How to finance first purchase in college, only 20 yrs old?

OP

Flipper/Rehabber · Atlanta, GA · Member since 2014 · 78 posts · 30 votes

10y

Thank you for the input. Great things to think about. It is wonderful to see their minds thinking of the possibilities and get excited about the future and I would hate to see it come to a halt due to lack of funding but the reality is that we all have to be patient if there are things we really want in this world. I think this is doable with the right tools, so to speak. @Jered Sturm your article was inspiring and timely. I wish you were closer to where their college was, they could use a good mentor like you! I forwarded your article to them.

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Andrew SyriosPro Member

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Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes

10y

In all liklihood, the only way they will be able to get funding for a house given their situation is if you cosign or they buy the house with creative financing (subject to, seller financing, private loans, etc. - see Brandon's book for more on that).

OP

Flipper/Rehabber · Atlanta, GA · Member since 2014 · 78 posts · 30 votes

10y

If we Co-sign for them @Andrew Syrios, is there a point at which they could refinance the house in their own name by showing the rents on the house over time as income? I suppose probably only the bank could answer that.

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Andrew SyriosPro Member

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Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes

10y

Originally posted by @Rochelle Ray:

If we Co-sign for them @Andrew Syrios, is there a point at which they could refinance the house in their own name by showing the rents on the house over time as income? I suppose probably only the bank could answer that.

I haven't dealt with this specific situation, but probably at some point in the future they could do so. Although banks are generally pretty nervous to lend on an investment property if that is the only thing that they have bringing in any income. A good history would help, but I would talk to a few banks and ask how they would look at that.

OP

Flipper/Rehabber · Atlanta, GA · Member since 2014 · 78 posts · 30 votes

10y

Thank you @Andrew Syrios. I see your a KC investor. I am from Johnson County originally and have just recently been looking at properties there to invest in and thereabouts along with my Texas and Las Vegas areas. We travel full time around the U.S. and territories but I just love KC. The people are so friendly! Looks like you have a great business model! Keep up the good work and I wish you well in your goals.

Gordon CuffePro Member

Investor · Roseville, CA · Member since 2009 · 1k+ posts · 583 votes

10y

@Rochelle RayThere are portfolio lenders that will only look to make sure that the investor has the 25% to 35% down payment and they will finance anyone. The rates are higher than normal conentional financing. People have to prove income in order to get normal financing. w2s and tax returns. I have a few lenders that will look at the deposits of bank statements. The rates are higher than normal financing.

just an fyi. I am buying and selling properties in the kansas city market also. I was there in July and loved it.

OP

Flipper/Rehabber · Atlanta, GA · Member since 2014 · 78 posts · 30 votes

10y

@Gordon Cuffe When the time comes, where does one find said portfolio lenders or are you stating most portfolio lenders will? What area of KC are you buying? I prefer the southern greater KC area like JoCo (Johnson County) but it is tough there. You go hungry, hahaha!!!!

Dan Krupa

Real Estate Broker · Phoenix, AZ · Member since 2013 · 749 posts · 399 votes

10y

@Rochelle Ray, great question and apparently awesome job raising your boys. Do they know what kind of property they want to purchase? Financing will be drastically different for a SFH (to include duplex, triplex or four plex) compared to a 5+ unit property.

A thought, simply a thought, and don't freak out (LOL) is that they or one of them could join the National Guard or Reserves.(It might be too late for that now but next summer) By joining and serving they would receive VA loan eligibility. Lots of rules for lending with a VA loan (it must be there primary residence for two or three years, the condition of property, etc...) and they still need a source of income or a co signer but the benefit is zero money down and cheap rates.

I have served the past 12 years. It provides a different perspective and a job for them one weekend a month and for two weeks over the summer. Again that might be something they have no interest in doing but if so PM me. I know a great lender who specializes in VA loans and could answer your questions.

Gordon CuffePro Member

Investor · Roseville, CA · Member since 2009 · 1k+ posts · 583 votes

10y

@Rochelle RayI have been buying in Jackson county because the prices are cheaper. I just started a fix n flip in kansas city close to downtown so hopefully it goes well so that I can keep doing it.

I would say talk to a mortgage broker that has many lenders in the city that your boys want to purchase in. There is a place called visio . look them up in google where they have very easy guidelines.

OP

Flipper/Rehabber · Atlanta, GA · Member since 2014 · 78 posts · 30 votes

10y

@Dan Krupa I would never freak out at the suggestion of my boys serving our country one way or the other. I raised them to be patriots and both study history (true history!). However I'm at least for one of them, time may be an issue. When the other one goes to college next year it might be an option. So I will definately bring this up with them. I love the creative way BP members bring up different ways of looking at possibilities!

Walter PurdyPro Member

Real Estate Consultant · Las Vegas, NV · Member since 2016 · 51 posts · 19 votes

10y

@Rochelle Ray They'll need 24 months of work history in order to qualify for FHA or conventional financing on their own. If they dont have that at the moment, then you can co sign & then as soon as they make 6 payments, you can do a streamline refi & remove your name from title & keep the property only in theirs. Make sense? This would be my recommendation for your situation. Feel free to message me with any questions

Dan Krupa

Real Estate Broker · Phoenix, AZ · Member since 2013 · 749 posts · 399 votes

10y

@Rochelle Ray, I love how you said "true history." (amen to that) I don't want to go down a rabbit hole on this thread but my wife and I are striving to teach our boys in a similar fashion. If you have any questions PM me. I am still active duty Army, finishing up in the next few months. My personal opinion is VA loans are amazing and serving made me a more productive member of society. Best of luck to you and your family.

OP

Flipper/Rehabber · Atlanta, GA · Member since 2014 · 78 posts · 30 votes

10y

Thank you again @Dan Krupa and more importantly . . . thank you for you service to our country!

Albert Bui

Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes

10y

Originally posted by @Rochelle Ray:

My oldest son and his younger brother want to buy their first rental property while they are in college. They can use it as their dorm and rent out to several roommates, too so that they can live rent free and have their college buddies pay their way while they begin their journey into real estate. They have been watching their father and I invest in real estate. They have the vision and the right attitudes. Also very mature for their age. I believe they can do this and the learning experience is priceless. However I do not want to give them a handout. They need to do this on their own (we might be willing to co-sign but prefer not to) So how can I advise them to get the funding for their first house since they only have summer income which doesn't amount to much in order to get a loan and they don't have any connections or history for business real estate investing to get private or hard money to purchase the home and refinance later? They have some cash from inheretance that one of them is willing to use but not the other (one brother is tighter with his money than the other, lol!) I can't imagine a homeowner financing them without proof of steady income. Any ideas. How does the younger generation with entrepreneurial views get a start? They have 6 months to a year to prepare for this journey and are planning 20 percent of their own money down. Maybe this isn't enough? Advise?

HI Rochelle,

I am familiar with these house hack scenarios.

I've done them where the student or owner occupant on the loan had a job and sometimes did not have a job.

The key determinant is that the "student," or owner occupant would need to atleast have a decent credit score around 620 or higher (there are lower programs but are possible but not imposible).

Using FHA you could gift them the entire down payment and cosign (you're on the promissory note but not on title) or if the property has high enough rent to value ratios where the income from the property is high enough it may qualify in and of itself.

I would recommend to transfer the funds to his account and have the money "season," first (lender language for money that is in your account for 60 + days).

Then this money used for down payment will not be considered a gift atleast with respect to underwriting.

When they have a record of renting out and maintaining the property for 1 year on their tax returns depending on how much equity they have or how much cash flow is showing on their tax returns they may be able to refinance and remove you from the "note," and along with it your personal guarantee on this debt.

This will not work so well with out the student having some consistent/qualifying income of their own in areas where the rent to value ratios are too low. If you can get atleast 1-1.25% RV ratios with regards to gross monthly rents relative to sales price you should be able to refinance atleast with respect to income. The value of the property and removing monthly MI is another issue.

Albert Bui

Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes

10y

Podcast Guest on Show #121

Andrew SyriosPro Member

Moderator

Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes

10y

Originally posted by @Rochelle Ray:

Thank you @Andrew Syrios. I see your a KC investor. I am from Johnson County originally and have just recently been looking at properties there to invest in and thereabouts along with my Texas and Las Vegas areas. We travel full time around the U.S. and territories but I just love KC. The people are so friendly! Looks like you have a great business model! Keep up the good work and I wish you well in your goals.

Thank you Rochelle! KC is very nice, although the winters and summers can be a bit much. Good luck investing!

OP

Flipper/Rehabber · Atlanta, GA · Member since 2014 · 78 posts · 30 votes

10y

@Albert Bui Thank you for your detailed input. It will be great for planning ahead. I won't need to gift them any money for the down payment. They have that already on their own. It is just steady income they do not have due to being students. We also move around a lot so having much of a steady job history has been tough for them. I will probably plan on co-signing for them and then see what it would take to get us off as soon as possible and let the rent and maybe a couple more years of steady pymts and summer jobs show their dependability help the bank decide they are good enough to stand on their own. If not, we will just have to stay on the loan till they graduate.

Albert Bui

Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes

10y

Originally posted by @Rochelle Ray:

@Albert Bui Thank you for your detailed input. It will be great for planning ahead. I won't need to gift them any money for the down payment. They have that already on their own. It is just steady income they do not have due to being students. We also move around a lot so having much of a steady job history has been tough for them. I will probably plan on co-signing for them and then see what it would take to get us off as soon as possible and let the rent and maybe a couple more years of steady pymts and summer jobs show their dependability help the bank decide they are good enough to stand on their own. If not, we will just have to stay on the loan till they graduate.

You're welcome.

School education or time spent on the degree can be considered employment history if the work obtained is in a related field or in the similar line of work so its very possible if they were for instance studying accounting and got a job in finance to use that salary (must be full time salary) to qualify even though they are freshly on the job.

If There is enough equity in the property, a salary job within the same field, a documentation of 2 year history of school int he similar field, and a qualifying credit score then you could refinance out into conventional and remove FHA monthly MI completely at that point.

So the income gap or equation can be a lot easier to bridge that many would think even in this scenario where the borrower just started their job for 1 month.

OP

Flipper/Rehabber · Atlanta, GA · Member since 2014 · 78 posts · 30 votes

10y

Did not know this @Albert Bui. I bet a lot of people do not either. You might consider writing a blog on such things! I will keep this in mind. Your very helpful. Much appreciated!