Underwriters refusing my FHA loan because I own rentals.....

[Michael Ablan]

Hey guys,

I was hoping I could get some advice into a situation I'm running into.  I'll try to keep summarize it as good as possible.

I've had a 4 unit building under contract with FHA since December. The lender I've been working with assured me this would pass underwriting no problem. 3 months have passed. A couple weeks ago they told me they couldn't go any further without my 2016 tax returns. Ok. I spend 3 real crappy days working on them and get them filed and turn it over to my lender. That same day I turned it in, I got a denial letter stating that too much time had passed and they couldn't proceed without my 2016 taxes. I call the lender and she tells me it's fine, we will resubmit the paperwork. Two weeks have passed and I'm still waiting for the e-mail.

In the meantime, I started shopping around with other lenders.  We got the packages together and the lender brought it to their underwriters for a preliminary approval and were told that I needed to write up a letter explaining why I was moving from a single family home to a multi-family.   So I explained how my work is 45 minutes away, and the commute (sometimes twice per day) is needlessly draining my life away.  I'm working with my broker to expand into a bigger city as well, which would turn my commute into 1 hour, 30 minute (one way).    It just doesn't make sense for me to continue living the small run down town I'm in.

Regardless they said No. They won't do the loan. When asked why, they said it was because I'm moving from a single family residence (one that I own) into a 4 unit. They said because I have a rental portfolio, this type of move is sketchy with FHA mortgage fraud being a big concern. I've called 3 other lenders and they all have told me the same thing.

What am I missing here?  I got the seller to sell this property to me at 80% market value.  It needs nothing. Each apartment rents for $800, so the mortgage is covered by just ONE apartment.  I have the credit score, debt/income ratio, and a legitimate work related need to move into another place.  I've never had an FHA mortgage before.  I own all of my properties free and clear.  You'd think these banks would be begging me to pay them interest.....  What am I doing wrong?  

Any tips, suggestions, recommendations would be GREATLY appreciated.  I'm going to lose this deal If I wait too much longer.  The seller has already been amazingly gracious by allowing me to hold this under contract for 3 months without commitment. 

[Shaun Weekes]

Originally posted by @Michael Ablan:

Hey guys,

I was hoping I could get some advice into a situation I'm running into.  I'll try to keep summarize it as good as possible.

I've had a 4 unit building under contract with FHA since December. The lender I've been working with assured me this would pass underwriting no problem. 3 months have passed. A couple weeks ago they told me they couldn't go any further without my 2016 tax returns. Ok. I spend 3 real crappy days working on them and get them filed and turn it over to my lender. That same day I turned it in, I got a denial letter stating that too much time had passed and they couldn't proceed without my 2016 taxes. I call the lender and she tells me it's fine, we will resubmit the paperwork. Two weeks have passed and I'm still waiting for the e-mail.

In the meantime, I started shopping around with other lenders.  We got the packages together and the lender brought it to their underwriters for a preliminary approval and were told that I needed to write up a letter explaining why I was moving from a single family home to a multi-family.   So I explained how my work is 45 minutes away, and the commute (sometimes twice per day) is needlessly draining my life away.  I'm working with my broker to expand into a bigger city as well, which would turn my commute into 1 hour, 30 minute (one way).    It just doesn't make sense for me to continue living the small run down town I'm in.

Regardless they said No. They won't do the loan. When asked why, they said it was because I'm moving from a single family residence (one that I own) into a 4 unit. They said because I have a rental portfolio, this type of move is sketchy with FHA mortgage fraud being a big concern. I've called 3 other lenders and they all have told me the same thing.

What am I missing here?  I got the seller to sell this property to me at 80% market value.  It needs nothing. Each apartment rents for $800, so the mortgage is covered by just ONE apartment.  I have the credit score, debt/income ratio, and a legitimate work related need to move into another place.  I've never had an FHA mortgage before.  I own all of my properties free and clear.  You'd think these banks would be begging me to pay them interest.....  What am I doing wrong?  

Any tips, suggestions, recommendations would be GREATLY appreciated.  I'm going to lose this deal If I wait too much longer.  The seller has already been amazingly gracious by allowing me to hold this under contract for 3 months without commitment. 

From what you're saying it should be pretty straight forward since you're moving closer to your work. However, at this point since you have homes that are free and clear.  I would just cash out, then put down 20% and put yourself into a conventional loan. If the property truly does have an additional 20% of equity you can do a cash out refinance 6 months from now and get a good chunk of your down payment back.  The reason for waiting 6 months is because you will need new appraised value.

When you're moving from an SFR to a Multi-Unit you need to have an iron clad LOE (Letter of explanation) especially if the unit is smaller. I'm not saying you're committing fraud but a lot of people will do this type of transaction to avoid putting down the 25% required for a multi-family investment property. You would only need 20% since this would be owner occupied.

I hope that you can salvage this deal because it sounds like it's very favorable. Good luck and keep us all posted.