Where to get the last $40K

Question

Hi All,

Would appreciate any advice on the following.

I own a property (live in + rental) and would like to buy a second in January (investment property - most likely a triplex). The second property is not a commercial property, so the lender will look at my own income, as well as the income generated by the property, to qualify me.

According to a fairly robust calculator I created, I need $150K for DP, closing costs, and to show the lenders 6 months of reserves for mortgage, taxes and insurance for property 1 and property 2.

I missing $40K for my cash goals - this is the 6 months reserve money, not the down payment + closing money! I know I can have that money saved up within a year, but I'd like to buy now. My options are:

1. HELOC on existing property: Already in process with a national lender. The concern there is that they do not understand local conditions and are making the process very difficult and lengthy. If I start again with another lender, I'm concerned about the time to close, bothering my tenants with yet another appraisal, etc. Local lenders in my area do not do HELOCs, only Refis.

2. Refi / cash out: I can work with a local lender to do that, but really think it's wasteful to spend $20K - $25K on closing costs alone, when all I really need is $40K that can be paid off in one year. Yes, I did the math and know that if I hold property 1 for 30 years, I will end up paying less on a refi than my current payment due to interest rate reduction. However, I don't know I'll hold the property for 30 years.

3. Personal loan: I can get a personal loan fairly quickly from a reputable national lender. The concern here is the seasoning of the funds. I'm not that concerned about the higher interest rate on an unsecured loan, since I know I'll be able to pay off the loan within a year.

Questions:

1. Does anyone know how long funds from a personal loan have had to "season" in my own checking / savings account to be considered my own, so that I can use them as part of the downpayment? Can I use the funds from a personal loan as reserve money if I'm not allowed to use them for the DP?

2. Rate assumptions: I'm assuming that for an excellent credit borrower, a $400K 30 year loan on a $500K property (20% down) would be at a rate no higher than 4.5%.(Again, looking at a triplex, not a commercial property.) Has anyone done a similar deal recently and can give me ideas about the rates?

Advice will be much appreciated!

Thx.

Stephanie Medellin · Answer

Account Closed 1. Does anyone know how long funds from a personal loan have had to "season" in my own checking / savings account to be considered my own, so that I can use them as part of the downpayment? Can I use the funds from a personal loan as reserve money if I'm not allowed to use them for the DP?

Funds will generally have to season for 2-3 months in your account. You want to be able to show 2 months bank statements with the money already in the account. You don't want to show the money being deposited in the account on either of those statements.

By the time you apply, the personal loan should already be on your credit report and will be calculated in your DTI.

Mike Wood · Answer

Account Closed Some of your numbers do not appear correct. First, its is doubtful that you will be able to obtain anything more than 75% LTV on a 2-4 unit mortgage (as that is both Freddie and Fannie guidelines on investment properties). Second, the reserves do not have to help by the bank as liquid capital. Generally, they will count things like investment accounts, retirement accounts, etc for reserves. Third, how in the heck is 6 months of reserves = $40k? I can't see a tripex costing you $6667/month.

I would sit down with a local banker that can help you with your numbers. My guess is that your down payment and closing costs on a $500k property would be $130-135k, and the cash reserves would be $15-20k.

I am able to use funds from HELOC loans as down payment money, with no issue with the bank making me have it sit in my account for 3 months. That might be my bank, or common (I have done this with two different banks, so I suspect its not a fluke).

My most recent 30yr, 2 unit investment mortgage was at 75% LTV and 4.625% interest rate. Although not as large loan amount as yours.

Account Closed · Answer

Thanks @Stephanie Irto!

Account Closed · Answer

Thanks Mike! Appreciate the detailed answer and the info about investment property interest rate.

For your information, I was advised that investment properties could be purchased with 20% rather than 25% down, but the rate would be half a point higher. This can be a good solution for those who have less cash to start with, but where the property income can support an 80%, rather than a 75% Loan.

Closing costs: In my area, are no more than 4% of the loan amount. Was assuming 2% seller's concession (which is the max allowed for investment properties in the NE). Therefore only 2% of the loan amount needed in cash for closing. $100K down+ 2% of the $400K loan = $108K. Let's make is $110K since the loan is actually slightly higher with a purchase price of $508K including the seller's concession. About $17K reserve is needed for the new property -includes debt, taxes and insurance. AND about $21K is the 6 months reserve on my existing property - so this is how I got to $40K. Bank wants to see that I have reserves for both!

Thanks again for your answer.

Where to get the last $40K

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