All Forum Posts by: Jeff Shumway

Unfortunately this is not the first time I've heard stories like this with Wells. Did they give a reason for not qualifying for the full amount?

This depends on a lot of factors- in most cases I recommend doing the cash out refinance so you continue to have that cash flowing asset. Of course as your tenant pays the rent and the value of the home appreciates, you build equity to access at a future date whereas if you sell, it's one and done. You no longer have access to the potential future nest egg. There are definitely long term advantages to retaining the current property, so you'll have more sources of passive income.

That being said, what would be your next investment and how much do you need? Do you need to sell the current property to get enough assets to either finance or purchase your next property outright? If you need all the capital from selling the property, perhaps look at going in on a deal with another investor instead of selling? Even if you end up with a slightly smaller piece of the pie, you still have two slices of pie instead of one.

You could look into an FHA loan for 3.5% down.

No, since your name is on the mortgage note the whole payment will be counted against you even if she pays half. If DTI is a concern though for an investment property, you could possibly look at a debt service coverage ratio loan. There is no need for any of your personal income or debts to be counted- instead it uses the anticipated rental income from the subject property. Usually as long as the anticipated rental income meets or exceeds the monthly mortgage payment, and you have sufficient credit/assets you should be ok.

Hi Michael, as long as you intend to return to work you should be fine. The lender will require a letter from you and/or your employer confirming your intent to return to work and the date you plan to return.

The conventional guidelines for short term absences from work are here if you're curious to read more about it;

https://selling-guide.fanniema...

If you decide not to return to work but still wish to get an investment property, you could potentially use a debt service coverage ratio loan. This loan type does not require the use of your personal income to qualify and only looks at the potential income from the subject property, credit, down payment, and assets.

The trouble with credit unions is that they tend to be 9-5 salary employees whereas mortgage brokers are generally commission employees who do not get paid unless your loan closes. Guess who is going to have a greater interest in making sure you get financing?

Honestly a lot of credit unions are not equipped to deal with loans for investors either. I've seen them totally botch self employed income more times than I can count and mistakenly tell a borrower they are approved for a property. Once they get into underwriting the whole deal then falls apart. 

In order to qualify for a primary residence loan, you must occupy the property. Lenders do a lot of due diligence to make sure that you do actually intend to occupy before closing on the home (i.e. letter from employer verifying your plans to transfer, various background checks, etc.) It's actually considered mortgage fraud (felony) if you purchase a home on a primary residence loan without intending to live there. Not worth it. 

Hi Steve, it can be a little overwhelming to calculate exactly how much you can get approved for. If you are looking to buy an investment property I usually recommend a DSCR loan which does not use your personal income at all. DSCR stands for debt service coverage ratio and there is no debt to income requirement. You could be unemployed and still get approved for a DSCR loan as long as you meet the credit and asset requirements. In most cases the property must generate enough income every month to cover the mortgage payment. However I have seen DSCR loans get approved where the cash flow from the property does not cover the mortgage payment. Generally lenders want to see a credit score of at least 680 for these programs and 20% down. Reserve requirements may vary from lender to lender. Rates are also pretty comparable to conventional financing.

Conventional financing honestly has a lot more hoops to jump through, especially for investment properties when compared to a DSCR loan. One thing investors run into a lot is that it can be very complex to calculate your income from your tax return and if you do not show a lot of income on paper, your purchasing power can be reduced. If you're paid hourly it's pretty easy but there are rules and exceptions to almost every type of income calculation (i.e. if you get a bonus, you need to show receipt for 2 years, if you make variable/commission income you need to have a certain amount of time on the job etc.) In most cases you can use the anticipated rental income from the property you're buying.

In most cases, yes you can use 75% of the anticipated rental income from the property you're buying. The only exception we see is if you do not have a primary housing expense (i.e. living rent free with family). So long as you have either a rent or mortgage expense you should be fine. This is for a conventional loan.

As Nick mentioned, you can also look at a DSCR loan. This is based solely off the anticipated income from the property you're buying. You could be unemployed and still qualify for a DSCR loan so long as the anticipated rental income meets or exceeds the monthly mortgage payment. (There are even programs where the mortgage payment can be greater than the rental income and you can still get approved.) DSCR programs are much less paperwork and tend to close more quickly than conventional loans. You can also close DSCR loans in a business entity rather than your personal name and rates have been pretty comparable to conventional financing lately.

It's uncommon for a purchase unless you are putting down a substantial down payment. I would get a second opinion from another lender. Some of the online lenders don't have the best reputation.