- The Washington Times - Wednesday, May 25, 2005

Q:I have applied for a mortgage to purchase a house in rural Virginia. I am a newly

retired teacher and am moving from Florida to be closer to my family. I have a home in Florida, which I plan to put on the market in the next couple of weeks.

The lender is telling me that it will want a copy of a settlement statement showing that I have sold my Florida home before it will issue a loan commitment, even though I applied for a “no documentation” loan. The loan officer says it’s because the house in Florida is worth a lot more than the house I’m buying in Virginia.

This could cause a problem if my house doesn’t sell quickly. Any advice?

A: Your lender is afraid that you are buying the Virginia property for rental purposes and not as your primary residence. Lenders have every right to be suspicious because one of the most common types of mortgage fraud is the practice of real estate investors applying for a mortgage as a primary residence when their actual intent is to rent the property out.

Mortgage programs for a primary residence carry better rates and more favorable terms than those for rental homes because a lender absorbs a higher degree of risk when making a loan on a rental home.

Because the home you are purchasing is worth less than your Florida home, the lender is even more suspicious because you are “buying down.” Most folks who are selling a property and buying a new one buy up, meaning the house they are selling is worth less than the house they are buying.

Having said that, it seems to me that your lender is being myopic. It’s pretty obvious from your e-mail that you are not trying to defraud the lender.

I once had a borrower who applied for a mortgage to purchase a second home. Rates for second homes are usually as favorable as loans on primary residences. After going to this fellow’s house to complete the application, I find out that his “second home” was across the street.

His explanation? He and his wife don’t get along, so they want to move into separate houses.

I had trouble keeping a straight face.

I told him that such an explanation wouldn’t fly in the underwriting department. I also told him that mortgage fraud is a criminal offense. Suddenly, he changed his mind and applied for an investor mortgage.

Your situation is altogether different. Retiring from a profession and relocating to a smaller residence is common.

My advice would be to write a letter to your lender and provide any kind of evidence to show that, indeed, you will be using the property as your primary residence.

A reasonable lender should accept something besides a settlement statement. Start with a written explanation.

Henry Savage is president of PMC Mortgage in Alexandria. Contact him by e-mail ([email protected]


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