Disappointed by Big Bank loan offer - Toledo

[Sam Snider]

I am a Bigger Pockets and property investing NEWB. There is no greater learning than the doing and I'm doing, so I'm learning. Posting to blogs is not something I thought I would do, but most people on the blog have more experience than I, so I thought I'd post up and see what you think about my situation. 

My son had been pushing me to read "Rich Dad, Poor Dad" by Robert Kyosaki. After several months of coaxing I gave in and began reading before bed. I came to the conclusion that property investing could become my way out of the Rat Race. I attended a Rich Dad event in Sept of 2019 and left the event with a resolve to find and purchase cash flowing properties. Although I didn't sign up for any of their offerings, the speaker got me hyped up and I began to look for properties the buy and hold. I live in Salt Lake City and the property prices here have been going through the roof, so I made the decision to find a lower priced market to invest in. 

Enter Toledo. In November 2019 I found a cute duplex that didn't need much. I negotiated with seller and we agreed on a price. We closed within a few week. One tenant was already planning on vacating by the end of the month and the other tenant wants to stay long term. Our property manager filled the vacant unit rather quickly. Now that we had a fully tenanted property we wanted to add financing and pull $ out to do it again. 

The purchase was all cash at $62,443.50. Comps in the area averaged $76,000. I figured with my 830 credit score I would be able to get a loan for 80% LTV. We went to Big Bank first and they talked us into a Home Equity Loan at 70% LTV for 30 year term. We went through the process, provided them all the documents / info they requested. Time was dragging on. Each time we called we were told underwriting needed additional information that had already been provided. During this time we purchased more properties using a HELOC on our personal home. Plan is to pay down HELOC with cash out Home Equity Loan and then use HELOC to purchase more properties. Appraisal came back at $74,000. I was thinking we were right on track.

Big Bank mailed us a letter on March 3, 2020 that says they are unable to offer us credit on the terms we initially requested for the following reason(s): INSUFFICIENT HOME EQUITY - they did however have a loan offer for us. $42,390 for 240 months at a 5.99% rate. Based on the appraised value of the home this offer is 57% LTV. Using the purchase price of $62,443.50 this is a 67% LTV, but that's not what I thought they based the calculation on. Is this what others are experiencing?

So, I'm a little disappointed to say the least. My other properties need a little work, my HELOC is close to maxed and my debt to income is now looking wonky. Spent two months with Big Bank to get a lamo offer and now going to have to take it so I can reduce my debt to income to get financing on another property. Wondering if any BPers have any advice.

[Michael P.]

You purchased at 62,500 and appraised at 74,000, that is great. Now just find a new/competent lender that will give you 75% LTV and you can cash out 55,500. Sounds like this current lender is just wasting your time.