Want to owner-occupy a fourplex, no income! Kiddie condo loan?

Question

I've been going back and forth with banks for the last few weeks trying to find one who will underwrite me. Here's the plan: I want to buy a fourplex for about $140k and give myself a place to live. It's a steal of a deal and I want to get into it. I am not too concerned about the down payment as cash is not an issue, but I want to finance this place and I would like to know my optimal route for doing so.

Here's the thing: I am one year out of school and have about 11 months of income history. I am a self-employed attorney but I get paid bi-weekly by my main client for full-time contract work. My income is high, I don't have much debt (low student loans and no credit card debt), and my credit score is 791. Everyone tells me I need three years of tax returns.

My mother said she would be willing to cosign with me. She's got a very high credit score and good continuous income history and would probably qualify for anything.

Here were my thoughts on how to do this:

1. Kiddie condo loan - I was initially hoping that I could get an FHA non-occupant co-borrower loan ("Kiddie Condo" loan) but two banks have called me back and said "we don't do this." Is there a bank that does?

2. Conventional mortgage with cosigner -- If a bank isn't going to write me an FHA loan, I don't see why they would do a private mortgage, either.

3.  Buy with cash now and refinance later -- I can get ahold of the cash in the form of a bridge loan from my mother, but she doesn't really want to write me a long term mortgage (she wants that cash to invest in other things). If I refinanced, is it easier to qualify with a co-signer? Do I have to wait 12 months to do it?

4. Have mother buy the building with an investment loan -- If the interest rate is going to be 6% or higher, I don't really see why she wouldn't just write me a mortgage, though maybe I'm just being picky about this. In any case, this building still returns 13% cash-on-cash with a 25% down loan at 6%, which isn't the best but still pays the bills.

Can anyone suggest what they think is the most prudent course of action? I am not about to wait three years to own my own building just because the bank needs tax returns. I think I can do some great things to add value to this building so I don't want to lose this opportunity just because I can't get the bank to play nice.

Kerry M. · Answer

If you buy with an LLC it causes the loan to be commercial which gives more flexibility but most commercial deals are much larger than one like ours.  We bought a duplex to turn into a 4-plex in an LLC's name.  One apartment is occupied by my son.  We hope to look for a bank loan because it was bought cash.  Be mindful of specific laws that relate to being a landlord in your state.  Good questions that you posted.

Tim Czarkowski · Answer

I would recommend finding a knowledgeable mortgage broker who works with a lot of different banks and see what they come up with. With what you have said I think there should be something that can accommodate you. I own and occupy a quad and love it, it's a great way to get started. Having your mortgage paid by someone else will give you freedom and the ability to save much more than most people ever could. We save more than 50% of our take home pay to invest in more real estate.

Tiffany H. · Answer

We have found that it's much easier to re-fi an existing loan (called rate and term refi)  than to do a cash out re-fi later.  You may have your mother do a short term loan to you to purchase the property or just get a temp hard or private money loan from another investor.

However, if you can't qualify for a  conventional loan then it might make sense to have your mom carry and get a decent return/interest rate until you can qualify 2-3 years.  Just make sure you out it in writing and always pay on time?

William Donaldson · Answer

I am in a similar situation.  I am a junior in college and found a condo unit where the PITI is almost the same as my current rent.  Based on conservative numbers I could live in one bedroom and rent out the other three to friends while I'm still in school and not only cover my payments and other expenses but cash flow several hundred a month.  The condos were bought by a lot of out-of-state investors (mostly in Cali) and when the market crashed the price dropped from $120-135k down to about $70k.

Long story short, my grandparents are cosigning because my lack of credit history and short income history - I started a property preservation business at the end of last year and made a good bit of money since then.  Because I have no credit history I had to go with a conventional loan.  I also out that many large banks (TD/BB&T) won't loan on a condo where less than 70% are owner-occupied..  I found a local bank that is willing to do a conventional loan at 20% down without looking at the possibility of having roommates paying rent.

I honestly think you'd qualify for an FHA or Homepath loan considering it is your first purchase, you have a credit history, and an income history.   Also it'd be your primary residence, which helps if it's a FNMA property.  If you need to do a conventional loan I'd recommend working with a local bank.  Also, the income history requirement that I came across was only two years - and by using a cosigner there are ways to get around that (not just for conventional).

Good luck!