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OT Any mortgage smarts people out there?

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Dave H (MI)

08-11-2007 07:33:15




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We hit a hitch in buying the farm this past couple of weeks and I have been stewing about it.
We have absolutely no issues about making the payment....it is well within our reach. Problem stemmed from the economy and housing market here in MI. Our home appraised for less than what it would have a while back and left us short on what we needed from the mortgage company. The rep from the well known, major mortgage company suggested that we take what they could give us and then do a mortgage on the farmhouse plus around 5 acres to get the small remaining balance.
He now tells us that his computer says that the farm does not meet guidlines. He is unable to explain it any better. We know that he is trying for a mortgage on just the house and a few acres and not the whole farm. The farm is about 30-40 miles away from here. That is all the info I can think of to give you. Anyone familiar enough with mortgage lending to give me an idea of what the trouble could be? This deal is pretty much dead but I will be looking at other places soon and don't want to run into any more walls.

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BEN in KS

08-11-2007 09:02:19




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 Re: OT Any mortgage smarts people out there? in reply to Dave H (MI), 08-11-2007 07:33:15  
Give Farm Credit a call, I've found them to be very helpful in a situation like this.



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Spook

08-11-2007 07:11:29




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 Re: OT Any mortgage smarts people out there? in reply to Dave H (MI), 08-11-2007 07:33:15  
I have been looking at quite a bit of property lately, in Michigan. This is going to sound simplistic, but is the appraised value accurate? A lot of property for sale now is overpriced to today's market. I read that in Michigan, nearly half of all sellers are paying money at the closing, in other words they are paying to get out from under the mortgage. ( negative equity )
I think it will be awhile before people really accept this. A friend of mine just bought a $400,000 house. It sold new for $700,000 in 2000. If you bought or built a house in Michigan in the last few years, you probably owe more than it will sell for. The one exception is waterfront property.

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Kentucky Ed

08-11-2007 13:39:55




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 Re: OT Any mortgage smarts people out there? in reply to Dave H (MI), 08-11-2007 07:33:15  
I don"t post often but read daily. This is something I may shed some light on. I have been a country banker for 34 years. Hundreds of my customers own their farm because I took a chance with them. First, don"t pay attention to advertisements for mortgage loans. They don"t want YOUR business. Second, don"t expect the advertised rates when considering farm real estate. It doesn"t qualify. What you need is a bank/banker that understands your needs and will work with you. As a farmer you will have good years along with the bad. Just because you had a bad year, doesn"t necessarily mean the next will be bad. It"s ashamed to lose the farm for a bad year.
Expect to pay a little higher interest rate. If you have had bad credit, don"t bother to apply. Don"t expect the lender to "buy you a farm" when you haven"t saved a decent down payment. Know your own business and don"t expect the lender to "do the hard part" of filling out your application and farming plan. Convince yourself first the operation will be a success, and then convince your banker. Above all, be very honest with yourself and your banker, and you can own rural real estate to play with all of your tractors (on topic).

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havvey

08-11-2007 06:48:36




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 Re: OT Any mortgage smarts people out there? in reply to Kentucky Ed, 08-11-2007 13:39:55  
well said my bank has had no problem with farm land or equipment. One local bank is managed by a farmer its also the largest and most solvent in the area. Most farmer know him on a first name bases!!



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02

08-11-2007 13:22:59




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 Re: OT Any mortgage smarts people out there? in reply to Dave H (MI), 08-11-2007 07:33:15  
The U.S. is in a no win situation.A citizen must be very careful these days about taking on debt. The credit cycle is almost over,don't get caught in the downdraft.



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James22

08-11-2007 12:38:43




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 Re: OT Any mortgage smarts people out there? in reply to Dave H (MI), 08-11-2007 07:33:15  
A lot of potential problems in getting a farm loan. As other have said, many institutions really only give house loans, because they can sell it to Fannie-Mae and Freddie-Mac, These huge government charted funds, enable housing loans to be cheaper but they do not take farms loans. Land contract or similar financing by the previous owners is almost non-existant, unless you are a close friend or relative. Another possible reason would be if they are having a tough time finding a buyer. Personally, I would have to be under great duress before I would finance a stranger. Although I had/have a good credit record, no house mortgage therefore a positive net worth, and a confortable income, it was not always easy to get a loan. I always seemed to find farm loan institutions that required a 1/3 down payment. At the beginning it was a little tough coming up with a 200K down payment for a larger land acquisition. Assists were OK as collaterial in leu of all cash, but I didn't want to mortgage the house because of the children, and they wouldn't consider any retirement funds; ie, 401K or IRA's. It basically limited any early advances to small purchases, which I could later mortgage for large pieces. The problem is this takes time and requires planning many years in advance. The lending institution's parsimonious attitude was the fallout from the late 70's early 80's ag crisis. The farm owners walked away, and stuck the institutions with expensive land. The alternative was for the institutions to give massive loan buydowns, which resulted in huge losses. The lending criteria relaxed several years ago to a 20-25% downpayment because of the improving farm economy, but the recent sub-prime lending crisis has thrown a wrench into the works. I believe looking for a seller backed mortgage would be similar to finding a needle in a hay stack, unless he/she takes an unexpected liking to you and/or can't find a buyer. But it doesn't hurt to ask, just plan on being disappointed. A better plan is to do some serious scouting for a bank that has the best terms for farm loans. Use these terms to evaluate possible scenarios; eg, no house just farm ground; house and 5 acres with adjacent farm purchase etc, to determine what the bank will support. However as always, any plan that would insure winning the lottery without spending most or all of the winnings on tickets, would work pretty good too.

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Kentucky Ed

08-11-2007 13:59:16




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 Re: OT Any mortgage smarts people out there? in reply to James22, 08-11-2007 12:38:43  
James, many of your points are right on. You cannot use 401K, nor IRA accounts as collateral for a loan. If a lender is suggesting that, they are totally incompetent. Were such accounts pledged for collateral, the IRS considers them "cashed in" and the withdrawal penalty is immediately due. I might take exception to pledgeing your home as collateral. For a lot of folks, that's their "equity" to enable them to buy their "dream farm". The old saying in my business is "if you aren't willing to take the risk, why should the bank?" And you are correct about owner financing today. The new forclosure laws have all but eliminated that. A good community farm bank is still your best choice.

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James22

08-11-2007 15:39:12




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 Re: OT Any mortgage smarts people out there? in reply to Kentucky Ed, 08-11-2007 13:59:16  
Ed, to be more brief I omitted a few details. However I was divorced and had physical custody which I was afraid could be an issue if I jepardized their home. That was 18 years ago and although it was on a no-fault basis, it was and remains not entirely amicable. Others would probably have a different position relative to a house mortgage. I was just disappointed that the 1/3 interest in the out-of-state family farm would not be considered. However with much better fortune in choosing a new partner, vastly increased land values and a lot of luck in the equities market, financing isn't now a concern.

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Matt from CT

08-11-2007 12:07:20




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 Re: OT Any mortgage smarts people out there? in reply to Dave H (MI), 08-11-2007 07:33:15  
When I bought my house, we had to get a few appraisals and "cherry pick" the right one -- small house (600 s.f. -- my grandparent's old summer cottage), with 12 acres.

Type of mortgage I was going for was for a house, not development land. Had to make sure the appraisal the bank used had the house worth more then the land.

I suspect that might be what you're running into -- a mortgage that the lenders want backed most by a easily sold house, not having to worry about selling land for development or farm value.

Like others said, shop around...especially with companies / banks that are used to farm loans.

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Luke S

08-11-2007 08:53:40




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 Re: OT Any mortgage smarts people out there? in reply to Dave H (MI), 08-11-2007 07:33:15  

Dave H (MI) said: (quoted from post at 07:33:15 08/11/07) We hit a hitch in buying the farm this past couple of weeks and I have been stewing about it.

We have absolutely no issues about making the payment....it is well within our reach. Problem stemmed from the economy and housing market here in MI. Our home appraised for less than what it would have a while back and left us short on what we needed from the mortgage company. The rep from the well known, major mortgage company suggested that we take what they could give us and then do a mortgage on the farmhouse plus around 5 acres to get the small remaining balance.

He now tells us that his computer says that the farm does not meet guidlines. He is unable to explain it any better. We know that he is trying for a mortgage on just the house and a few acres and not the whole farm. The farm is about 30-40 miles away from here. That is all the info I can think of to give you. Anyone familiar enough with mortgage lending to give me an idea of what the trouble could be? This deal is pretty much dead but I will be looking at other places soon and don't want to run into any more walls.


Give this outfit a try..... .....

Link

They specialize in farms and rural acreage. A lot of mortgage companies are not at all interested in rural acreage or farms but that is what they FCS specializes in. Usually their rates on farms are about 1% higher that you can get on just a house, but if it's all you can get what else are you gonna do.

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noncompos

08-11-2007 08:52:50




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 Re: OT Any mortgage smarts people out there? in reply to Dave H (MI), 08-11-2007 07:33:15  
I've been away from the business for several years, but I'll hazard a few guesses---it's the pucker factor: all along the line people in the mortgage business are spooky, not knowing how far values and/or the market to resell loans and to repackage and again resell as securities will drop. Deals that were fine last week suddenly no longer qualify, and may not until the financial industries confidence is restored. That's why the Fed is pumping funny money into the system.
If you have to have this deal, do as much research as to lenders as you can before shopping around; some lenders count each turndown as a red flag (X turned this guy down; if they thought it was too risky why should I risk it??, etc etc). Good luck.

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KEB

08-11-2007 08:42:01




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 Re: OT Any mortgage smarts people out there? in reply to Dave H (MI), 08-11-2007 07:33:15  
Find an independent mortgage broker. In my experience (I'm on my 7th house), the big companies are OK when you have good credit, a large down payment, and no glitches such as a low appraisal. An independent broker works solely on commission and is a lot more motivated to make something work if there are issues such as yours.

We just took some equity out of this house to build an addition, and it appraised for less than what we paid for it a couple years ago. Fortunately we had rolled enough equity in from the last house to have enough to work with even with the decrease in value. One other thing to check, some companies will allow higher loan-to-value ratios than others, although you may have to pay a little higher interest rate.

You sound like you're putting your current house up as collateral to buy the farm. Any way to get a mortgage on just the farm? Again, a small independent company can often be a lot more flexible than one of the nationally known mortgage companies.

Good luck, looks like you got caught up in the fallout from the sub-prime lending thats been in the papers a lot lately.

Keith

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midwest redneck

08-11-2007 08:39:49




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 Re: OT Any mortgage smarts people out there? in reply to Dave H (MI), 08-11-2007 07:33:15  
Where in Mich. are you at? Isnt it amazing that your house value goes down and your house taxes keep going up. (I see a conspiracy here)



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rrlund

08-11-2007 13:26:43




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 Re: OT Any mortgage smarts people out there? in reply to midwest redneck, 08-11-2007 08:39:49  
We passed a ballot proposal here in Michigan in 1994 that capped our property tax increases to the rate of inflation or 5% whichever is less. We have a State Equalized Value in addition to our Taxable value. For all intent and purposes,that value floats and doesn't affect our taxes. Since the S.E.V.has always gone up until the recent total colapse of the economy here,it has been a bargain to have taxes capped at a maximum 5% increase. Since the taxable value can't be higher than the S.E.V. when the equalized value finally drops below the taxable value,your property tax will go down. As for why the lender wants to lend on the house and 5 acres,not the whole farm is probably because of the definition of "homestead" and the fact that most lenders won't lend more than 60% of the value of vacant land. I still say though,that as bad as things are here in Michigan,ain't it great to see an end to urban sprawl! My brother is in the excavating business and has been tearing down a lot more houses and business's than he has been digging basements and doing site prep work. Sorry Louis,I had to say it.

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Vern-MI

08-11-2007 09:54:52




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 Re: OT Any mortgage smarts people out there? in reply to midwest redneck, 08-11-2007 08:39:49  
Red, Michigan is in a real mess and the partisan politics don't help much. If your property taxes are $10,000 a year you have to earn approximately $15,000 before income taxes to pay the property tax. Now they want to change the tax structure so that there will only be a state sales tax. Then they can just move that sales tax percentage all around, up and maybe down to satisfy all the pork they like to hand out as political favors. That seems to be taxation without representation to me. I think the pendulum has to swing all the way over to complete collapse, chaos and revolt before anything new will emerge from Lansing.

You have to wonder where to move in order to get away from this mess.

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Matt from CT

08-11-2007 12:00:50




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 Re: OT Any mortgage smarts people out there? in reply to Vern-MI, 08-11-2007 09:54:52  
I am not a CPA...but as a general rule property taxes based on assesed value of the property are income tax deductible. So you don't have to earn $15k to pay them.

What won't be deductible is "improvements" -- taxes assessed to pay for "improvements" to a specific property -- paving your road, installing sidewalks, putting in water & sewer lines...when such stuff is financed by taxing only the specific properties affected.

Although not used in my part of the country, other parts of the country I've seen "parcel" taxes...Fire Department gets $50/parcel, Library gets $10/parcel, etc, regardless of the value of that parcel -- 1/4 acre undeveloped lot, Doublewide, 10 acre strip mall...they all pay the same. Those taxes assessed per parcel are *not* deductible.

At least in CT, I'd much rather pay more in Property & State Income taxes then Sales and Tax...I can deduct the first two, I can't the third off my Federal returns.

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midwest redneck

08-11-2007 11:35:41




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 Re: OT Any mortgage smarts people out there? in reply to Vern-MI, 08-11-2007 09:54:52  
Time for another tea party.



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mjbrown

08-11-2007 07:59:19




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 Re: OT Any mortgage smarts people out there? in reply to Dave H (MI), 08-11-2007 07:33:15  
You need to find a bank that does farm mortgages. I ran into that once when i stopped at a local bank that was advertising mortgages. They "offered" to lend us money on the value of the house and five acres but hold all (157a) as collateral. I already had a mortgage and told him what I had and to make an offer to me to rent their money. He got huffy and said they don't do businees that way. We had to come to them and ask if they would lend us money on their terms. I said have a nice day. I bought from family and they held the mortgage. we made a down payment and agreed on interest and time, had a lawyer dot the i's and cross the t's. We split the interest between what I would pay for a loan and what they could get for CD's with the money. I paid less than at a bank and they made more. With a good down payment maybe the owners of the farm you're looking at would be interested in such a deal. It would help them on taxes too.

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Farmer in the Dells (WI)

08-11-2007 08:38:48




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 Re: OT Any mortgage smarts people out there? in reply to mjbrown, 08-11-2007 07:59:19  
First off the disclaimer: I am by no means an expert and as far as my suggestion you get what you paid for. In most cases that is just my 2 cents so that said, I have heard recently that the best rates for home equities loans right now may be with credit unions. Somewhere less than 6% as of yesterday. That may be an avenue for you to look into. Also, I didn't see what state you are trying to buy in but here in Wisconsin, if you want to talk to a property owner away from a realtor you need to be listed with them as an "exclusion" or some sort of verbage beforehand that indicates you may discuss the property away from the realtor. Try to see if that is allowed and get yourself listed so you can work with the owners directly. I believe it indicates you have expressed an existing interest in the property and allows the owners to deal with you without adding the realtors interest and expense$. Good luck

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paul

08-11-2007 12:07:33




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 Re: OT Any mortgage smarts people out there? in reply to Farmer in the Dells (WI), 08-11-2007 08:38:48  
I was going to say the same - credit unions in rural areas are typically run under a different setup than a bank that simply repackages house morgages to resell.

--->Paul



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