All Forum Posts by: James Vann

Brian Hoyt- That is the problem I have had with HML- they won't do less than 50k. There are local banks that would do it if they didn't have other things stopping them. I really don't want to over spend on a house just to get a loan. I would rather pay less and be certain I can make the payment come hell or high water. Which is another logical error the banks make- they want to make bigger loans that people can barely afford, so when something happens unexpected, they lose. Missouri has reasonable usury laws- http://finance.mo.gov/consumers/usury_law.php and insured banks are exempt, any way (see link).

I am contacting lenders today to see if any can do a 203(k) and have a non-occupying co-borrower. I am expanding beyond the Springfield area, to lenders on the MHDC approved list for the states down payment assistance. I have a down payment, but I qualify for the assistance, so I'm gonna use it if I can. Its my tax money :)

Ziv Magen Perhaps I did not fully explain the situation. Yes, you are correct- banks making up numbers is a large part of what got them into this situation. In this case, they have gone to the other extreme, which is making the problem for the banks worse, because now a very qualified buyer can't buy.

To demonstrate my qualifications- I have been renting a house for over 5 years, paying 435/month. The last couple of months my rent was raised to 455. If I got a loan for this house, I would be paying about $223/ month PITI. It would also cost me about $75 more in utilities each month. That is about 300 a month compared to what I have been paying- 455/month. So by buying, I am saving $155 every month. I can use that money to build up a rainy day fund, for when things get tight or when repairs are needed, and if I get a good fund saved up, I can start making extra payments.

Now, lets say my business (been in business since 2004) tanks and I lose my income. I can't get a job with my extensive experience in web development or IT skills and my college degree. So I go flip hamburgers at McDonalds. I make min wage. (7.25/hr). I can only get part time hours for 20 hours per week. You see, this is a worst case scenario. (Okay, even worse would be if I died or became severely disabled- I plan to have enough life insurance to pay off the mortgage in the case of death). So now I am making 580/month. Some of that is taken out for taxes. Guess what? I can still pay my house payment! I have a war chest saved up, I have a 6-12 months worth of food in the pantry. I could get food stamps or other government assistance. I can survive! If that happens while I'm renting, I would probably not be able to pay the rent.

So, as we see, it is far more likely for me to be able to pay a mortgage than to be able to pay rent. The bank would be making one of the most secure loans they have ever made. I haven't even mentioned that my wife could get a job if she had to.

I think the bank is making a very poor decision. It does not matter what house I buy, they are still making a poor decision by denying me a loan. Why are they making this decision- because they won't accept my student loan payment for what it is. I consolidated my loans and set them up on Income Based Repayment, and rather than accepting my payment, they make one up. Sure, if my income increases by $4,000 this year, my payment will go up by $16 next year. But really? If I am making $4,000 more, I think I can afford $192 more debt! If I remember correctly, in order for my payment to get to the numbers the bank makes up, I would have to increase my income by 40,000. And if that happened, I could just pay of the stinking mortgage all together and not worry about it! In that scenario, my ratios would be so low as to be insignificant.

The risk of me losing a bank mortgage is so tiny, any person could look at it and approve it- but the banks have given up on having people review things, and instead do it by computer. And computers aren't programmed to handle every scenario. In fact, banks are famous for doing an extremely poor job of programming their computers.

I don't take it personally, I pity them, wallowing in their ignorance and stupidity. I get upset when I think about TARP, but it isn't personal. In fact,I have decided to send off one more volley of contacts to banks that might be willing to do a 203(k) with a non-occupying co-borrower. It isn't rocket science, but a rocket scientist could tell you this loan makes sense.

Thanks everyone for your comments, I am learning a lot from this site and its members!

Ann Bellamy, thanks for that insight! I have thought about partnering with another investor who could buy it and sell it to me- I have one that is looking at buying it and leasing it to me with an option to buy. But that would mean paying a premium to him for it.

The small size of the deal has been a massive roadblock. There are very few HML that will do anything less than 50,000. Unfortunately- that is where the beast deals are in my home town!

Bill Gulley, the home is an REO- it is owned by Bank of America. I have looked at a few homes where seller financing was an option- so far, they are either homes that are too expensive (recently renovated by an investor who is now looking to get market- and many times a fat premium because they are owner financing), or homes that are garbage.

I found one that has potential as a rental, but it is pretty small and needs a lot more work and thus would probably end up costing nearly as much (and taking longer to move into) as the more expensive one.

I plan on continuing to look- there are lots of opportunities, and I know that your talking about when you say that some one "falls in love with" a home. I try to be very rational and step back and analyze it, allowing the numbers to prove that I'm not just being emotional about it. I will admit, my wife and I both love this house! But setting that aside, I still think it is one of the best deals for our situation on the market- if I could finance it.

I started out knowing just the very basics of RE investing, I have spent weeks studying it and asking questions from others that have done it- almost everything and all the feedback I get on this deal is positive, but I am having trouble getting it financed. Either way, if I don't get it, I have learned a lot and this knowledge will help me with future RE investments.

Oh, and thanks to Jeff Sielicky. I am planning on getting some more comparables. I used the Yahoo tool to find a few, and based on price/sq foot, the value seems to be even higher- and that wasn't factoring in that this lot is 2-3 times larger than the comparable homes were on. The deal looks better all the time. I'm going to see if my agent can come up with something more accurate than what I can do.

Ned Carey Thanks! That confirmed what I was already thinking- I agree that in most cases it isn't a good idea. If it is the only way I can get it, even if I don't get any tax breaks and pay a HML interest rate, it is still cheaper than renting. There is the risk that I won't be able to finance it in my name and will have to sell eventually to pay the HML, but I am no worse off than if I rented during the same time (Actually, I still saved money over renting, plus, I hopefully make several thousand dollars off the flip, so I'm still better off).

Naturally, I will exhaust all other options first. But since banks make up random numbers that have nothing to do with anything, I have little faith in getting a loan that way (I have applied at nearly 2 dozen because each one kept telling me something different, so after my many conversations with lenders, I think I'm getting a good idea of what they are looking for.

Jeff Sielicky How would I go about doing that- would I contact a mortgage broker and ask them? My market has not been hit as hard as most, but there are still plenty of REO's like this one out there. I can get this one for so cheap because it was in the middle e of a renovation- it needs new flooring (The dining room doesn't have any at the moment) and the bathrooms need finished. It also need a paint job bad. Once those things are done, it should appraise well. Don't most HML require some form of appraisal with an ARV before lending?

The house I am looking at, I am wanting to get for around $25,000. once repaired, based on comparable sales, it will be worth around 54,000. I don't have an exact figure form my contractor yet for repairs, but I am estimating 5,000. If I can get the loan for the purchase, i can cover all the repairs out of my existing funds. I think its a solid deal, and since I already have a renter lined up (myself), it is even better. As long as I can get at least a 24 month HML, I should not have any problems refinancing it. And if I get to 18 months and I can't refi, I can always sell and earn some cash for another one.

I have decent reserve for a down payment. I want to conserve as much cash as I can for rehab expenses, but how much do most lenders require for a HML?

So, i am wanting to do some real estate investing- but currently I have been renting my own residence for the last 5 years. I am paying way more in rent than it would cost me to make payments on a similar home. In fact, I buy an REO that is twice as large and just needs cosmetic work and minor plumbing and the it would cost me half of what I am paying in rent. So, for my first investment, I plan to buy a home to live in.

Now, here is the problem- banks won't finance me because they make up their own numbers for student loan payments, rather than accepting my actual payment. So I am looking for a hard money loan. Most HML don't do "owner occupied" (I'm having trouble finding one that does Missouri and less than 50,000, period).

So if I buy the home, put it into my LLC, and lease it back to myself- it isn't owner occupied, is it?

Even paying the HML high interest I still free up a significant amount of income that is going to rent- which can go toward making a massive down payment to buy the home back from the LLC 9 and pay off my HML :).

What problems might I run into doing this kind of a deal?