Buying the Home You Rent 2014

Buy The House
You’re Renting
Tips and Advice From Top NC Real Estate
and Mortgage Professionals
Steve Thorne, NC Mortgage Experts 919 694 5058
NMLS 60596 River Community Bank, NA Cary, NC

Paying Market Rent
An Appraiser is required
to determine Market
Rent if you are buying
the house you are
renting
Steve Thorne - 919 694 5058
We recently had someone leave a comment that said they were renting a home that
they wanted to buy, but they had not been paying rent. The buyer went on to say that
in exchange for rent, they’d spent many hours making repairs to the home, cleaning
out the previous owner’s things, and hauling off discarded items from the property.
While these activities certainly have “value” to them – do they add up to the “Fair
Market Rent” that the Appraiser sets for the home?
That is a big factor for getting loan approval if you are buying the home you are
renting. HOW YOU WRITE THE CONTRACT in this situation, both for the RENTAL
Agreement and the PURCHASE agreement will determine if you can actually use that
money for down payment! There are limits, based upon the type of mortgage you
apply for, regarding Allowable Seller Contributions!

How Long Have You Been There?
If you have been
renting the home
for less than 6
months, FHA limits
you to 85% of the
Value
Trying to buy the home you are living in? If you are getting a FHA Loan, you need to
wait and apply for a mortgage after you’ve lived in the home 6 months. It’s just a
weird rule. It’s one of those rules to keep people from “flipping” houses / but NOW it
seems like FHA LIKES people to fix up houses and fix them? We think it’s a rule that
needs to change.

Tired of Having A Roommate?
● Rent Versus Own?
Might be cheaper to
BUY a House!
● How is Your Credit?
Mortgage rates are low, and the cost of renting an apartment or home - is going up.
So it might be cheaper to Buy a home, as opposed to Renting this summer!
Remember, you can’t really compare a Rent payment to a house payment - it’s kind
of like comparing apples to oranges.
The first question a home buyer usually asks us is “What are Mortgage Interest
Rates?” That’s a great question, but it’s not necessarily the ONLY thing you should
focus on when you are talking to mortgage companies.
The First question the MORTGAGE COMPANY is going to ask is: “How is your
Credit?” We really can’t tell you if you qualify unless we view your credit file. If you
are calling around to companies, be sure one of them sends you your credit file!
Minimum Credit Score Requirements for a mortgage at most banks are 640, however,
we are allowed to go lower with manual underwriting guidelines.
In general, we can make loans to folks with relatively few hoops to jump through, as
long as you have 2 credit scores over 600 - that will be a FHA loan, which requires a
down payment, or a VA Loan - for qualified Veterans. For a USDA Home Loan, the
minimum credit score is 620 for a manually underwritten loan.
After a Foreclosure or Short Sale VA Loan guidelines are the least waiting period of
any loan program. USDA Home Loans are the longest Government Loan waiting
periods after a financial hardship. FHA Home Loans do have some “special
Circumstance” situations that can cut the waiting periods to buy a home.

Rent To Own Agreements
We generally discourage
these types of
agreements, although
locking in a sales price
might make sense?
One option that some landlords offer to folks with low credit scores in North
Carolina is “rent to own.”
“In a nutshell, when you sign a lease or rental agreement, you are committing to pay
higher rents on the home for a period of years, at which point you have an option to
buy the home at the end of the lease.”
Obviously, if you are one of those folks who went through a rough patch, this might
sound like an easy way to let time pass - and still be able to provide the stability you
so desperately want for your family. For many potential homebuyers, the reason to
enter into a rent to own arrangement boils down to having a “forced savings plan.”
With a Rent To Own, the excessive portion of the rent is applied toward the down
payment of the home.
This is one of those situations where you DEFINITELY want someone with
EXPERIENCE helping you. Especially if you are negotiating a sales price for a future
date, and you are giving the Owner a pot full of cash, payments in advance, etc.
There are MULTIPLE things that could go WRONG with a Rent to Own Agreement.

Qualifying For Your New Home
● Government Loan
Limits
● Mortgage Tax Credits
Each Government Program Mortgage Loan Program in NC has maximum program
Sales Price, Income or Loan Limits that can vary by county.
For Veterans, the limit for a no down payment loan in NC is $417,000. If you make a
down payment, or need to use your VA Benefits to buy a second home - that’s okay
too. It’s still likely to be the cheapest program available for a Veteran, and you do
NOT have to be a First Time Home Buyer to use your VA Home Loan Benefits.
The FHA Home Loan in NC has maximum loan limits which change on an annual
basis. The maximum loan amount for a FHA Loan can vary WIDELY in NC. For
instance, in the Raleigh Area - the 2014 FHA Loan Limits for Wake, Franklin and
Johnston County are currently 280,600 - Harnett and Granville County $271,050 and
Durham / Chapel Hill are 2014 $334,650.
USDA Home Loans do not have maximum loan limits - but they set Household
Income Limits (and again the 2014 USDA Loan Income LImits for NC vary widely by
County). In the Charlotte area, the USDA Loan maximum household income for a
family of 4 is $78,800 in 2014 - it’s more for a family of 5.
In 2014 - there are First Time Home Buyer Mortgage Tax Credits available. For
most folks we talk to, this Mortgage Tax credit can reduce your mortgage payment
by about $160 a month!

Co-Borrowers Allowed For Purchase
● Family can Co-Sign
● One Spouse has
income the other has
good credit
With a Conventional and FHA Loans, allow non-occupying family members to
co-sign for a mortgage. The home buyer does not have to provide evidence of
stable employment, the program works well for college students. For a Conventional
Loan, the program requires that the person living in the home have a middle credit
score of at least 640. For the FHA Loan, you can have a lower score - but you WILL
need to have some credit reporting to the credit agencies.
Having a co-signor will NOT help us if the co-borrower has BAD credit. In a
situation where one person living in the home has good credit, but not enough income
to buy the house - we normally add a non-occupying co-borrower.

Documenting Funds To Close
● Paper Trail Requirements
○ What Delays Closings
● Who Can Give A Gift
○ Documentation Required
● First Time Home Buyer
Grants
When you make an offer to purchase a house, you will be asked to pay the Seller an
“Earnest Money Deposit.” A little later, after inspections, and so forth, you will be
asked to give them a check for “Due Diligence.” One of the things that HOLDS UP
CLOSINGS is the inability to “source” where the money for the Earnest Money came
from. If you are pulling money from various accounts - do it BEFORE you apply for a
mortgage.
Family members, and folks who come to your wedding (for instance) can give you
gifts to pay off debt, cover closing costs, or help you with the down payment. It must
be documented, and sometimes, that gift money documentation can be tough to
understand.
Spouses ARE allowed to give gifts to their spouse on a FHA loan, however, they are
NOT allowed to do that on a USDA Home Loan. On USDA Loans, we generally have
to add the spouse to the account with the funds we need to close.
There’s a NC Housing Program that awards GRANTS for down Payment. That
program has a Sales Price limit for the whole state of $240,000 - the income limits
vary, for the NCHFA program by county. This program works especially well for
Single Parents, and first time home buyers - however you do NOT have to be a
first time home buyer to qualify for the grant program.

Sweat Equity / 203K
● Home Inspections
○ POC Items
● Condition of the Home
○ Before Closing Issues
○ Escrows For Repairs
If you have a home inspection done (and we HIGHLY RECOMMEND THAT YOU DO)
it’s important to remember that they are TRYING to find something wrong with the
home you are buying. So you can expect there to be a laundry list. Most of the items
we see on a home inspection report fall into the “good to know” - stuff you might want
to address later.
In the situations where there are items you find items that you need the Seller to
correct, or you negotiate a lower sales price to accommodate the issue, that you will
fix yourself - be aware of the fact this could be an issue for closing too.
In the “old days” we could put Seller repairs as an INVOICE or payment to the
Roofing Guy (for instance) on a closing statement. We might also see a “credit” to the
Buyer for “roofing” on the closing statement… but in TODAY’s lending environment -
that is not allowed. Items like that need to be POC, or Paid Outside of Closing…
because if the Bank sees those items on a closing statement - they are going to need
evidence that it’s all been fixed. If it has - great!
Along those same lines, if the appraiser notices an issue with the home, we will have
to have it fixed prior to closing. Sometimes we can use the Home Inspection report,
to satisfy the Underwriter, but usually Appraiser noted issues require an Engineer or
Licensed Contractor statement.
We are not allowed (in MOST CASES) to escrow for repairs, although we have seen
a few (read VERY FEW) exceptions regarding repairs that were documented. The

Attorney ALWAYS charges a fee for handling the Escrow, usually upwards of $500.
FHA offers a Rehabilitation loan, called a 203k loan that is great if you have repairs of
less than $30,000.

Student Loans
USDA Loans have the
most stringent Student
Loan Requirements.
FHA and VA much
easier guidelines
These days most people who have been in college during the past 10 years have
some sort of DEFERRED Student Loans. Those Deferred Student Loans come in
two “types”
There’s Income Based Repayment (IBR), and these vary each year. Then there’s
the ones that you apply to get deferred each year, but they have a fixed payment.
The “fixed payment” Deferred Student Loans need to have 12 months of deferment
for them to be “left out” of your qualifying ratios for USDA loans, FHA or VA Loans.
For FHA and VA Loans, the actual payment of the IBR Student loan is used to qualify
you for the mortgage. If the fixed payment deferment is for at least 12 months, we
don’t count it for qualify purposes.
For USDA Loans, however, the IBR Student Loan Qualifying guidelines read:
When an applicant provides documentation of an IBR agreement and payment from
the loan servicer the following apply:
1. If the IBR payment is less than $100 and 1% of the total loan balance is
more than $100, a minimum payment of $100 must be included in the debt
ratios. (READ: Even if you are only being charged $22 a month, we are going to
COUNT $100 a month for that debt!)
2. If the current IBR payment is over $100, lenders may use that payment amount
in the debt ratios.

This is HUGE! We’ve seen people go OFF of the IBR Deferred payment, and get a
fixed payment, just so they can buy a house.

Big Mistakes Home Buyers Make
It’s easy to get caught up
in the “Dream” of
HomeOwnership…
● Work with a Budget
● Check HOA Documents
● You need SOME Cash to be
able to buy a house!
Figure Out your Budget: Before you start looking for a home, you need to spend a
few minutes considering your budget – now and for the next 3 or 4 years. This is more
than just talking to a loan officer for 10 minutes at a Realtor’s Sales Office and getting
pre-approved for a mortgage. Most of those conversations end with a buyer finding
out the maximum loan amount they can qualify for. We are talking about having an in
depth financial conversation, that includes your savings plans, and spending habits.
Nobody wants to be house poor!
If you are interested in buying a home that has a Homeowner’s Association,
there’s likely a laundry list of things you can and cannot do at your house. For
instance, some Association Covenants restrict the number of cars you can have
parked permanently – or weather or not you can park your boat in your driveway.
Sometimes, there are Association fees that cover the roof and grounds for a
Condominium project or a Townhome Community. In that situation, you also want to
read the Budget, and you will want to know if the project is currently approved for FHA
or government financing – because again, this could affect future value of the
property when you go to sell it.
You CAN get into a house with NO money - but it can be a struggle. We would
suggest that you have at least $1200 if you want to buy a house. Yes, you can get
the seller to pay closing costs (we can help you with no closing cost loans too!) …
and yes, you can use you can use the USDA Home Loan, which requires no down
payment at all, or your VA Home Loan benefits (if you have them) to buy with no

money down.
Realistically though, you’re going to want a Home Inspection, you will have to pay for
your Home Owners Insurance, your part of the taxes… you need a LITTLE money!
HOWEVER, having said that – we OFTEN have folks who get all of their Earnest
Money back.
You really (really) can buy a nice house in NC with as little as $1000 (or less) and if
you need help with that, we also offer the NCHFA Grant Program, which provides up
to 3% to cover down payment assistance and closing costs. It’s a FORGIVABLE loan
from the State for folks who have not owned a home in the last three years. Again,
not all lenders offer this program – so call us, don’t miss out on this FREE CASH!

Contact Us
Steve Thorne Mortgage Team
NMLS 60596
111 Corning Road, Suite 230
Cary, NC 27518
Cary: (919) 649 5058
Follow Eleanor on Twitter @isellmoney
or find me on G+
You can also leave us comments or questions on any of our posts - we try to answer
them daily!

Buying the Home You Rent 2014

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