All Forum Posts by: Nick Reuter

@Nick Reuter Fannie/Freddie do require that the loan and the property are in your personal name. You can certainly change the title of the property to your LLC after closing but the loan would always be in your name personally. Hope that makes sense.

@Nick Reuter you are running into 2 separate issues here.  But to answer your question directly - a conventional (Fannie/Freddie) loan will allow 15% down, and count the rental income from your new purchase towards your "debt-to-income" ratio.  This is because on the new purchase, you will get the benefit of the doubt on the 12 month rental income, even if the property is vacant.  Now you still have to qualify otherwise for the loan, but assuming you would, then that's the easiest route to take.

Now, to provide some context, generally speaking there are 2 main types of loans for investors: “Conventional” and “Portfolio”

Conventional - I'll define these as loans that come from Fannie Mae and Freddie Mac (if you recognize those names). These loans are all 30 year fixed rate loans. They have the lowest rates we can find and since they are 30 year fixed...they allow us to cash flow better...which helps us qualify for other loans later. The draw back to these loans is that they are more paperwork heavy than the other "portfolio" types of loans....but if you have ever received a loan on your primary home, it's likely that you will go through the same type of paperwork here with conventional lending. Fannie/Freddie money = Fannie/Freddie rules. NOT the bank's own money. This loan type will NOT count the STR income towards helping you qualify.

Portfolio - I'll define these loans as loans that come from the bank's own "portfolio" of money. Sometimes referred to as "commercial" loans. These loans are a lot more flexible than "conventional" loans. Bank's money = Bank's rules. If they like you, then maybe they will lend to you. But since there is a limit to how much money the bank has access to....their rate will be higher...and usually a shorter term. The most common portfolio style loan in Texas is a 20 year adjustable rate loan. These loans are easier to get but the terms are different. There are 30 year, fixed rate lenders in this world that will count the income from STR to help you qualify. You just have to find them.

This might be a lot of info so feel free to ask anything else if you need.  Thanks!

Do a 15% down investment loan with projected rent income on the new property. No big deal. 

But be advised banks want STR on tax returns because there is no lease. Which just means you'll need to wait till January for #3

Be CLEAR about what your hardship reasons are! It could be a number of things, including (but certainly not limited to)

* Loss of a job
* Illness
* ARM adjustment
* Property tax hike
* Divorce

In any case, you first need to compile and assess what the most compelling reasons for hardship are. Put yourself in the bank’s position as a lender. If there is a way you can make the mortgage payment,they are not going to allow a short on the loan. So be very clear what circumstances have are making it impossible to keep up with the mortgage payment.
2. Be Specific about your Hardship

Once you have established your reasons for hardship, you need to put in the effort to understand how that hardship has impacted you specifically. For example;

* Job loss, and family income has dropped by $2400 per month
* Medical Bills due to “Xâ€, which total over $50,000
* A divorce which puts child support and alimony burdens of $1200 per month
* My ARM has increased my mortgage payment by $800 per month

Secondly, you need to demonstrate how this hardship impacts your ability to make a mortgage payment. If you make $8,000 a month and your mortgage went from $1000 per month to $1500 per month; good luck getting them to approve a short sale! You need to show how the hardship pushed you outside of your ability to make the payment.

Banks often think of mortgage payments in terms of percent of gross income, so you might consider using this. Let’s demonstrate with an example. Assume your mortgage payment is $1700 per month. Your household income was $5000 a month and then you lost your job, and the new household income is $2200. This means that your mortgage payment went from a reasonable 34% of your income to a whopping 77% of your income. Any bank will look at that number and say, “Yikes!â€
3. Gather supporting information and Market Conditions

Think about circumstances outside of your own that are impacting your market area. Remember, the bank will want to be certain other options have been exhausted – such as selling your house. You will need to show that this is also not an available option. This can be done by doing things like:

* Showing a recent appraisal of your home
* Understanding comparable sales and the general market in your area
* Itemizing pieces of disrepair on the house that negatively impact the properties market value (i.e. an old roof or broken A/C unit)
* If the house is on the market, how long it has been one

4. Writing the Letter

ONE PAGE ONLY! Make sure you keep it concise – no lender wants to read a 4-page hardship letter. Get it into a single page!

Keep it in easy to read paragraph format.

The layout of your letter should look something like:

1. At the top of the letter, put the bank’s name and address. You might want to address it directly to the loss mitigation department. Each bank has unique ways of handling transactions so it helps to do some research ahead of time.
2. In the RE: line, put in “Request for Short Saleâ€, and your loan number
3. Your first paragraph should describe what happened briefly and make it clear you are unable to afford the mortgage. Don’t be ambiguous here – you can’t afford it!
1. RIGHT: “My family has gone through significant hardships recently that make it impossible for me to afford my mortgage.
2. WRONG: “I recently lost my job and we have had to cut out cable TV and gourmet dinners…. it’s getting really tough to afford our payments!
4. Your second paragraph should talk about the market conditions that have driven down your home value
5. 3rd and possibly 4th paragraphs are details, details, details. Use the information you gathered up above to make your case more clearly.
6. Closing a- restate that you cannot afford the mortgage, and there are no other options besides a short sale.
7. Make sure to sign and date the letter, and include your own contact information.

5. Distribute!

Send the letter to the appropriate party (bank, attorney, investor, or real estate agent you are working with).

Once the letter is with the bank, you can feel confident that you built the best possible case towards convincing the bank to accept a short sale!