     Chad_Roberts (Chad_Ma) | Saturday, July 29, 2000 - 06:24 am 
I'm considering buying a house next year (1st time buyer), my credit history is
roughly the following:
2 90 Day lates 4 years ago
5 30 Day lates 4 years ago
1 30 day late 1 year ago.
No bankruptcies or public records.
I've gone through my report and closed about 4 old dormant accounts leaving me 4
credit cards open in good standing.
my net worth is roughly 2.5M. I would like to qualify for an asset based loan from a
brokerage where i pledge 40% of the value of the house in securities and borrow
100% of the cost. This allows me to avoid liquidation and cap gains etc. These
programs seem only to be open to A borrowers. I don't know if I am one or not.
Advice? Am I worried over nothing? |
| Michael Bardelli (Bull22) | Saturday, July 29, 2000 - 02:36 pm
The late payments that you have stated will more than likely be enought to kick you out of the A category. With a good broker though, they "should" be able to get you done on an "A" paper loan though. Also, you have not said which state you are in. You are not a slam dunk case but your case is definately workable. Which type of securities were you planning to margin by the way? The stock market appears to be in bear mode right now. Commodities are more attactive. Good luck.
Mike |
| Shylock (Shylock) | Sunday, July 30, 2000 - 04:12 am
It is impossible to say if you are an "A Paper" loan with the information you've given. Your late payments, especially having a late payment in the last 24 months, are a very serious concern. But there's really no way for us to know without knowing how much you owe v. the limits on your cards and/or original balances of installment loans. |
| Don Semler (Dsemler) | Sunday, July 30, 2000 - 06:01 am
While I repect the opinions of those above, I see no reason why you would not be considered an "A" borrower. You have 1x30 on a CC in 24 months. The other stuff is OLD!. Also, you indicate that you are putting down 40%(pledged) I'm making the assumption that your credit score is >620 middle score. Also, your rent is paid on time and your income is verifiable and supports a 28/38 ratio. But by credit only the old lates should not pose a problem. For the Asset based loan, try Merril Lynch.
Now I have a couple of questions, why pledge assets? If the answer is to lower mortgage payments, remember you will be paying a margin rate on the pledge asset(i believe). Is the margin loan deductable as investment expense?(check with an accountant). Depeding on the size of your purchase, there are some wonderful 100% financing programs available. This way your assets aren't tied up. Also, with the pledge assets, can you still control the investments or do they have to go into "safe securites" vs "aggressive securties"?
Just some thoughts, but I really wouldn't weat the credit based on the info provided. |
| Chad_Roberts (Chad_Ma) | Tuesday, August 01, 2000 - 05:10 pm
Now I have a couple of questions, why pledge assets? I would rather grow the assets in the public market instead of investing it in real estate equity. Income from the account can partially offset the mortgage payments as well.
..remember you will be paying a margin rate on the pledge asset(i believe). I don't follow you on this one, are you refering to the rate on the loan?
As far as investment restrictions, they have guidelines for concentration in particular securities, and what they call "internet stocks" but otherwise all investment vehicles are available.
Thanks for the info. |
| Don Semler (Dsemler) | Wednesday, August 02, 2000 - 04:02 am
Here's what i'm gettign at: You want to buy a $100,000 home. You decide to "pledge assets" for a 20% down payments. Then you want to take out a mortgage for $80,000.
Question: Do you have to pledge more than the 20% due to broker margin requirements(thus more money is restricted)?
Question: I believe this is in essance just a fancy margin loan from the broker, so are you paying the broker a margin loan rate? At what percent? Is it tax deductable?
Question: What if the stock drops ie PG, TYC, DIAL and others that were all considered safe stocks, below the minimum margin requirement? Do you have the additional collateral to put up?
With program out their that will go to 100% LTV, why not use these and NOT tie up stcoks. I agree on not liquidating, but I don't like to have think tied together. In this case if your paying a margin loan rate for the pledged securities, why not just pay a mortgage interest rate instead? There are 100% LTV first mortgage out their at 8.375% + PMI. If you don't want to pay PMI then do an 80/20.
Good luck |
| Chad_Roberts (Chad_Ma) | Wednesday, August 02, 2000 - 04:21 am
As far as I can tell, although it looks like a margin loan it is a mortgage and the interest is tax deductable.
Here's the text from the DLJ Plan
There are two types of DLJ Programs:
* Minimum Pledge Program: In this program you will be required to
pledge, and maintain, 39% of the purchase in a DLJ/PAS Account. If your
account goes over the 39%, you can withdraw but you must maintain the 39%.
If your account falls below 39% then you have 3 business days to make up the
difference in your account in order to bring it back up. Once you have 30%
equity in the property your pledge will be released.
* 100% Pledge Program: You will be required to pledge 100% of the
purchase price. You must maintain 80% of that pledge in your account. If
your account goes over 100% of the pledged amount then you are more than
welcome to withdraw. If the account falls below 80% of the pledged amount
then you must make up the difference. This pledge will not be released until
you pay off the mortgage in full.
The pledge amounts stated in the Minimum Pledge reference
apply to mortgages under $1,000,000.
From $1 million to $1.5 million the pledge will be 47.25%.
From $1.5 million the pledge will be 56%.
From $2 million and up the pledge will be 65%.
* Add 10% to all of these if the property is going to be an
investment home, a second home, or a cash-out refinance.
Program Highlights:
* Allows you, a DLJ client, to use your assets as collateral for a
mortgage instead of liquidating investments for a down payment.
* Since you will not be liquidating your investments, you will avoid
capital gain taxes.
* These programs are 100% financing, so you will experience a higher
monthly payment, thus higher interest deductions at tax time.
* Historically, securities in a DLJ account will grow at a faster rate
(10 - 15% annually on average) compared to the value of a home (3% to 5%
annualized nationwide average).
* Even though this is 100% financing you still avoid the PMI, Private
Mortgage Insurance.
* No pre-payment penalty.
Some of the eligible securities include:
* Listed stocks or Fed-approved OTC equities, including real estate
investment trusts (REITs), trading > or = $5/share.
* Mutual fund shares and UITs.
* Convertible corporate bonds.
* Interest-paying corporate debt rated no lower than Moody's BAA or
S&P BBB.
* Corporate zero coupon bonds rated no lower than Moody's BAA or
S&P BBB, including CATS, TIGRs, etc.
* Interest-paying municipal debt rated no lower than Moody's BAA or
S&P BBB.
* Municipal zero coupon bonds rated no lower than Moody's BAA or S&P
BBB.
* Government direct obligations (bills, notes, bonds).
* Government agencies and pass-through (e.g., GNMA, FNMA, fed Home
Loan).
* Government zero coupon bonds.
* CDs available through DLJ or DLJdirect.
* Money market funds offered through DLJ or DLJdirect.
Some of the ineligible securities include:
1. All retirement funds.
2. Option and Margin Accounts.
3. No more than 1/3 of the securities can be internet stock.
4. No more than 1/3 of the securities can be trading for less than
$10.00 a share. |
| Don Semler (Dsemler) | Wednesday, August 02, 2000 - 06:41 pm
Chad,
looked on the DLJ site, could find a rate listed for the program. Found links to prism mortgage with rates on other programs. Any idea what the rate is for the pledge loan? |
| Chad_Roberts (Chad_Ma) | Thursday, August 03, 2000 - 12:53 pm
Yes, it's 9% no points for a 60 day lock in and 8.75% no points for 30 day lock in. |
| Don Semler (Dsemler) | Thursday, August 03, 2000 - 08:29 pm
That rate seems high considering you can get a 30 yr fixed for about 8.125% o pts. You could avaid the PMI by taking out a margin loan(which is what your are doing) for the 20% down. This way you are only paying 9% on a small balance instead of the whole thing.
This would give you a lower payment and accomplish your goal of not liquidating. Also, since it's a regular margin loan you can invest in whatever you choose. |
| Shylock (Shylock) | Friday, August 04, 2000 - 02:24 am
That's a simplistic analysis of his situation. First of all assuming he does get a 80% LTV loan at 8.125% and a 20% margin loan at 11% his blended interest rate is going to be 8.7% anyway plus the extra 20% loan won't be tax deductible, which seems to be a large concern to him. |
| Don Semler (Dsemler) | Friday, August 04, 2000 - 11:49 am
First if his broker is charging him 11% then he should find a new broker. Margin rate should be between 8.75 and 10.25%, but that is not the point. Are you sure the 20% is not deductable. If the 100% is , maybe the 20% is also. Third he could also do an 80% 1st + a 20% 2nd all funded from the same lender, avoid the pmi and not cash in any $$. Products are score driven so he would need to know score.
Point being is why tie up your assets. It's much better to have FULL control rather than partial control. What if he get's pissed at his broker, can he move his money to another broker?
All things should be considered in the big picture. |
| Shylock (Shylock) | Friday, August 04, 2000 - 06:39 pm
That was the point of his post -- he wants to know if he has the score to qualify for doing what he wants. The answer to that is -- none of us know. Delinquencies, while a large portion of a person's score, are not the only portion. A lot of it has to do with debt to available credit ratios. |
