All Forum Posts by: Jerry Wamsley

Usually an agency lender FNMA/FHLMC (Fannie/Freddie) are going to look at a couple things when considering your income.

1) They will look at tax returns for the last two years and account for any rental income that is claimed.  This should assist in offsetting the existing mortgage payments you have had in play.  If the property is new/being purchased refer to #2.  They will also look for deductions outside of depreciation and subtract that from any income off lease agreements.  Lease agreements and income from tax returns should run parallel.

2) They will also look at a comparable rent schedule provide by the appraiser which tells them what the rents are for that property.  This will offset any property you are buying in an equal to 75% of the projected rent amount.  You will be charged 25% of expected rents as vacancy potential.  This will also be done with existing non owner occupied rentals and credited accordingly unless you have been writing off rental income with repairs, etc.  RE depreciation on rentals should be added back into income off tax returns.  

3) Finally, reserves Cash to close will be a minimum of 15% for agency financing (FNMA/FHLMC) with mortgage insurance. For 680-719 median credit score, agency requires 6 months reserves on all mortgages (6 mortgages at $1000 PITI a month would require $36,000 in liquid assets bank, stocks, money market, etc. after closing e.g. 15% reserves down use $100k p/p as an example, plus $36,000 in bank plus $15000 and any closing costs you are paying. Now, if you have a score of 740 the reserve can requirement can be cut down to $18000 plus $15000 and any closing costs, prepaids you are paying.

***Reserve limitations vary from lender to lender which are called overlays.  Freddie does require less than Fannie.  Easiest way is to work with an originator that has direct access to AUS (Automated Underwriting System) as well direct access to underwriters since most lenders like to have an electronic approval before approval.

@Anthony Dooley, stick to whatever you are doing.  Until you have done hundreds of loans for over a 20 year period and seeing how they play out, you can then inform me about lending.  There is more risk in a $35k house than a $150k house.  Are the payments the same, how about taxes, or insurance costs?  I sent him directly to homelending.com you genius.  I didn't pursue him, I don't have time for $35k loans.  Maybe your sending him down an investment path without professional consult.  Are you licensed in the state he is interested in?  You may be in violation with any advice your are giving him as well as peddling financial and real estate advice without being a close friend or family advice which exempts you?  My license is federal so I know I'm good in all 50 states.  Quit being so toxic and hateful, you may be labeled as a troll.  

Fraud in the past has been so extensive that people have produced releases, deeds, etc.  The lenders use to sign off on these until a few ruined it for the rest.  With the limits the government has put on lender compensation along with added work load to a lender, the lender has the borrower put the work into their own loan especially when risk layering a loan.  We can just agree to disagree or she can produce the requested documentation to get what she is looking for to benefit herself.  If the information showed up on her bureau, fraud report, or other internal audits.  She will need to document it.

Scott L.  If she had an original note with her Ex.  She has to document that it was paid off probably a capacity (income) concern.  It would be on her bureau.  Don't know about your mom or dad Nor how then being guardians or same name etc.?  IQ up son.

Sorry for your experience.  Kysha is right, it's all federal guidelines and risk layering to qualify you directly.  In any of us were to personally lend money for 15, 20, or 30 years.  We may ask for blood work, genetic testing, etc. to make sure we wouldn't lose any money on the transaction and the borrower was good for the term of the entire loan.  Think about it, banks and lenders lend money for a long period of time and only look at you for 45-60 days.  Eat that frog.

@ Anthony Dooley Quit getting him into a personal debt exposure. In my opinion, it's best to have an LLC. The damage stops there not at your personal credentials in both credit and business unless you personally guarantee a long. How is he going to refinance after renovating it? FNMA, FHLMC, etc. will require him to either document all repairs/renovations in order to cash back out or allow delayed financing just from the original purchase price. Better yet, a local S&L may limit him on cash out too. Otherwise it's a year out to take any cash out of property if you can have a bank sold on your risk layering as a borrower.

Go directly to https://www.lendinghome.com/ borrow money with your LLC. From here, you can put your rentals one at a time into the LLC. it will build value as an asset then can be sold with a pool of properties with a good CAP rate then when successful. Another investor looking for a portfolio of good performing properties that has a self direct IRA may buy it for a retirement vehicle at retail pricing. Then start another LLC. and build, then sell again. In addition, you can limit your liability exposure as well as take the burden of credit lines off your personal income/assets as well as family's borrowing power since an LLC., C-Corp, LLP are all their own self standing entities. Could you imagine if a tenant was hurt on your property or you did a repair that caused damage such as a fire or hazard to a tenant. Especially if they have a great accident/injury attorney and your assets are limited to just the entity of LLC., C-corp, or limited partnership. Why work so hard to risk, that one time to lose it all and jeopardize your family's assets or future wealth. It's a small price to pay $500-$1000 to set a good LLC. up with a local attorney familiar with the tax benefits and liability protection, $350-$500 a year to have taxes done on it by a CPA, and a great way to do business professionally especially if real estate is more than just a hobby. Don't work hard to lose it all with rental especially in a $35k-$60k rental zone. This is a high liability area vs. the $100k-$150k rental area.

@William Kelly - I'm not an attorney. A good attorney/accountant will have a boiler plate/template LLC. operating agreement for an LLC. as well as in some cases taxpayer ID's they can assign since that is what they do. The reason I prefer an actual attorney in lieu of a national service is the local court will hear the case not the national attorney in another area or someone that does not specialize in something like real estate law. You can probably put the home under the contract with an addendum stating that the LLC. will be final buyer once secretary of state filing is done and other necessary paperwork e.g. Taxpayer ID/Entity ID if attorney/accountant does not have one.

Also, I may be able to help you with renovation lending once you can adapt to the process. One of my commercial lenders will fund loans but the ARV will have to be a minimum of $120k value and you will be capped at $84k max loan amount. Once you do a couple deals with them, they will open up a limit but evaluate each property. I have reached out to them to see if they will fund in North Carolina.

An LLC. can either be set-up by an attorney or some times an accountant. It is a limited liability corporation and allows you to waive your laws that protect you as an individual e.g. Dodd-Frank. LLC. lending has very little regulation compared to personal real estate lending.

Line of credit could be made after the LLC. is established but you should be able to document the $35k in the personal account and just transfer the necessary amount before closing.

Credit scores change monthly, actually quicker if you use credit e.g. credit cards, car loans, etc.  since all report at different times during the month and each repository pulls at different times.

Get your contractors ready now, it's their busy season and find your "A" team now.  Licensed especially for mechanical trades e.g. plumbers, electricians, HVAC.

You have to start somewhere, your first one is a learning experience. Let me know if I can help you. I can obtain LLC. lending for "fix and flip" or agency lending but prefer you hold onto financing on agency lending for 6-12 months of payments.

Avoiding probate if you were to die.  Ohio is a community property state anyway, she has 1/2 interest unless she signs a quit claim deed.  Other reasons would be borrowing power, my opinion is to keep loans in one or another person's name.  Why do a joint loan when yo could miss out on another property or create more paperwork when making your next real estate purchase.  I also suggest speaking with a real estate attorney or attorney to plan accordingly .