Lender who can do 100% LTV Home equity Loan on Primary Residence?

Question

Hi,

I am new investor who owns both a duplex, and the current Single-Family home I live in myself.  I put 3.5% down FHA on the duplex 1.5 years ago, and bought my primary 6 months ago with 5% down conventional.  I live in the Raleigh Durham area of North Carolina.

Info about my finances:

Credit Score 750+

I DO have rental income from the Duplex on both my 2015 and 2016 tax returns

DTI if rental income is counted is certainly low

I KNOW that there are credit unions out there (in my area) who will do 100% LTV home equity loans, however I keep running into trouble when applying and dealing with these lenders.  Examples:

Lender 1: RTP Federal Credit Union: "Must have rental income on 5 years tax returns to get this loan"

Lender 2: Coastal Federal Credit Union:  I THINK that I do in fact meet their parameters to qualify for this loan, but they are idiots and I think they're interpreting my tax returns in correctly.  They were doing this:

Expenses: Single family Mortgage  + Expenses/gain from my schedule E + Duplex Mortgage (THIS WAS ALREADY COUNTED IN MY SCHEDULE E!!!"

Does anyone know of a lender that can do a 100% LTV home equity loan in my area OR anywhere else (Raleigh, Cary, Durham, Apex, Garner, Wake Forest, Holly Springs) and is easy to work with?

Jay Hinrichs · Answer

why do you want 100% ltv loans.. this is what sunk so many investors last decade.. equity in real estate is importnant 100% debt can really come back to bit you butt..

Chris Martin · Answer

@Jay Hinrichs Some are/were. It's not the norm, mind you. But like I said, it's the portfolio that matters. When we were doing single family investments, we'd pack up 4-6 properties in a tranche and finance at one time together, so some were low LTV, some higher, and occasionally some over 100%... when we had separate D-T for each. Some tranches had one D-T.

But again, my point was about the big picture view. I am working on a few $500K-$600K apartment deals with them, so last week I gave them a $120K deposit to show them 'good faith' that I'll be transacting through them for operating accounts, reserve accounts, etc. They won't be 100% LTV loans... but the could well be 100% acquisition. Every deal is different. Some require additional collateral some don't.

Chris Martin · Answer

This post is generic and not directed or intended to any individual.

Here's the thing. 100% for me (primary or not) on a particular 'deal' isn't hard at all. With a commercial lender you have a long term relationship with, they will work with you on a portfolio basis. I've done a few 100%+ NOO loans without issue. But keep in mind, in the context of the overall portfolio I keep loan/value numbers very conservative. My lender knows this. And I've had times when my lender says (I'm paraphrasing here) 'C'mon man, let us lend you some money!' BTW, my lender knows I also bank with a 'big box' bank. The small banks can't compete in some spaces, but in most... for what I do... the 'big box bank' is empty inside. And I let my small commercial bank know this. I let them know I value their services. See also this other BP topic that is a good read.

When I see things like "...but they are idiots..." I know that statement reflects not have a working relationship with a lender. I've had (a long time ago... not anymore because they now know my business) sit downs (face to face) with the bank's internal underwriters to clarify how I treat PFS entries. Depreciation add back and using non-GAAP concepts is common when holding income producing real estate. That doesn't mean underwriters see that every day, since the lender's primary business is builders (developers) who treat inventory differently and operate on draws and inspection schedules. Just be sure you can explain and defend every single line item on your entity's income statement, balance sheet, and your PFS. When challenged, don't get defensive. Listen. Learn their concerns.

And don't call professionals idiots, if to their face or not. Stay focused on your goal.

Final point: many banks are not the right fit for real estate investors, especially the buy/hold folks and especially as your debt and equity gets large. If they don't fit, explain why to them why and move on. There is little value in burning bridges or calling banks names because you don't understand their business. In the industry, people know each other... they talk. Make sure they say good things about you.

Adam Ward · Answer

@Keith Nelson try Allegacy FCU out of Winston-Salem.

Roman M. · Answer

I hope there is no lenders out that will start doing 100% financing & make it easy to get.

Once there are lenders that will make it easy to get 100% financing then it's time to cash out and as we are heading to another re market meltdown.

John C. · Answer

@Gregory Walter is spot on: "I've found that many bank "professionals" are glorified retail employees with little or no business background.  Find a new MLO that can read a simple form and has more knowledge of calculations for underwriting guidelines."

-Verify your loan officer's credentials before entrusting him with your social security number and of course your time. Make sure they know what they are doing. I had one loan officer at Wells Fargo tell me he did not even know how to read his tax returns let alone mine.... :-(

If they do not know what they are doing ask them to refer you to someone (maybe higher up in their organization) who does. Real estate investors with rental income and associated depreciation schedules etc etc do not fit into your typical local branch manager/loan officer's realm of understanding.

Gregory Walter · Answer

Your schedule E should reflect the interest portion of your mortgage payment, not the full payment.  In residential lending they are more concerned with debt service coverage (albeit calculated via monthly debt to income ratios rather than DSCR like for business loans) than profitability.  They should probably add back the components of your mortgage payment and deprecation on your schedule E and deduct the full amount of your mortgage payment as a starting point.

That being said based on the way you described it it sounds like they are double counting your mortgage interest in the ratio.  I've found that many bank "professionals" are glorified retail employees with little or no business background.  Find a new MLO that can read a simple form and has more knowledge of calculations for underwriting guidelines.

Brent Coombs · Answer

Thankfully, no.

[That is, unless you ameliorate their risk, secured against other assets]. Welcome to BP...

Dhar Jattipatti · Answer

Just to stay focused on the topic (and keeping ones philosophy aside): do you know any institution lending upto 100% LTV in Georgia?

Joe Splitrock · Answer

@Keith Nelson you are calling a banker an idiot on a public forum? You may disagree with their decision, but you are the one that is high-risk, so why are you calling them names? If I was a banker reading this post, I would never contact you about a loan. I would also never refer you to a banker I worked with.

If you lost your job tomorrow, how many months could you pay your home mortgage and other bills?

I guess you could sell your house, but if it is 100% financed, the bank would never get their money back after fees.

@Jay Hinrichs is correct that you should leave some equity in the properties.

Lender who can do 100% LTV Home equity Loan on Primary Residence?

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