All Forum Posts by: Julee Felsman

@Caroline Gerardo Fantastic notes. Spot on. 

@Bridget Vlakancic I want to emphasize point #4 in Caroline's notes above. Be realistic about the market rents. And understand where they come from: Your lender will order a rent survey with the appraisal report. In addition to finding comparable sales, the appraiser will look for comparable rentals. And in the case of a multi-unit property the rentals have to be comparable in the number of units. (Eg. buy a triplex and the rent comps must also be triplexes). 

This means you will likely see a realistic, but low-end number for rents on the appraisal. 

Working with a lender with a lot of DSCR options -- and options that allow a lower ratio -- will give you a better chance of crossing the finish line.

And before you write an offer, get yourself pre-approved. DSCR loans are simple, but you do need to meet credit and asset requirements. Get the necessary paperwork in with your chosen lender so that they can play matchmaker, find the program (or programs) that fit your profile. They can then let you know what debt coverage ratio you need. 

Then, when you're shopping, your lender can reverse engineer the minimum amount of market rent a given property will need to qualify. That'll go a long way to minimize the disappointment you've been reading in feedback on DSCR loans. 

They can be really, really simple to close, but some up-front legwork goes into that simplicity! 

Hi @Bryan Beam!

A bit late to this thread, but if you are still looking for options, I'd be happy to talk. There are a lot of options for builders to buy a discounted rate for an initial term or permanently. Some of the best options happen behind the scenes where a lender sets up a "prior commitment". You can, in essence, pre-lock a rate with a lender on a specific dollar amount that your buyers can use to buy the townhomes you're building. The prior commitment can include a pretty aggressive rate buydown (something that would exceed the amount permitted with a more traditional lender credit for a temporary or permanent rate buydown. 

Message me if you'd like to talk!

@Ethan Garrett from my perspective (30 years in residential lending), this is a tall order. Agency guidelines allow for "debts paid by others" to be excluded from DTI once there is a 12 month payment history showing the other party has paid the obligation from their own funds. However, this rule can only be applied to a mortgage if the person paying the mortgage is also obligated on the debt.

Rent could theoretically offset the mortgage obligation. Guidelines allow a lender to use 75% of a lease to offset PITI. But that only works for a property the individual still owns. So if you're transferring title that option is out as well.

The only other possible route would be a court order. Most commonly this would be a divorce, of course. If a court assigns a debt to another party, then lenders are allowed to exclude it from ratios. So I guess you could get married and then divorce your seller. 😉(Perhaps not the most practical option.)

The applicable guidelines are here: https://selling-guide.fanniemae.com/Selling-Guide/Originatio...

And of course transferring title also triggers the underlying lienholder's "separation" or "due on sale" clause, so you and the seller are both running a risk that the lienholder will discover the transfer title and call the note. 

@William Sing Thanks for tagging me in!

@Adam Wayne A few thoughts come to mind when it comes to the mortgage side of things:

FHA's rehab loan is the 203k. Fannie Mae and Freddie Mac also offer rehab loans: HomeStyle for Fannie and CHOICERenovation for Freddie. All three allow "non-occupying coborrowers" (NOCB), which is to say, folks who'll cosign, but not move into the property.

If you want to do the work yourself, however, FHA is your best bet. It's much more friendly to "self-help" renovation loans where you act as your own general contractor. You'll need to sell the underwriter on your ability to do the work in a timely manner (6 months or less), while keeping up your day job ('cause you gotta have income to pay the mortgage, right?). If you go the self-help route, you'll be required to finance the cost to have a contractor do the renovations, but you'll only be able to use the loan to pay for materials (you can't pay yourself for labor). The logic: if you can't (injury?) or don't complete the work in a timely manner, they want to have funds escrowed to pay a GC to step in. Any money you save by not having a GC involved will be paid down on the loan after the work is complete.

Rates on reno loans are higher, so you'll probably want to refi when you finish up, so your final, long-term loan will be smaller and reflect your hard work. But you need to qualify for the bigger payment on the bigger loan. 

Very importantly, FHA will allow you to put 3.5% down on the aggregate of the purchase price and all hard and soft renovation costs (the actual materials plus the loan-related costs plus a "contingency" reserve which is usually an extra 10% on top of the estimated costs to do the work) for a one-unit or two-unit finished property. BUT if you have a NOCB who is not family AND/OR your finished product is a two-unit property, your down payment requirement increases to 25%. Notably a house with an ADU is still considered single-family.

With a NOCB, Fannie and Freddie will require 5% down on a single family (with or with out an ADU) or 15% down on a two-unit finished property. Terms won't change if your cosigner is family or not.

I would add a caution about the size of your loan relative to FHA loan limits, which vary a lot by county, but it looks like you're in Seattle. IF that's where the property is too, you're cool. But if not (or for anybody looking at this post later), here's where you can look up the FHA loan limit for any county in the US: https://entp.hud.gov/idapp/htm...

Hope this helps!

@Sean Roberts Congratulations!!!

And yes, appraisals are pretty frustrating (and out of everybody's control, by design). 

Best of luck with everything that comes next!

@William Sing Thanks for the shout-out! :)

@Sean Roberts I think it's fair to say that the nature of your experience working with any lender will largely depend on the loan officer supporting you. Guaranteed Rate is a huge company with thousands of loan officers working in a number of divisions. I'd sure hope the vast majority of us are knowledgeable professionals who work hard to make sure our clients have a positive experience, but even a great loan officer can have an off day or transaction from time to time. 

One thing I can say is that, as an organization, GR cares a lot about our clients' experience and reputation. So if you feel you are having a less-than-ideal go of things, communicate that to the loan officer and their team. They should go out of their way to make things right (and if not, there are folks who can step in and make sure things get back on track).

Hope that helps!

@William Sing nailed it, @Chris Igard. :)

On the standard/full FHA 203k and the Fannie Mae HomeStyle program, you can finance the loan payments for any period of time the home will be uninhabitable due to the work being done. That's up to 5 months of payments if you can't move in during the entirety of a maximum, 6 month renovation period.

The appraised value has to support the loan amount so you'll want to talk to your lender about the details around the specific program you are using. 

You cannot finance payments under the Limited 203k. The limited program is for (as the name implies) a limited amount (maximum $35k for renovations, renovation closing costs and a contingency fund). The work should be non-structural and minor in nature. if you have to move out for more than 15 days, the loan must be funded under the full/standard program. 

Here's the link to HUD's current handbook for all FHA loans: https://www.hud.gov/sites/dfil...

The 203k stuff (mostly) starts on page 399 of the PDF. page 409k has the bit about work that requires moving out for more than 15 days not being Limited K eligible. 

@Sina Bigdeli I recently recorded a 30 minute video that explains what you're asking. It also addresses how the Federal Reserve actions are impacting rates. I don't think I can post an outside link in a forum, but I'd be happy to share it with you. PM me and I'll send the link to you. 

signed,

--your friendly neighborhood mortgage nerd  :)

@Lauren Daly My experience with commercial loans has been similar. The last one I had was a 10 year term with one interest rate for the first 5 years and a reset at 5 years. The payment was based on a 25 year amortization. At the en of 10 years the loan came due and I had to refi. (I refinanced a little early when rates dipped.)

The other thing I experienced: every year they checked my credit and I had to provide a personal balance sheet. I don't know what they would have done if the balance sheet didn't look good, but I always presumed they had the right to call my not due if my credit or other aspects of my financials took a turn. 

I am a little puzzled that you're not able to get a fully amortizing 15 year fixed rate. Do you have more than 10 financed, 1 to 4 unit residential properties right now? If not, and if the property is in a warrantable project, a conforming loan should be doable. I'd recommend 25% down and your rate should be in the mid-to-upper 4s depending on what you pay/don't pay in points. 

@Andrew Kennedy I 100% concur with the posts suggesting the online bank. 

But... KEEP YOUR LENDER IN THE LOOP. If you send money to closing from a bank account your lender has not verified, they won't close until they circle back and verify the account and the transfer of funds between your Huntington account and the new account. 

If you keep your lender posted they can document things as you go, have the underwriter sign off on the new account and avoid a delay to your closing.