Pre-everything
So the current plan is to:
1. approach banks to see what we qualify for
2. purchase a multi that we will live in
3. use equity to purchase more rentals
As a business owner, I understand that I need my last 2 years of tax returns to present to banks with a mortgage application so I'm in the process of getting 2015 taxes (my best year yet) completed.
Does anyone have an opinion on using a broker to find the best mortgage rates available as opposed to just approaching local banks ourselves (fiancé & I)? Also is it true that a smaller, local bank may be easier to obtain a first mortgage from. My third Q; would be, "does it really matter if a bank sells your mortgage or not?"
I look forward to any advice..
Comments (4)
Li'l update..
We put an offer on a multi. Again we're going FHA so the first floor was big enough for the family and in pretty good shape. The second floor was divided into 2 rabbit run units that were in need of some updates if we were to receive optimum rent so we chose to offer lower than asking to compensate for the 203K loan that would be needed to fix'er up. Our offer was declined in lieu of an offer that came in just before ours. Was the offer better or was it just a matter of taking the first offer that came in?.... don't know.
So on with the search after learning a little from that process. long/short we found a second property that we liked and put an offer in - a 3 unit multi walking distance to the beach. This home is in great shape, seems to need very little, is fully occupied and receiving really good rent from tenants that have been there 10 years in units 2 and 3. We attended the first open house and the property was filled with interested buyers. Trying I guess to compensate for our possible previous faux pas our offer was $2000 above asking price with a few contingencies. ( first floor had to be empty before closing these were newer tenants anyway we wanted verification of rent roll for the past year and obviously inspection..yadda yadda. Our offer has been accepted and i'm feeling a lot of emotions, most stronger than the joy I should be feeling. Is this normal on your first purchase? I can't help but wonder how much lower our offer could have been and still be accepted.
Now the property should cash flow adequately while we occupy it and very nicely after we depart for our next FHA property. Just better than $100 per door using the BP rental calculator. So I am happy but extremely nervous and afraid. I am determined not to be one of those people who let's fear stop them from ever getting started though so... here i go.
The house isn't ours yet. Next comes the P&S and getting the bank commitment.. all nerve rattling stuff. does it get better on the second one? hope so. Fingers crossed all goes well with this one. I've seen many properties go pending and then within a month, right back on the market.
P.S. the first property we offered on just came active again.. **biting nails**
Robert Andrade, almost 9 years ago
OK so here we go. Got the pre-approval letter and we're ready to shop. Been looking at the local inventory and we're not overly enthusiastic about the options. Could be time of year or it could be that we're just not looking at things with experienced eyes yet. Either way the next step is to meet with a few realtors, ask some questions and see if we can find someone on the same page as us. We definitely need guidance and someone to help us narrow down the many different paths we should take. Feeling overwhelmed with the process. Can't wait till it's old hat. Let the fun begin!
Robert Andrade, almost 9 years ago
Hey Robert! I just sent you a connection request. Here is the draft of my blog on buying a multi family FIRST . It is a condensed version of the rambling pile my other blog post became and I need to take a half hour and edit it up! Let me know what you think about this plan:
https://medium.com/@KeithPentz/919da2fedf62
In regards to your questions :
1 Yes talk to a lender NOW. If you go the FHA route for a multi family they will be using 85% of the average rental rates for your purchase and adding it to your gross income so you may be ok with 2013/2014 or not! At best they are going to take an average of 2014/2015 income but then again if 2014 was less than 2013 they will take the lower of the 2! . Talk to the loan officer and see what your 2015 income needs to be to qualify . Simple changes that make no difference to the amount of tax liability (like moving certain line items to depreciation) can make or break what a mortgage company can use for income. Self Employed Borrowers get totally screwed over when it comes to calculating income (you get qualified on net income while salaried employees get qualified on gross income...makes ZERO sense). I see your tax professional as part of the investment team! I'm happy to refer a Loan Officer to you that is well versed in self employed borrowers. Just let me know .
Less lengthy answers: no it doesnt matter if a bank sells the servicing to your mortgage, most do, I have NEVER found that a small local bank is easier to get a mortgage from. I have contacts at local banks that I use for Portfolio loans but when it comes down to it for FHA/Fannie Mae I refer people to commissioned Loan Officers who don't get paid a penny unless your deal closes. I have had nightmare experiences with Loan Officers that get paid the same whether you get the loan or not. I'm not saying they are all bad, Im just sayin...Plus they do not get compensated if they refer a loan to another company that might have a better product...this means they will try to sell you the best they have (and alot of times arent aware of any other options beyond their 4 walls)
Last comment I promise! I would say that you 1. Buy a multi that you live in 2. Either buy a single family and rent out the unit you were previously living in or go the portfolio route with an asset based lender (again, I can refer you to one if you like) with a portfolio product. Your equity position in your 1st home won't be enough to get you more rentals anytime soon. Your cash out is going to be limited to 70% ish of the value of the home and we aren't going to see THAT high of appreciation anytime soon. Lots of great ideas on the site and Brandon's webinars to get you options though!
You ROCK for having a plan !
Let me know what I can help out with.
KP
Keith Pentz, almost 9 years ago
Thanks Keith Pentz for taking the time to read my blog and especially for the awesome info and advice. This is a scary venture for me but this BP resource is a God send.
I'm currently waiting on some 1099s that are late so my CPA can finish my 2015 return and then I have to make a decision who to talk to about obtaining a mortgage.
Yes it does suck that self employed people like myself have our net calculated and not the gross. My business has soooo much overhead with licenses and permits and insurance. after like 45% taxes I'm not netting anything that impressive and my credit rating is average so I know it'll be an uphill climb. Fortunately my gf has a very good rating and her gross income isn't too bad plus there's a 401k so.. fingers crossed.
I may very well take you up on that offer to connect with the finance contacts and I appreciate the offer more than i can say.
Robert Andrade, almost 9 years ago