Income is due to caring for seniors in my home, different rules?

Question

It has been a LONG time since on BP. When first on here, it was in a desperate measure to find funding for opening my home to seniors and concerns my business caring for them would fail.  Things turned out well with constant pressure of my own to make things work.  They finally did.  My question now, is if you make your income from housing others in your home, across the board when it comes from lenders?  Copy and paste is below.  Is it better that I just stay with seller finance?

It has been well over a year since I have been on this site, yet I keep up with it on FB, etc. When I first came to BP, it was because I needed help on possible financing for my business Safe Haven Senior Family Home. In 2009 and 2010, I was in a battle with the City Of Huntsville, Al zoning to open up a residential home for senior care, and my variance was denied due to neighborhood resistance. I sued the city. During that time, the HOA sued me as well for breaking covenants for trying to start a business to care for seniors and creating a business in their neighborhood. Long story short, I stuck to my guns and won both cases, and also set precedence in Huntsville that this will not happen again to others that want to help the elder community in housing them. Also precedence was set that neighborhood HOA's cannot interer with covenants when it comes to this.

Now, with winning both cases, the business is doing really well, I am wanting to buy the home, at a HUGE discount. I contacted my credit union on this, and the reply is below. What I REALLY need to know, is if this is across the board for all lenders on this concerning income of housing individuals in a home?  I am not certain that I have this subject in the right place, so any comments to place it elsewhere will be appreciated. Thank you in advance. Any links concerning this would also be appreciated.

Katie Fairchild

Mrs. Fairchild,

Since you do receive income from housing individuals in your home, the best we could quote you on a rate, but not guaranty is 5% either on a 12/yr Fixed, or 5/yr Balloon, 20/yr Amortization. The Loan-to-Value cannot exceed 80%. So to get $150,000 the house would need to appraise for $191,000-$192,000.

Jon Holdman · Answer

Here's the part I notice:

They seem to be saying that if it appraises for at least $192K, they will loan you $150K, even though that's your purchase price.  WOW.  Most lender would say the value is the purchase price or the appraisal, whichever is lower.  And then want you to put in 20% of that.  Are you prepared to put in a $30K down payment on the $150K purchase?  If not, this credit union is offering you a heck of a deal.  Bill talks about doing a subject to or contract for deed so you can do a refi in a year.  The way I read that response from the CU, that's unnecessary. They're already offing that to you.

I'm seeing people here get portfolio loans on SFRs around here at about 4% for 15 year terms.   So, 5% for a 12 year term, given this truly is a commercial property, doesn't seem bad.

Katie Fairchild · Answer

Oh, and yes I am buying the home in my own name and not the business name.  I  plan to run Safe Haven for 10 years, and then stop. Hopefully the home will be paid off in 10 years as the payments are only$600.00  now, but I pay $900 a month to get it paid off faster.

Katie Fairchild · Answer

I have been in the home for 4 years now, and actually am on a Seller Finance agreement at 6% interest.  The homeowners insurance is in my name, etc.  The house is valued close to $185,000 and I am just basically buying the home of what is left on the loan of $140,000.  I was hoping the CU could do a  better deal with the interest.  I guess I was a little shocked that so much would need to be put down and thanks for all the information, as I had no idea.  I guess my best bet is to stay in the seller agreement on the home.  Thank you guys for helping me out.

Bill Gulley · Answer

Jon is correct, I missed that 78%, and so long as it appraises there, you don't need to get creative. I'd guess if it appraises for less they will still carry it at a lower loan amount. Good catch Jon!

Even being residential, that's not bad, but you can shop it if you like! Good luck....

Jon Holdman · Answer

Are you buying this in your own name?  If so, you may be able to get a conventional loan.  You will, of course, have to qualify and have whatever down payment they want.  10%, I was told a couple of weeks ago by a broker.  The fact you're self-employed will make it more difficult.  If your tax returns show the income, and you have several years showing this income, it may be possible.  I would try talking to more lenders and brokers.  Don't give up after 1, 2, 10 or more.

But that business variance may give you trouble.  You can say "its just a SFR in a residential neighborhood".  But the lender may disagree.  Unfortunately, this is a case of "he who has the gold makes the rules."

Katie Fairchild · Answer

The house is a Residential Home.  The neighborhood is zoned residential, but I did get a business variance zone for the home.  Will be taking in 1 to 3 residents.  Right now I just have one in the home.  This is not commercial property but just a really nice home. 3900 square feet.

Bill Gulley · Answer

Welcome back! Congrats on your wins too!

It appears they are putting you in a commercial loan.

It's the down side to you having put your adult care in a business structure.

Not sure how many clients you have, but I have done conventional home loan as rentals where the owner had rental income from an in-house tenant. A unique circumstance and there were no zoning issues, the rental income was on the owner's tax returns and the tenant had been there a few years as well. The fact that someone has a business in the home is not a factor. I suggest you seek other lenders as it seems the CU has made up thier mind where to slot you. The next lender, I suggest you go at it as a tenant, someone who lives with you and pays rents rather than as an adult care facility.

If you have several clients, then you will be viewed as a commercial operation IMO and you'll be under commercial lending guidelines. And, the terms mentioned above don't seem that bad either, 12 year fixed, $1387.34 is the same as a 15 yr fixed at 7.46...7.50% a rate to kill for 10 years ago! If they made that offer, I guess you qualify!

With all that you have going on that would complicate financing, I'd say that may be a very good option. Now, down payment, if you lack funds for the 20%, ask if you can have 5 or 10% down and qualify with a 10 or 15% seller financed loan, since it is commercial, that may be a doable deal. If you have the funds, then go for it.

If not, you might consider a contract for deed or subject-to transaction for a couple years, after one year you will be in a refinance transaction with the payoff of your contract will be viewed to the appraised value instead of being based on the purchase price, then go to the CU.

Another point too, if the property is now properly zoned and it's a commercial deal, remind them to appraise the property at that use as well, it should be higher than as a residence with a higher rent, less vacancy on the income appoach.

Good luck.

Income is due to caring for seniors in my home, different rules?

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