All Forum Posts by: Bryan Schmidt

 Let me know when you can talk - I have some questions.

 DM me your contact info so we can talk.

I need help on the lending side for this potential deal...

I am negotiating a purchase agreement with a seller carryback of 20-30% as a second-lien position.  Approximate purchase price of $650-$850k with a construction budget of $1.0-$1.5m depending on total unit count.  Total cost including acquisition price of $2.35m.

I believe we will be able to create a total of 20-30 units in this building.  It is a 24,000sf structure with the ability to add an additional 6,000sf of interior space through a currently unused portion of the building.  Total square footage could work out to about 30,000 when all is said and done.

If I am able to negotiate a contract with the seller to carryback the 20-30%, what kind of financing options would we have.  I would like to have zero dollars out of pocket except for soft costs.  Is this possible?  If so, with who?

Thanks for your help in advance!

@Christian Butler

I have a similar deal closing this week.  We are doing the following:

Step1 - Purchase using our fix and rehab loan. Cash out of pocket is 25% down payment on acquisition cost plus closing costs. 100% of repair budget can be included in the loan. Typically 10-12% interest paid monthly. Term is 12 months. Prefer to close in LLC name. Minimum credit score is 660. Max loan amount is 70% of ARV. Your total cash out of pocket on this deal would be Roughly $35,000 plus your monthly interest only payment. The key is the ARV. What is it?

Step 2 - Refinance after work is completed. We will be refinancing after all rehab work is done and the property is rented. This client will be doing a long-term rental. The final loan terms on the refinance are up to 80% LTV based on new appraisal after all work is completed and tenant is signed AND the DSCR must be 1.10 or higher. The DSCR is the more important value here. The long-term rental analysis from the appraisal is where the DSCR is calculated from. The refinance terms are 30-Yr fixed, fully amortizing, no balloon, not an ARM, 1-5 year ppp, taxes and insurance escrowed, usually a 3-month interest reserve is collected at closing. We just closed a deal like this a week ago with an 8% rate.

Both of the loan types above I have closed in as quickly as two calendar weeks.

It sounds like you would be open to debt or equity.  Let me know if you have any questions or would like to speak.

You can always amend your returns and pay any additional taxes as/or penalties - the government will always take your money!

I’m not a huge fan of amending but when done properly you won’t have to wait two years for your income to catch up to your investing goals.

The key is working with the mortgage provider BEFORE filing any of your returns, amended or otherwise.

My team and I review the tax returns and run the income calcs before you file the amended return to make sure that you are not overpaying on income taxes and more importantly, we make sure that you are not filing an amended return with too little income.

FYI - most accountants will fight with you and tell you that their preparation will save you money on taxes and allow you to still be approved for a mortgage, but 99% of the time that is false.

I prove them wrong on a very regular basis.

So, to summarize, you need a progressive mortgage provider and a progressive accountant to make this work now and in the future for you.  If my service providers are not real estate investors I don’t work with them.

I hope that helps!

- Bryan

We would have to determine how much debt her income could support and how much debt your income could support.  The rental properties complicate the outcome which is where your tax returns become important.  Let me know when you're able to speak - it's going to be much easier for us...

- Bryan

Jake,

It sounds like the limiting factor on your file will be a combination of debt to income (dti) ratio and loan to value (ltv).

There are many lenders out there but the majority of them have underwriting overlays that create more hurdles for borrowers to jump through.

You and every other investor needs to work with a lender that only underwrites to Fannie Mae, Freddie Mac, and Ginnie Mae's base underwriting guidelines.

All of that being said, for a conventional mortgage, Fannie and Freddie are currently limiting the maximum LTV to 80% for a cash out refinance on a single family home. This number can potentially go up using a HELOC as a 2nd mortgage.

Also, depending on your middle credit score, the maximum DTI is 45% or less.

Of course, all of these calculations are based on the current fair market appraised value of your property.

If these ratios are too high or the appraised value comes in lower than expected, the lender could require the cards to be paid off at closing as a condition of final approval.

As far as the deposits are concerned, a "large" deposit can be seasoned in your bank account for a 30-60 day period to avoid having it become an issue in underwriting.  The timing of the deposit date and the statement cutoff date will determine how long you would have to wait before submitting your file to underwriting.

The better way to do this would be to have your parents pay the cards directly so there is no deposit to document for your file.

As far as life insurance is concerned - what Zach said!

I hope that helps!

-Bryan

Joe,

First, I am only speaking to residential 1-4 unit loans.  This does not apply to any other loan type.

There are many different lenders with underwriting overlays.  Your credit union has their specific guidelines that they choose to operate with and that is based on their appetite for risk.

The base underwriting criteria for all conventional loans comes from Fannie Mae and Freddie Mac.  You, and every other investor, should be working with a lender that only underwrites to these base guidelines.  99% of lenders do not.

All of my answers are based on these base guidelines - this is what I can absolutely help with - we only underwrite to Fannie and Freddie's base guidelines.  Here are the answers to your questions:

1 - Maybe.  Currently, the maximum number of properties that can be financed in an individual social security number (per person) is 10.  If structured properly (and your documentable income can support it), you can finance up to 20 separate properties between you and your wife.

2 - The maximum LTV for cash-out refinance is currently 80% on a single loan. If combined with some type of HELOC as a 2nd mortgage in addition to that, the max CLTV that we are currently seeing is 95%. This could go down to 90% due to the current state of the market.

3 - The maximum LTV for a non-owner occupied 2-4 unit cash out refinance is 75% on a single loan. The maximum CLTV for a 2-Unit is currently 90% using the HELOC scenario above. Currently, I am not aware of a higher CLTV for a 3-4 unit property.

I hope that helps!

- Bryan