, they forget to deduct the expenses associated with running their business. And in that particular circumstance, the income is going to be less and when you actually look at the tax returns, the income is not at the level required to get the loan approved.

WILLIS: I know some people out there say it's appraisals gone awry, that some appraisals are simply too high to be sustained by comparable deals being done in the marketplace. Do you see much of that?

Mr. MOULTON: The real estate market is very hot. If you have a client that's buying the most expensive house in a community and he's only putting 10 percent down, sometimes that house will not appraise and the borrower will have to get additional money from family or take out a higher mortgage as a percentage of their value of the house. You need to be careful when you're buying a house and make sure you're not overpaying.

WILLIS: Are lenders trying to protect themselves by asking for more comparables up front?

Mr. MOULTON: Absolutely. Years ago, we used to accept three comparables, now they're asking for four, sometimes five to make sure the square footage is right and that the value of the house is accurate in relation to the neighborhood.

WILLIS: What do you do if you're in the process of applying for a loan and you suddenly change jobs or you lose a job and you know you may not get the house if you tell your lender?

Mr. MOULTON: Call your loan officer right away, it happens all the time, particularly when people are making career changes or taking an opportunity at another company. Let your loan officer know. If you're staying in the same line of work, lenders are OK with that, however, they're not going to let you close on the loan until you get your first pay stub.

WILLIS: We've got a caller, Carolyn in Arizona, what's your question?

CAROLYN (Caller): I don't have a down payment, my credit kind of went in a dive due to health reasons. I'm back clearing things up now and I need to get a mortgage or I'm having a very difficult time getting one.

Mr. MOULTON: There are lenders that are available, Carol, that will give you 100 percent financing. They're going to want to understand where your new source of income is, why you had the credit problems and what you've done to clear that credit up since you had the credit problems.

But if you ask a lender for 100 percent financing, they'll give you an 80 percent first mortgage and a 20 percent second mortgage. And depending on your credit score, they usually look for a credit score 620 to better, the scale goes from 300 to 800. If you can show them a 620 or better, you should be able to get the financing.

WILLIS: Let's go to Tony in Colorado. What's your question, Tony?

TONY (Caller): Yeah, I've got a question in regards to reverse mortgages.

WILLIS: Go right ahead.

Mr. MOULTON: OK.

TONY: OK. My mother-in-law is going into retirement, 65. She's got savings set aside to pay cash for a home, but it will deplete about half of her income.

Mr. MOULTON: OK.

TONY: And I was calling to figure if a reverse mortgage would be good for her.

WILLIS: Good idea, bad idea?

Mr. MOULTON: Reverse mortgages, you actually have to have ownership of the property before you can apply for a reverse mortgage. You can't use a reverse mortgage to buy a property. You might have to use the cash and then apply for the reverse mortgage and they'll usually lend you, depending on the purchase price, maximum of $150,000 and a minimum age of 65 years of old. So, it is a good idea, but just look at cost very closely and make sure you're comfortable with the person who is giving you the reverse mortgage.

WILLIS: And do a little research because they're pretty complicated instruments. Let's go to Craig in Delaware. Craig, are you there?

CRAIG (Caller): Yes. I have a question, I have a line of credit at a variable rate of four percent and I'm wondering, I'm going to pay this off in three years at $75,000. Should I stay right with the variable rate or should I lock in at a fixed rate of 5.2?

Mr. MOULTON: That's a question that's disguised as what are rates going to do?

WILLIS: We were just asking this earlier in the show.

Mr. MOULTON: Right.

WILLIS: This is a big question for a lot of people out there, really.

Mr. MOULTON: Right. You have to ask yourself, what are rates going to do? I'm assuming that you're tied to the prime rate. I'm assuming that your home equity line of credit changes every month. You have to take a look at what the costs are and you have to do some projections for yourself, assuming a prime rate goes up to six percent. Right now, it's about five percent. Take a worse-case scenario of six percent, calculate what that payment will be over three years, look at the closing cost on the 5.2, divide one into the other and that will give you your answer.

WILLIS: Do the math. OK.

Mr. MOULTON: Do the math.

WILLIS: Let's talk a little more about this idea of people pulling loans at the last minute because I know a lot of people out there stay up nights late worrying about it. Can it be something as simple as a discrepancy in square footage that can cause a deal to fall through like that?

Mr. MOULTON: Well, sometimes depending on the lender, they will have senior review appraisers and the senior appraiser can, right before closing, take a look and say 'I'm not comfortable with the appraisal of this property.' They're not going to pull it, but they might ask for a comparable or they might want to do a drive by themselves or they might want to go and take the square footage themselves. You won't see a deal die because of that, but you could see it delayed.

WILLIS: Let's go to Bill in California. Bill, what's your question?

BILL (Caller): Yes, I wonder, which is the best way to go, home improvement loan or an equity loan and are they both deductible?

Mr. MOULTON: The home improvement loan and home equity loan, it depends on how long you're going to hold it for. Regarding the deductibility of the loan, the total mortgage indebtedness on the property cannot exceed the cost of the property plus improvements. Check with your accountant to be certain that it is tax deductible. But the home equity line should be cheaper and you can pay it back without a payment penalty.

WILLIS: All right. Well, Bob Moulton, appreciate your help today.

Mr. MOULTON: Very welcome, very happy to be here.

WILLIS: Thanks so much. We're going to send people to Americana Mortgage for more information.

Mr. MOULTON: You got it.