What follows is the true story of how a $5 credit card bill made. One couple lose everything while buying a home and what you can learn from it.
My name is Lance MacMillan. I am a licensed realtor serving the Myrtle beach area. And I would like to introduce you to the story of Mr. and Mrs. Jones, Mr. And Mrs. Jones are clients of mine. And this story from them goes all the way back to when they were younger. The first time that they tried to buy a house, I was not a party to that transaction. They want me to tell this story because one they’re over it by now, they can actually laugh about it, but two, it could actually helps somebody who’s going through the process, not make the same mistakes that they made. Obviously I’m changing names and details of the story to protect the identity of the people involved and other parties, but beneath all of that, this story is true. This happened.
So we’re gonna start out with Mr. And Mrs. Jones as a young couple, they’ve saved money, they’ve done all the right things and they wanna get a first home for themselves. They like the country lifestyle. So they wanna get some land out off of the main drag. And they’re gonna get a modular home set up on it. For those of you familiar, a modular home is a home that’s actually built in a factory. It’s not built on site. Once it’s built it is moved onto the site and set up on a permanent foundation. So how the process works is you get together with the modular home people and you tell them what you want in it. You give them all the specs and everything. They build it. Then they haul it out to the site and they set it up on a permanent foundation. The permanent foundation consists of cement piers, steel underpinning, and steel straps, anchoring it to the ground.
They bolt the entire home together and then they break it in on the bottom and it ain’t going nowhere. So how their financing was supposed to work is they had gone out and bought land almost two years before they started looking for a home. They owned the land free and clear. The land itself was the asset that they were going to use to secure the loan. And it served as their down payment on their home. And as far as the financial city situation goes, they had great credit. Uh, they were assessed as a low risk by the mortgage company. They had money in the bank for reserves in case something crazy happened. So the loan that they were approved for basically was a really good loan. Their debt ratio turned out to not be bad at all because they were getting a decent interest rate on the home because they were, again, they were a good credit risk.
They were a low risk borrower. And again, they had some extra money in the bank just in case they needed it for anything that came outta left field. So they’re approved. Now, the bank tells them two things. Number one, and this is important. Don’t spend any money on anything. They don’t want any extra credit lines opened. They want them to keep that money in their bank, just in case something crazy happens. That way the entire process goes smoothly. And number two, and this one, you know, obviously is just as important. If not more important, keep up on your bills. Don’t let anything fall behind because at the end, they’re gonna do another credit check to make sure everything is still okay, that you didn’t go out behind somebody’s back and borrow $10 billion. That kind of thing. So with their good credit, their good loan and their rainy day fund.
They went to the modular home people and they started to pick out a house. They picked out the features that they wanted the colors, everything on the inside, and they signed contracts. So the modular home people with the paper signed, they get to work, they start building the home, they get everything straight and then they get it pulled out onto the land to get it set up. They get it set up on cement PI. They unbolt the axles. There are steel straps about this thick, and there’s probably a dozen and a half of those things underneath that home, pinning it to the ground. They taken a settling torch and they cut the tow inches off of both chunks of the house. They take brick underpinning and they underpin the entire thing with really nice masonry on the sides to make it look nice. The point is that house isn’t going anywhere unless an E five tornado drops right down out of the sky.
On top of it, it is going nowhere. So in the process of finishing, setting the home up, the hot tub, people come out, hot tub, people, nobody ever said anything about a hot tub. So yeah, there’s a hot tub involved. Mr. And Mrs. Jones had gone out on the side and they had bought a big old hot tub. They were gonna get it. Enclosed in this really nice gazebo. It was gonna be screened in, it was all gonna be built permanently right there on site. And there was gonna be like a deck and a walkway that went to it from the home. So that’s why the hot tub guy had come out, cuz he needed to see where they were gonna build it. Remember the rainy day fund, there’s their rainy day fund. They don’t have that in the bank anymore. Now did this technically affect the loan?
No, they did not borrow any money for this. They paid cash. It was their rainy day fund. So now the home is set up. The gazebo is there. The hot tub is there. Everything’s getting finished. Things built. All the little touches are being added to the home. So when you’re getting a home built, which is pretty much what these guys are doing, it’s just coming from a factory instead of a big pile of lumber sitting on the side of your land. What they do is at the very end, they’ll do another credit check just to make sure nothing changed. They wanna make sure that you can keep up on your bills. They wanna make sure that you didn’t go out and borrow a billion dollars because then your bills are all messed up and now you can’t afford your home. So they do their credit check, their final credit check we’re right at the finish line, something changed and it’s not good throughout the entire process from start to finish, they had all their ducks in a row.
Things got chaotic when they were moving, they missed one bill. It was a finger hut account and they owed $5 a month on it. And they missed the payment that missed payment, tanked their credit score by 90 points. Now all of a sudden they’re a high risk borrower when they were a low risk borrower. It doesn’t matter whether it’s innocent, doesn’t matter whether it was only five bucks, it still happened. And the credit score is the credit score. And now because they’re a high risk borrower, the bank is asking for more of a down payment and the interest rate went up, which means that their debt ratio climbed up over the allowable limit. The modular home dealer did everything they could to help considering that they had six figures worth of liability sitting on someone else’s land. And it was permanently attached to the dirt, but what could they do?
They needed more of a down payment, but they spent it. It was in their backyard already. They couldn’t go borrow the down payment because that’s not how that works. And even if it did, it would add to their debt ratio because now they have another bill that they have to pay for. And they still had the problem of the debt ratio. Their debt ratio was too high. Now, if they had money in the bank and that rainy day fund, they could have bought the interest rate down by buying points and creeped right back in on their debt ratio, underneath the allowable limit. But then they wouldn’t have the money for the down payment and they didn’t have either one. So they couldn’t solve either problem. Even if they did have the money, they could solve one, but not at the other. Could they turn back in the hot tub and all the lumber?
No, it was already delivered. Everything was already built. Carpenters, everybody, the electricians, they all needed to get paid. There’s no rewinding that one. So in the end, they’re sitting here with a paid piece of land. There’s a house sitting on the land. That’s ready to get moved into a deck, a walkway and a hot tub already built. And they don’t have a loan for it. The modular home people did everything humanly possible to try to find them another loan again, because they have six figures of liability just sitting there out on somebody else’s land and they don’t know what to do. So yeah, they want this transaction to happen. And so do the Joneses. They ask family if they have any money because the bank is willing to let family money, enter the situation, just to get this done for them. They can’t find any money.
So how does it all end? The modular home dealer? They had recoup their losses. They had no other choice. They had to put a lien on the land. So now the Joneses, they owe the modular home dealer and they have no way to pay it with no way to pay the debt. In the end, the Joneses had to sign their land over to the modular home dealer to satisfy that lean that they put on them. The modular home dealer did not wanna do it, but they had to otherwise they were gonna lose hard. There’s no taking that home back once it’s set up the modular home dealer ended up having to sell the place to a totally different person, a totally different couple ended up moving into Mr and Mrs. Jones’s place all because they made those two mistakes. The first of which, if you got a rainy day fund, keep it, don’t spend it.
Number two, pay your bills. If you’re going through a mortgage transaction, pay your bills. Don’t let your stuff go behind. They’ll check again. So the moral of the story here is communication. All of this could have been bypassed if they would have just told somebody that they were gonna go out and buy that deck and the walkway and the gazebo and the hot tub. Even with that $5 bill from finger hut going late, they probably could have sneaked through. They would had to pay through the nose, but they could have still done it if they had that money in their pocket. So for me and the Joneses, remember whether you’re buying or selling, go mango. And remember if you got any questions, just ask.