Cash Out to scale - self employed issues for mortgage

[Kenneth Smith II]

Hey everyone, I've been BP member for one year. I just haven't took the time to use it to my advantage. I am a pretty new investor. Started out running a property maintenance company taking care of a couple property management companies in Goldsboro NC. Saved up enough money to purchase my first property from a whole seller for 40k. It was a 3/1 with a carport which I closed in adding 476 heated sq ft. Tore out a chimney and utility closet making enough room for another bathroom So now it's a 3/2 with 476 heated sq ft added. This one rents for One thousand per month. I bought another property which is a 3/2 that rents for 750 and I inherited a 2/1 bath that we currently have family members living in to help them out right now. The first two properties are in a llc. The other one that our family members live in is in my personal name. All three are paid in full with no money owed on them. My credit score is 723-727. I went to my bank to see about a cash out refi. They will only do the property that is in my name. The hold up is my DTI. Of course being self employed you try not to show to much profit but enough so that if you need to borrow money you can show profit. My banker is saying that I am right on line that it could go either way. I know I will probably get some responses from some talking about DSCR loans. I am certainly opened to that. I jus don't know who offers them and who will be straight up with me. As I said I am just starting and I have never done any kind of mortgage. The house I live in is the home I grew up in. My dad gave it to me years ago and it will go into my name when he passes which I pray is a LONG time from now. I would have loved to been able to have a house with a HELOC so that I could buy my next property and make the repairs. Then once I got it rented I could cash out refi paying the HELOC off and go again. But I can't seem to find a bank or anyone else that will do a HELOC unless it's your primary residence or second home but so many miles away from your primary. I have heard David speak on the BP podcast about there being ways to get first time buyers programs etc. I can find properties at good prices and I can fix them up adding value and get good rent. (I have done several for a local investor) I just don't know nothing about all ways to get financing and mortgages. And I don't have anyone I know that I can trust to put in contact with the right folks that can help me achieve this part of investing and growing my investments. If any of you guys could point me in the right direction and or could have a little patience with a newbie ... Well I would certainly appreciate your help.

[Randall Alan]

Quote from @Kenneth Smith II:

Hey everyone, I've been BP member for one year. I just haven't took the time to use it to my advantage. I am a pretty new investor. Started out running a property maintenance company taking care of a couple property management companies in Goldsboro NC. Saved up enough money to purchase my first property from a whole seller for 40k. It was a 3/1 with a carport which I closed in adding 476 heated sq ft. Tore out a chimney and utility closet making enough room for another bathroom So now it's a 3/2 with 476 heated sq ft added. This one rents for One thousand per month. I bought another property which is a 3/2 that rents for 750 and I inherited a 2/1 bath that we currently have family members living in to help them out right now. The first two properties are in a llc. The other one that our family members live in is in my personal name. All three are paid in full with no money owed on them. My credit score is 723-727. I went to my bank to see about a cash out refi. They will only do the property that is in my name. The hold up is my DTI. Of course being self employed you try not to show to much profit but enough so that if you need to borrow money you can show profit. My banker is saying that I am right on line that it could go either way. I know I will probably get some responses from some talking about DSCR loans. I am certainly opened to that. I jus don't know who offers them and who will be straight up with me. As I said I am just starting and I have never done any kind of mortgage. The house I live in is the home I grew up in. My dad gave it to me years ago and it will go into my name when he passes which I pray is a LONG time from now. I would have loved to been able to have a house with a HELOC so that I could buy my next property and make the repairs. Then once I got it rented I could cash out refi paying the HELOC off and go again. But I can't seem to find a bank or anyone else that will do a HELOC unless it's your primary residence or second home but so many miles away from your primary. I have heard David speak on the BP podcast about there being ways to get first time buyers programs etc. I can find properties at good prices and I can fix them up adding value and get good rent. (I have done several for a local investor) I just don't know nothing about all ways to get financing and mortgages. And I don't have anyone I know that I can trust to put in contact with the right folks that can help me achieve this part of investing and growing my investments. If any of you guys could point me in the right direction and or could have a little patience with a newbie ... Well I would certainly appreciate your help.

@Kenneth Smith II

So the DSCR term is simply the method commercial lenders use to help recognize that the property will generate income to help pay the mortgage.

Any bank that has a commercial lending department can probably help you.  In short, they put more weight on the performance of the asset versus a residential lender.  I would recommend a smaller community bank in your area.  

We have done a consolidation loan where we paid off 5 properties and did a cash out at the same time.  So when working commercially you aren’t limited to just working with one property.  They will probably jump at the opportunity to use 2 of your properties to secure their loan if doing cash out… so it opens up some more doors for sure.  

The down side  is that they are usually based on 25 year amortization (so higher principle payment than on a 30 year loan), and the rate lock is frequently just 5 years, so it will reset to current rate every 5 years.  

But with all that they can serve a purpose if the interest rate is feasible.  They usually run a little higher than residential lending, but not much higher.  

Hope it helps!

Randy