All Forum Posts by: Daniel Hennek

I suggest reading the link provided and you should have your answer and more context as well.  To help...

Guidelines state that properties counted for the maximum financed properties are 1-4 unit residential properties where the borrower is personally obligated on the mortgage.  

Guidelines state some exclusions as well, such as commercial real estate, multi family of 5 units or more, etc.

Having a commercial loan does not make a property a commercial property. Having your LLC name slapped on title does not remove your personal obligation on the mortgage. Simply changing a name does not change the underlying fundamentals of your situation and playing name games doesn't circumvent guidelines. You're either personally obligated on the mortgage or not...

The guidelines you are referring to reference the total number of financed properties you own.  Putting 4 under one loan doesn't change the total number of financed properties.  It's not how many loans you have...

Here's the applicable guidelines from Fannie --> https://selling-guide.fanniema...

Conventional loans are underwritten to Fannie or Freddie guides, they decide what is possible.  It's as simple as looking at Fannie Mae's and Freddie Mac's eligibility matrices.  Here is the link https://singlefamily.fanniemae...

You can see that conventional loans allow a 90% LTV on second homes. If you have heard that "there are tons of 5% down conventional loans for investment properties" then you have heard wrong because there are exactly ZERO conventional loans that allow 5% down on an investment property or second home. Hence, there is no direction to point you for a non existent program. 5% down conventional loans are for primary residence transactions only. Follow the link, that is straight from Fannie Mae. Freddie is identical with regards to LTVs in this case. Fannie and Freddie decide what "conventional" loans can and cannot do and they have it all right there for anyone to see if you know where to look. Lenders cannot make conventional loan requirements less strict. They can add additional requirements called overlays but they CANNOT increase allowable LTVs.

Furthermore, Investment properties and second homes are NOT the same thing.  If you look at the link provided you'll see there's a big difference in the LTVs allowed for a "second home" vs and "investment property".  Additionally, you can only get 10% down on a second home if it's a 1 unit property.  You can get 15% down on a one unit investment property.  All 3-4 unit property conventional loans require 25% down.

Be careful calling an investment property a second home.  They are not the same and trying to play games like calling an investment property a second home is a specific type of mortgage fraud called occupancy fraud and it's pretty easy to spot from a lenders standpoint.  A second home is one that you will occupy part of the year as a secondary residence and not rent out to others.

Long story short, investors are not getting 5% down on conventional loan investment properties.  Best advice is to stop looking for something that doesn't exist and re-evaluate your plans.  Wherever you heard what you heard you either misinterpreted, or it was flat out wrong.  Post a link here if you'd like someone to look at what you saw, but there's no doubt in what I'm saying...you heard wrong.

As far as portfolio loans or private money.  Well those people can do whatever they want, but none of them who actually know what they're doing are offering 5% down an investment property.  Too much risk.  If you want a 5% down loan on an investment property you're going to need to find a friend who'll loan you the money.

If you have a mortgage on a rental property it counts as an expense and we will calculate a net rental income figure. That could sometimes be negative but most often is positive. We don't calculate DTI the same way when you have a mortgage on a rental property. You should have a conversation with a lender about this and share your story of what you're looking to accomplish because the what if scenarios are endless and we can't cover them all. My Georgia license is pending so in a month or so we could have a chat, but right now I can only give you general advice.

If you have enough equity there are lots of options.  If you're motivated enough you can also work on your credit to improve it and improve the terms you're offered.   Some options will be available with a credit score below 580 even, with exceptions if you have certain credit issues bringing the score down.  It really depends on what you've got going on.  You should talk to a licensed MLO in depth about your situation

If you're a W2 employee that works for someone else how do you have so many expenses to reduce your income so much?  The standard deduction is pretty big these days so you'll have to provide more information about your exact situation if you'd like more information.

Are you self employed?  Or work for someone else's company?

What line of work are you?

What expenses do you claim?

Use this form to calculate your income.

https://singlefamily.fanniemae...

Giving it straight, and blunt.

There's nothing conflicting about how lenders evaluate the self employed.  We look to see that you're making money. If everything is a "write off" then by definition nothing is income. Expenses are not income. Revenue is not income.  Revenue is money generated by a business before expenses.  Expenses are the costs to run that business that you "write off".  Profit is what's left over.  Profit is income.

A lender is looking for how much money you have to pay a mortgage payment each month so looking at your revenue would not be an intelligent way to evaluate the situation because you could have lots of expenses and some businesses actually lose money.  Lenders are looking at what's left over because they're looking for the truth of your financial situation.

You should try to accurately count all your expenses and reduce your tax burden, that's just being smart with your money.  However, if your expenses leave nothing left over then you're not making money.  It's that simple.  How are you going to pay a mortgage payment if there's nothing left over?

I hear this all the time, "well I am self employed I can move money around however I want, I know I can pay the mortgage payment easily".  However, the tax returns have proven that there is barely enough money to pay expenses.  You're not counting fake expenses that you can just remove from the equation are you?  And you shouldn't ignore legitimate expenses to show more income and pay more taxes.  What you need to do is make more money so your business actually makes a profit beyond expenses.

In a short summary, mortgage fraud is a misrepresentation that induces a lender to give you a loan, or terms they would otherwise not give you if the misrepresentation was not made.  So if you say something that is false and that gets you a better rate than you would get if you stated the truth, that would be mortgage fraud.

When you apply for a mortgage you are going to be asked about the occupancy of the property.  People often times want to state it's a primary residence or second home because they know they'll get a lower rate than if they say its an investment property.  They think it's not a big deal.  However, it is a very big deal when you're talking about the risk associated with that mortgage and that's why lenders ask who will be occupying the property.  It's a question that is asked and you should answer honestly.  Answer the questions asked of you honestly and you shouldn't worry about committing fraud as fraud is at it's heart a deception of some kind.

Even with conventional the mortgage payment on a rental is offset by rental income and you come up with a net figure.  It might work, you should talk to someone who knows the math.  I'll explain in more detail.

Lots of people in the industry, including many underwriters unfortunately do the math wrong until they actually start putting it into their system because they don't see how it makes such a big difference doing it the way they scratch it out on paper.  This is a common error.

The thing these people do is to add up all debts, add up all income and then divide the debts by the income.  So if you've got 10,000 in debt servicing and 20,000 income you are at 50%.  But when you're talking about a rental with a mortgage you don't add the mortgage payment to debts and the income to income.  You subtract the mortgage payment from the rental income and come up with a net figure instead.

So, if you have a mortgage payment of 2000 and rental income of 3000 then you're net rental income is 1000. In this case you add $0 to debts and the $1000 as net income. You don't add 2000 to debts and 3000 to income.  By doing it the right way you're debt to income is lower, and it is the CORRECT way according to Fannie and Freddie.  

I've set up plenty of loans for people who told me they didn't qualify because their "dti was too high" because they spoke with people doing their math wrong. One guy recently told me a local bank said he only qualified for a $250,000 loan. I qualified him up to a million. Just closed a loan for him over 600k because I did the math the right way and his DTI was 33%.

Here's the math again in more detail.  If you have 10,000 debt and 20,000 income by adding 2000 to debt and 3000 to income you're at 50%.  If you take those out and rework the math correctly you'd have only 8000 debt by pulling the 2000 out.  Then take your 20,000 subtract the 3000 income you used, but add back the 1000 net rental income.

That gives you 8000 debt out of 18,000 income which equals 44.44% DTI. Not saying this is happening to you but it's very common so worth looking into since you're talking about refinancing a property that already has rental income established.