Financing Help on a Quad Plex

[John Mitchell]

Hi All,

My business partner and I have signed a contract with a construction company for the purchase of a brand new quadplex in Texas. The closing date is Aug. 30th and our lender just told us the loan did not pass due to the Debt Service Ratio being below their minimum threshold. This was for a conventional loan, and they looked at both our financials and the properties, and since the properties' financials did not meet the minimum threshold the loan failed. Is there anything I can do to salvage this deal or is it dead in the water for me?

Thanks,

[Caroline Gerardo]

Get a copy of form 1037 or 1038 that they used. The appraiser did a rental survey and you paid for it, get that. Are the rents used what your leases will be at closing? Are you getting stuck with old tenant staying on at lower than market rents? 

Conventional doesn't use the same calculations that DSCR does. Income is your problem. Not enough income from the subject property to make the payment.

When was appraisal completed? This was the day to find this out. Maybe numbers listing agent/seller provided as rents are higher than the real numbers? If seller represented x rents and it is not true you may be able to cancel and get your EMD back but not appraisal costs.

If you intend to stick with this lender the only fix is to put ALOT more down payment. Maybe 10-15% more, we do not know how much without looking at how far off the numbers are. Your lender SHOULD be able to tell you what that larger down payment is to make it work for them. If dealing with a bank it's time to get the manager involved and pray they are responsive. This is why knowing your lender as part of your personal team is vital to success. This surprise should not be on day 25.