All Forum Posts by: Scot Howat

You can get a loan without working a formal job, but if you're relying on rental income it's going to be tough, and here's why.

Typically when you report your rental income on schedule E to the IRS, the idea is to minimize your exposure and maximize your tax refund.  But in doing that, it appears that you're actually making much less money than you really are.  From an underwriting perspective, you can really only give someone the income that they've reported on their taxes.  So, if all your rental properties show losses (or not much income) then getting a conventional loan probably won't work for you.

The max LTV for an investment purchase is 80% with a 5% CLTV (2nd mortage). That's pretty typical in the industry right now. I haven't heard of any big banks doing 100% financing on investments. But 85% is pretty good and rates are low. Save the HELOC for when you need it. Use the banks money first.

All you need to do is provide a signed letter of explanation that clearly states your intent with both of these properties. It has to "make sense", and any supporting documentation you can provide (MLS listing) will help support your points.

Working for a family owned business is a higher risk.  Typically a lender will require tax returns to verify the income.  What they are looking for is 1) ownership in the company; 2) fraud. 

The thought process is that if you knew you were going to try and get a loan you could get a "raise" from your family member just to make sure you qualify.  They want to be sure that your income is legit.  A lot of people will have their family members on payroll but not actually working, mostly for tax breaks.  That's bad news bears to a lender.

Just provide the lender with a signed letter of explanation on why you're downgrading, and be as detailed as possible.  It needs to "make sense".  That's the biggest thing.

Hope that helps.

Typically your credit report will only show inquiries made in the last 120 days.  So there shouldn't be more than 1 or 2 per credit pull.  I'd say the impact is nominal.

Typically they'll want a handwritten letter from you because most of the time when letters are requested, the sales officer will "prepare" them. 

As far as acquiring new properties, lenders want to see that your financial situation is stable or improving.  Taking on additional rental properties means more risk.  The less risk, the better.  The last thing a lender wants to see is someone that is taking out all their equity to purchase additional properties (debts).  They probably wanted to see what the cash out would be used for.  My advise is to state that it will be used for other investment opportunities, but not specifically stating that you are buying a rental.