Seeking lending options for a family member with limited income but lots of equity

[Isaac Peters]

I've got a family member looking for help to find a way to finance the rebuild of his home after a total loss from a forest fire in 2020 near Medford, Oregon. His home has already been rebuilt, but due to the rapid price increase of materials and labor during the pandemic and an upper limit on the amount his insurance would cover, he now owes about 250k to the builder and needs to get it paid off ASAP. He has no mortgage on the property currently, but has been unable to qualify for a conventional mortgage or HELOC on the property. The property appraises for around 600k so he has a lot of equity in it. He has SSI disability income and has a renter in the property as well paying $1250 per month. He has been told by conventional lenders that he can't include the rental income to qualify for a mortgage since he has only had a renter for about a year, and would need to have 2 years of rental income to qualify it. He has looked into using a reverse mortgage, but he is 60 and from what he has been told, he would need to be 62 to qualify for those.

Any suggestions on lenders to contact or specific products or programs to look into that may help out will be very much appreciated!

[Jay Hurst]

Quote from @Isaac Peters:

I've got a family member looking for help to find a way to finance the rebuild of his home after a total loss from a forest fire in 2020 near Medford, Oregon. His home has already been rebuilt, but due to the rapid price increase of materials and labor during the pandemic and an upper limit on the amount his insurance would cover, he now owes about 250k to the builder and needs to get it paid off ASAP. He has no mortgage on the property currently, but has been unable to qualify for a conventional mortgage or HELOC on the property. The property appraises for around 600k so he has a lot of equity in it. He has SSI disability income and has a renter in the property as well paying $1250 per month. He has been told by conventional lenders that he can't include the rental income to qualify for a mortgage since he has only had a renter for about a year, and would need to have 2 years of rental income to qualify it. He has looked into using a reverse mortgage, but he is 60 and from what he has been told, he would need to be 62 to qualify for those.

Any suggestions on lenders to contact or specific products or programs to look into that may help out will be very much appreciated!

 @Isaac Peters   There are owner occupied programs that do NOT look at income if  he has decent credit and equity (which he clearly does) that would allow him to pull out the cash.  As you might expect the rate spread over a conventional loan is large due to the risk. However, he could look at is a bridge type  loan until he could use the boarder income for more of a conventional type mortgage in a year.  

[Stacy Raskin]

If he has a renter in place and no mortgage, he can get a DSCR cash out refinance loan.

Below is more about DSCR loans...

DSCR loans have 30 year fixed mortgage options and the rates are investment property rates. They don't use personal income and don't consider your debt to income ratio. They are ideal for investors who are looking to maximize their net worth since they use only your credit score and rents to qualify the loan.

Also, some lenders will use market rents provided by the appraiser so you can buy an unoccupied property and still get a DSCR loan. Also, DSCR loans usually have a minimum loan amount of $100-150K depending on the lenders I work with.

If it's a cash out refinance, depending on the lender, the lender will use the market rents on the appraisal or the current report rents to calculate the DSCR ratio.

Here's a bit more in detail about how rates are calculated for DSCR loans:
1. Credit score- the higher the best. 760+ generally gets best pricing for investment property loans with most lenders

2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.

3. Are you cash flowing the property? Is your DSCR ratio greater than 1-meaning are you cash flowing. Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing generally takes a hit. I've included an example below to help illustrate this.

So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.

See example below:

DSCR < 1

Principal + Interest = $1,700

Taxes = $350

Insurance = $100

Association Dues = $50

Total PITIA = $2200

Rent = $2000

DSCR = Rent/PITIA = 2000/2200 = 0.91

Since the DSCR is 0.91, we know the expenses are greater than the income of the property.

DSCR >1

Principal + Interest = $1,500

Taxes = $250Insurance = $100

Association Dues = $25

Total PITIA = $1875

Rent = $2300

DSCR = Rent/PITIA = 2300/1875 = 1.23

Lender terms and fees vary widely. I recommend working with a mortgage broker as you will have more options with lower fees as they work with lenders that don't heavily advertise or don't work directly with the public.

[Dave Skow]

@Isaac Peters- thanks ...1) have you looked into all of the  govt  offered  programs to help the fire victims  ?  if not  - check if there are any    2) Possible a relative with strong income / credit  can be added to his new loan request as a " non occupant  co borrower "  3)  check with all the smaller to mid size banks and credit unions in the area of the house to see if  he can locate a local lender with lots of flexibility .