All Forum Posts by: Chris May

Find a new lender. For non owner occ real estate, the more favorable math of using the income to wipe out the PITI, and adding what's left (net positive cashflow) to the income column, is what Fannie requires.

Adding the income to income and debt to debt is for when the rental income is being counted on owner occ 2-4 unit real estate, and is less favorable.

I'd say something like 70% of loan officers are unaware of this or get it wrong. Your local REIA can provide a referral.

Chris:

How are you defining income on your duplex?  I'm presuming it is not rent because $800/mo would mean rent of only $400 per month per side.  

In my experience an investor-friendly lender will recognize 75% of the rent as income that then offsets your monthly expenses.  If your property has strong cash flow it should be HELPING you qualify not hurting you.  You may just need to talk to a more investor-friendly lender.

I also see you indicate you are a flipper.  That gives you a lot of flexibility to show more (or less) income.

Good luck

In that case, wouldn't they be using "someone else's money" if they took a $10,000 from a line of credit to place onto the mortgage? Yes, they would have to pay it back over the next 12 months from their ongoing income at the rate of almost $1,000 per month, but they would have already avoided tens of thousands of dollars in interest and years of time from their mortgage, correct? 

Well, first of all, I've been insulted since I joined the discussion, so I'm just responding in like kind. But secondly, the reason the argument has been circular and non-productive is because of the detractors. Proponents have conceded a bunch of points and tried to come to an understanding and instead of doing the same, opponents ignore perfectly good points and then go back to, "The HELOC method doesn't magically save you interest" as if that's what the argument is at this point.

Have you ever argued with someone, your wife for example, and she's mad at where you leave your socks as well as 2-3 other issues? You explain why you put your socks there and justify it and then she keeps bringing it up over and over and can't get over it. You ever argue with someone like that? That's been the majority of the argument from your side:

"I like the HELOC method, because my money isn't just sitting around in my checking account, it's working for me."

"Yeah, but it's not a magic way to save on interest."

"No, I realize that the $10,000 in question generates the same amount of interest whether it's on the HELOC or the mortgage, but this is a more efficient way to pay it down because you're not paying interest from the rest of the loan at the same time and you can use all of your income toward it."

"Yeah, but it's not a magic way to save on interest."

Refusing to acknowledge perfectly legitimate points ostensibly to save face means you are goofy at the very least. That's the most polite way I could put it, in fact. So, no, that isn't what the detractors have been saying all along. They have been saying the strategy is pointless / useless, a scam, you could do better putting your money in stocks, you could do the same thing just paying all of your extra income toward the mortgage and using a HELOC as a backup, you're paying opportunity costs and the time value of money, it's not a magic way to save on interest, etc. etc. in circles and mostly refusing to acknowledge very simple points:

• You get guaranteed "returns" paying your mortgage early if you choose to look at it like you could be using the money elsewhere
• You are actually getting free money, not "returns" because you are just changing the timing of your payments
• If you have money sitting in your checking account, then you are the one who is paying opportunity costs
• You might do better in a rental, but you have to save for a down payment, which means more opportunity costs while you save
• Getting out of mortgage debt is invaluable - you can't live in stocks and bonds
• The HELOC may "charge" the same amount of interest, but doesn't "cost" the same because on the mortgage you are paying interest from the entire balance
• It's more efficient to set up a situation where all of your income can go toward your mortgage and you can still afford to pay your bills

Etc. etc. etc. etc. etc. etc.

In other words, I've made a perfectly valid argument for the strategy on many fronts and instead of opponents saying something like, "Wow, I really can't see myself doing that, but I can definitely see some of the benefits you're describing.......", it's just, "Hey, I think I'd rather be deliberately obtuse and ignore perfectly valid points because I don't want it to seem like I could be wrong about something now that they've clarified. ROBOT VOICE: The HELOC method isn't a magic way to save on interest. The HELOC method isn't a magic way to save on interest."

So, that's why I think you're "goofy", because you're more or less incapable of updating your opinion or accepting new information and I'm the opposite. I've learned a ton about the math behind the decision and what the strategy is and what it isn't and updated my opinion accordingly. Or you can look at it this way - you've learned nothing and still have money sitting in your checking account wasting away and I just put another $3500 against my mortgage yesterday without breaking a sweat or taking anything out of savings. You'll be in debt for 30 years and have to hope your investments outpace what you are spending on interest. I'm on pace to be out of debt by 2024 and then I can invest all I want for the rest of my life. I think saying "goofy" is being polite. :)

Well, first of all, I've been insulted since I joined the discussion, so I'm just responding in like kind. But secondly, the reason the argument has been circular and non-productive is because of the detractors. Proponents have conceded a bunch of points and tried to come to an understanding and instead of doing the same, opponents ignore perfectly good points and then go back to, "The HELOC method doesn't magically save you interest" as if that's what the argument is at this point.

Have you ever argued with someone, your wife for example, and she's mad at where you leave your socks as well as 2-3 other issues? You explain why you put your socks there and justify it and then she keeps bringing it up over and over and can't get over it. You ever argue with someone like that? That's been the majority of the argument from your side:

"I like the HELOC method, because my money isn't just sitting around in my checking account, it's working for me."

"Yeah, but it's not a magic way to save on interest."

"No, I realize that the $10,000 in question generates the same amount of interest whether it's on the HELOC or the mortgage, but this is a more efficient way to pay it down because you're not paying interest from the rest of the loan at the same time and you can use all of your income toward it."

"Yeah, but it's not a magic way to save on interest."

Refusing to acknowledge perfectly legitimate points ostensibly to save face means you are goofy at the very least. That's the most polite way I could put it, in fact. So, no, that isn't what the detractors have been saying all along. They have been saying the strategy is pointless / useless, a scam, you could do better putting your money in stocks, you could do the same thing just paying all of your extra income toward the mortgage and using a HELOC as a backup, you're paying opportunity costs and the time value of money, it's not a magic way to save on interest, etc. etc. in circles and mostly refusing to acknowledge very simple points:

• You get guaranteed "returns" paying your mortgage early if you choose to look at it like you could be using the money elsewhere
• You are actually getting free money, not "returns" because you are just changing the timing of your payments
• If you have money sitting in your checking account, then you are the one who is paying opportunity costs
• You might do better in a rental, but you have to save for a down payment, which means more opportunity costs while you save
• Getting out of mortgage debt is invaluable - you can't live in stocks and bonds
• The HELOC may "charge" the same amount of interest, but doesn't "cost" the same because on the mortgage you are paying interest from the entire balance
• It's more efficient to set up a situation where all of your income can go toward your mortgage and you can still afford to pay your bills

Etc. etc. etc. etc. etc. etc.

In other words, I've made a perfectly valid argument for the strategy on many fronts and instead of opponents saying something like, "Wow, I really can't see myself doing that, but I can definitely see some of the benefits you're describing.......", it's just, "Hey, I think I'd rather be deliberately obtuse and ignore perfectly valid points because I don't want it to seem like I could be wrong about something now that they've clarified. ROBOT VOICE: The HELOC method isn't a magic way to save on interest. The HELOC method isn't a magic way to save on interest."

So, that's why I think you're "goofy", because you're more or less incapable of updating your opinion or accepting new information and I'm the opposite. I've learned a ton about the math behind the decision and what the strategy is and what it isn't and updated my opinion accordingly. Or you can look at it this way - you've learned nothing and still have money sitting in your checking account wasting away and I just put another $3500 against my mortgage yesterday without breaking a sweat or taking anything out of savings. You'll be in debt for 30 years and have to hope your investments outpace what you are spending on interest. I'm on pace to be out of debt by 2024 and then I can invest all I want for the rest of my life. I think saying "goofy" is being polite. :)