All Forum Posts by: Kevin Romines

What you have laid out is the type of lending that is out there, but it is very few and far between. Its not main stream and therefore it could take lots of searching to find. When you do find it, they will set the terms and they wont be exactly as you have laid out, but similar. There are hard money lenders that can be equity partners, but the deals they do are short term in nature, not long term. Focus your efforts on calling all hard money lenders that you can find to ask if they will do an equity partner type loan. Then get the terms of their loan. Once you have exhausted all calls, go with the best terms. 

I hope this helps?

I understand what you are wanting and how you want it structured, but in my opinion, you are asking for a special deal that may be hard to find. I think the better route is for you and your partner to address the issues that would keep you from financing the home, thereby not needing an outside person with a special arrangement. In the end, that type of arrangement would only cost you more money, so better to resolve the issues yourself.

That said, the issues that come to mind that could be hurdles you need to solve are either credit score needing a bump or lack of income or limited income that would produce a high DTI or debt ratio. The credit score bump can be done quickly and easily depending on what the credit looks like. As a loan officer, we have tools that can give a specific set of steps to take, once completed the loan officer will submit the proof that the steps were completed to the credit reporting company and they will in turn take the info. to the bureau's to get the score updated. The score can be updated within 3 days from there.

Income can be a trickier issue. With that issue, the loan officer can look to see if there any debts that can be paid up to help the DTI or in a worse case scenario, it could come down to a job change? There are many details (to numerous to discuss here) so best to get with a great loan officer to discuss the income and job issues that need to be resolved. A great loan officer will not look at the deal in any way except from the standpoint of this is what must be done to qualify for the purchase, lay out the game plan for you and then execute the game plan.

I hope this helps?

Is it non-owner occupied, if so a hard money loan or a ground up construction loan via hard money lenders would be your easiest and quickest way of doing this loan. They typically will will do between 75-90% of LTC or loan to costs. That said, due to the economic conditions of our country and super high inflation and the resulting higher push on interest rates these days, there are some lenders that have already pulled out of ground up construction and others will follow soon, so if you are going to do it, you better get on it before you cant do it.

If it is owner occupied, then you would just do a normal construction loan. You can do these with VA and USDA at 100% of LTC or FHA at 3.5% down payment of 96.5% LTC or Fannie / Freddie at 95% LTC or 5% down payment. The typical debt ratio is 50% max except for FHA which is 56.9% and VA which in certain circumstances has no debt ratio limit other than what the AUS or automated underwriting system determines is the max. debt ratio allow based on the individual strengths and weaknesses of the loan file package?

I hope all this helps?

When buying a new rental, if you buy it right, it will add to your income thereby lowering your debt ratio versus raising your debt ratio. Not all properties will do this, so choosing one with the correct cash flow will help in this endeavor. That said, when doing loans for rental properties, flat out, not all loan officers and or lenders are the same. You need a loan officer that regularly works with investors that knows the proper way to calculate DTI, because quite frankly, many LO's don't know how to do this and even some underwriters need to be schooled on the subject as well.

That said, if there is a DTI issue, there are loans that solve this problem, such as bank statement loans or DSCR loans that only compare the rents to the mortgage PITI. So long as the rents are 75% to 120% of the PITI you are good to go, no income and employment is put on these loan applications. There is also commercial loans that work a lot like a DSCR loan. So many options, including using the HELOC to pay down or off some of your personal debt to free up the DTI for the purchase.

Get with the right loan officer and life will work out much better. 

I hope this helps?

It is not weird and is the ethical thing to do. If the loan is not in my borrower best financial interest, it would be mal-practice for me not to advise them of this. I'm always about laying out all the best options my customer has in front of them, have them make the best decisions for their circumstances and then go forward from there. 

I just had a borrower receive a low appraisal due to the lack of quality comps in the area versus a refinance they did a year ago. He's buying out a partner now and it could have made sense at a certain point. We discussed the options after I did an appraisal rebuttal and got no where on it. He concluded as I did, that it didn't make sense to do the refinance as the out of pocket costs were going to be to great for him. So he is buying out his partner with a HELOC that he has, and will remove the partner from title, but the partner will stay on the loan until the rates and more important, the appraisal comps are in a better situation. My guess 1-2 years?

That is giving quality advise regardless that I didn't get paid for my efforts at that point. Doing things in this way will assure repeat clients. Loan Officers that just do the loan without giving good advice will lose customers out the back door as the borrowers are smart enough to know who has their back and who doesn't. 

I would want to look at the taxes to determine that your DTI is in fact at its limits. To be honest, loan officers that are not used to working with people with rentals don't always get it right in terms of the correct calculations, and other LO's are lazy, just saying. That said, if you are at the limit of your DTI, you can still tap the equity with a DSCR loan up the max. cash out limits which I believe are between 70-80% LTV. I would need to get my head in the guidelines to check and confirm the max. LTV, but this is what is sticking out to me on that.

The priority is always do a conventional loan when you can as the rates are the best there, followed by a Non-QM loan of some type, in this case a DSCR loan. Also a commercial loan works a lot like a DSCR loan when looking at debt ratio and also the borrowers experience. So there are options, you just need someone to walk through all the options with you after they properly calculate your income and debt via the tax returns.

I hope this helps?

You can get a 15% down loan with Fannie Mae or Freddie Mac on a single family rental. If it is not rented at the time, the appraiser will show what market rents are and that will be calculated into the DTI partially or maybe fully offsetting the mortgage or PITI. if it doesn't fully offset the PITI it will be a small adder to your liabilities. Rentals don't move the needle much regarding DTI in most cases. Taking this out as a second home can have issues as far as distance from your primary home. You say you don't have a primary residence because you don't own a home, this is not true, where you currently live or the property you rent is considered your primary residence.

Underwriting wants to see that the property is a sufficient distance from your primary residence such that it can truly be a second home. The other issue with a second home is that you must qualify for the additional mortgage without the help of rents. If you cant qualify with the full additional PITI then this method could be a problem. The nice thing about second home financing is that you are only required to live there a minimum of 14 days a year. So down the road, after 1-2 years with the STR on your taxes, you can then count the income for any future loans you may do.

I hope this helps?

1 is an FHA loan assumable, Yes. 2. Can you get rid of MI by putting 20% down. No. In order to get rid of MI it would depend how long they have had the loan and under what legislation the loan was originated under. The current status of FHA is that you can get rid of MI at 11 years if the original borrower put 10% down or more at the time of purchase. If they didn't put 10% down, then MI is for the life of the loan. However there were other guidelines on FHA regarding MI prior to the current set of guidelines, hence therefore, it depends on how long this FHA loan has been in place and how much the original down payment was?

Further, if someone had 10% to put down, it would be malpractice for a loan officer to put them in an FHA loan, so its very doubtful that they did put 10% down. Call the lenders servicing dept. and get the answers?

I hope this helps?

If you only need $200K over and above the existing mortgages and closing costs, you can get that much with the first 2 properties that you listed. You can get up to 75% cash out on a Fannie / Freddie loan as a rental. Unless there is a reason to refinance any of the others, depending on the rates of the other loans,, you may or may not want to refinance?

I hope this helps.

So the 1st question I would have as a lender is, the hard money industry is typically a 6-24 month term with 6-12 months being the most typical. The purpose of hard money is to transition a property from one status (needing rehab) to a final status (hitting the market for sale or refinance). So why does this person need 5 years. What is preventing this person from selling or refinancing in more than 12-24 months? Depending on those answers, you then make your best decision?

Hard money and private money comes from somewhere. Its either cash that was accumulated or its borrowed at lower rates than it was lent out at. If it is borrowed, then yes, making your terms adjustable so that you maintain your margin or spread is appropriate. If it is cash accumulated, why the need for an adjustable rate. A higher fixed rate should be sufficient. 

That said, hard money makes their money through the higher interest rates, but also the points charged per deal. If you can loan out that same money 6-10 times over a 5 year period, you may be getting the same rate each time, but you are also making money from the points on each deal. So if you tie up that amount of money for 5 years, you are losing out on the points you would have charged by loaning it out 6-10 times in that same amount of time. That said, you would need to make your terms to accommodate that loss of points, but yet still be competitive? However, I don't know of to many 5 year deals in the hard money world, so you set the terms as there are no other competitors in that space. 

I hope this helps?