All Forum Posts by: Derek Brickley

Hey Jessica!  

This is all too common and you aren't the first person to be told this... You can be a non-occupying coborrower for your son on a multifamily home (conventional) and still do 5% down. Often nicknamed a "Kiddy Condo Loan", it's a great way for parents to get a property for their kids as a primary residence.

Regarding the debt-to-income ratio, that is a genuine concern and something you would need to consider.  If down the line your son started to make the mortgage payments on his own, if you have 12 months of on-time payments from him, you can exclude the mortgage from both of your debt-to-income ratios for qualifying.  Also, I am NOT a CPA, but we have seen certain accountants help people get the payment excluded as soon as the next tax year by including it in the P/L for a business - so may be worth having that conversation with yours.   Then, if you did see a property for an investment down the road, there are always other lending options that don't consider your personal debt-to-income ratio.  

Feel free to reach out with any questions there.

Even with a DSCR loan where the property is held in an LLC, the mortgage is still in your personal name. You would not be able to exclude it from your DTI until you filed with it on taxes (assuming you did so and did not report a loss). Assuming you are the single member on the LLC, if the property holds the LLC you would not be a first time home buyer in Fannie/Freddie's eyes.

Quote from @Giman Kim:

Quote from @Derek Brickley:

Hey Giman!  A cash-out refi will generally have worse terms than a purchase.  If purchasing another property cash is important for you then it is always a possibility, but again a purchase could be another option.  Hard to say which would make more sense without knowing exactly what you're looking for but feel free to reach out if we might be able to help.

Derek, so assuming I get a 300K from equity via cash-out refi and I purchase a new property in full cash with no mortgage but with enough monthly cash flow to cover the new loan amount of $494 K ($194K + $300K), wouldn't it be okay to take this consolidated approach with one loan with two cash-flowing properties covering the monthly mortgage and other expenses? I did think about HELOC option for downpayment but If I do a separate purchase, that's another mortgage. Plus, it takes several years to break even on the closing cost and first few years of payments are mainly applied toward the interest and less to the principal. If I acquire the second property with full cash, that's at least an instant equity which I may be able to tap into for 3rd, 4th,..assuming properties rise in value over time. Any other thoughts or suggestions?

It is definitely scalable, and we have seen a number do that!  As Erik said below, you could use a form of delayed financing on the cash purchase to pull the majority of your equity out and have for another property.  If your goal is to continue to acquire properties, then that leverage is going to be important and start with the properties you have (as you mentioned with the cash-out).  If your goal is to focus on minimal cost for this, that is when it might make more sense to do it as a purchase with a new mortgage.  Either way - you're moving around equity just being held in different properties.  Whether that is on one property or mulitple really wouldn't make much of a difference.  

Note that with a purchase or refinance, there are always going to be closing costs (typically higher on a cash-out refinance) and this restarts your amortization schedule.  So either way you do it you will be subject to those costs and for the first years majority of your payment will be applied towards principal.  What terms do you have on your property now?  Is the rate higher?  Or do you have any prepayment penalties?  

Hey Michael!

Once you purchase a home regardless if it is 20% down or not you would then be capped at 5% down conventional. You could still potentially qualify for FHA 3.5% down, but if you are looking for true Fannie/Freddie financing then those are the guidelines they set. There are still down payment assistance options or portfolio products for lesser of a downpayment but your terms on those are worse. Purchasing the primary for 3% down first will lower the risk of running into DTI issues since you can use a no-income product for the investment later. If done the other way around, the terms of your preapproval will change.

With residential financing, you cannot purchase directly into a LLC (unless you look at DSCR) but that still would limit you to the 5% down conventional.

I would advise against it just based on the numbers, but depends on your specific goals and what you are really hoping to accomplish.

Hey Nick, yep already said but if you can't qualify based on your wife's income alone then a bank statement program is the most common for business owners when the taxes might not average what they're looking for.  We would average deposits over 12 months and take a % of that to consider towards additional income.  Feel free to reach out if you have any questions on that!

Hey Giman!  A cash-out refi will generally have worse terms than a purchase.  If purchasing another property cash is important for you then it is always a possibility, but again a purchase could be another option.  Hard to say which would make more sense without knowing exactly what you're looking for but feel free to reach out if we might be able to help.

Hey Danielle! Agree DSCR wouldn't be an option, but I would bet conventional still is. We've been working with a number of investors on those homes with lower purchase price when it's in a community reinvestment area. If you have a specific home in mind, happy to check and see if that might be eligible.

I'd agree with Devin, it's hard to say.  I would think they are high in my experience.  Different lenders allow different exceptions on that pre-payment penalty rule, so it may be worth looking at that.  On a smaller loan amount, fees will typically be higher but it just depends!

Hey Felicia, I'm not in Georgia but a member on our team here is.  Happy to connect you with him if that would be helpful.