Getting a Mortgage on Low Salary but Big Savings?

Question

Need your help BP team!!  My sister-in-law brough me a problem I'm having a really hard time figuring out.  Here's the deal:

- She owns a small disaster recovery services business and has a newly awarded contract with FEMA

- She pays herself a fairly low salary from the contract because it's all she needs, so from the bank's perspective she has low income

- She has a huge cash savings stockpiled and which she is building (she just started this business) in order to make payroll in periods where FEMA contract disbursements are slow

- She's preparing to place an offer on a multi-family she currently lives in and rents from; she could pay cash for the property from her small business savings but needs to save that cash for the above mentioned reason

- She's called multiple banks but can't find one willing to lend due to her "low DTI ratio"

I think she just hasn't found the right lender and is probably calling big box banks looking for conforming loan terms.  Thoughts?  Does she just need to find the right private, portfolio or investment-oriented lender?  What's the best way to find the right kind of lender for this situation?

Stephanie P. · Answer

@Jim Horne

While I respect all of the guys on this thread, I think they missed your point and question.

Your sister in law needs a bank statement loan for self employed borrowers for an owner occupied property.  It's a loan where the income is based on her last 12-24 months deposits.

Even if she pays down some of her debt, it could be that she pays herself such a low salary that the property itself blows up her DTI (even while counting 75% of the rents).

QM stands for Qualified Mortgage.  Dodd/Frank legislation gave us that distinction.  A non-qm loan doesn't fit the parameters of a qualified mortgage.  I linked to it for your reading pleasure.

Best of luck

Stephanie

Jim Horne · Answer

Thanks!

Stephanie P. · Answer

@Jim Horne

Get her in touch with @kevin romines or @jerry padilla.  Either one would be able to help her.  They know what they're talking about and they do owner occupied loans.

Jim Horne · Answer

@Stephanie P.

Thanks!  That is exactly what I was getting at.  She is working with a broker but not a investor friendly one so I think she needs to look elsewhere.  So far the best she’s found is a 3/1 ARM.

Theresa Harris · Answer

If she doesn't need much to live off of, after she pays cash for the multifamily, how much would she have left to live off of?  You said she's just starting the contract with FEMA, so she will be getting that money soon.

What are the expenses with the multifamily she's buying and how much money does it make through the rent, excluding her unit?  If she buys it, hopefully it is cash flowing without her unit, especially if there is no mortgage on it.  She will also get the security deposits transferred to her-including her's and she can spend her's, but not the other people's deposits.

If she only needs a small loan, why not talk to the seller and see if they are willing to do some financing on a small portion?

Jim Horne · Answer

Thanks, Ryan.  That's very helpful.

Ryan Naylor · Answer

If DTI is the problem then that is how she would handle it. I would guess that they are looking at her income average, as in she hasn't been on the job for a 2 year average.

She just started and hasn't established herself yet as a business owner.

Has she kept her other job? If so, then she just needs to pay off some debt. It's not arbitrary, It's just qualifying, she needs to have someone tell her why she isn't qualified and then how to get qualified, not just a denial and move on.

Call a broker in this case and not a bank. A broker will help her understand what she needs to do to get a loan.

Jim Horne · Answer

@Ryan Naylor

I don’t know her exact ratio, just that the banks she’s spoken with are concerned with her “low salary”, which seems a bit silly given that she chooses to pay herself as the owner at whatever number makes sense.  It just seems like an arbitrary parameter that works for the majority of folks in the workaday world, but not someone in a far better financial position like her.

Ryan Naylor · Answer

What is making the DTI low?

dti stands for Debt To Income, so if she has such a big savings, she could pay of some debt to lower the numbers and then get qualified for a conventional mortgage, FHA if she is living in one as well.

Forget the NON-QM route, sounds like its' not neccesary to me.

Tarik Turner · Answer

not all lenders calculate DTI , the other issue is purchasing an owner occupied property may eliminate a good portion of her lending options

Getting a Mortgage on Low Salary but Big Savings?

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