All Forum Posts by: Stephanie Medellin

It's important to keep in mind that DTI is not a static figure. DTI factors in rental income from your current residence that will be converted into a rental. If you buy a 2-4 unit and live in one unit, rental income can count toward qualifying. The purchase price, loan amount, your interest rate, whether you need mortgage insurance, your homeowner's insurance cost, property taxes, and your current monthly debt obligations all factor into your DTI.

I'd recommend talking to a mortgage broker who is licensed in your state. Get pre-approved for different scenarios. Ask them how much you could qualify for based on renting your current residence and buying a new single family home. Then ask what would be possible with a 2-unit, 3-unit, and 4-unit. Ask them if they can explain how they came to those numbers, so you have a clearer idea how your qualifications will change for less expensive property with lower rents compared to a more expensive property with higher rents. DTI calculations will be different on each property when rental income is involved.

@Clif Charles You really have to know the reasons why you can't get financed with a traditional lender in the beginning.  Is it solely due to property condition?  Is the property type acceptable?  Off grid homes, unusual construction types like barndominiums, non-warrantable condos, manufactured homes, and more can also cause headaches when applying for a traditional loan.

You need to find out whether your finances will allow you to qualify for traditional financing after renovations have been completed.  You also need to make sure the property will have enough equity.  The longer the process takes, the more risk there is with market changes, new comps, etc.  Funding renovations with your credit cards can hurt your credit score too.

I'd recommend either using a broker who can do both loans, or talking about the scenario and getting pre-qualified with your refinance lender before you buy anything.

I'd guess that this is fairly standard. The lenders I work with for HELOCs and HELOANs underwrite them like any other loan. They need the records for your rental properties to verify and calculate the PITI. They need the insurance declaration pages (1-2 pages showing the annual premium and the insurance agency contact info), property tax bill, and mortgage statement. You should be able to download these things and send to them digitally. P&L sounds like it might be for self employment income.

@Jeff Daring  The first broker is correct.  Because you are living rent-free, have no housing payment, and no management history, and are buying this as an investment, you will not be able to count rental income to help you qualify, unfortunately.  You will have to qualify off your own income.  

Keep in mind a temporary buy down doesn't affect the DTI - the buyer will still need to qualify with the full interest rate. If they instead use the money towards points to permanently buy the rate down, that would help with DTI. The permanent buy downs will get you a less of a rate reduction, but long term.

In a refinance scenario, the points paid for a long-term (permanent) buy down would not be refunded, whereas if you're within the temporary buy-down period and rates drop, the buyers may be able to get a refund of any funds not used to lower their payments.

@Madden Telles FHA loans are only for purchasing a home to live in, so you wouldn't be able to use this type of loan to purchase an investment property, and you won't be able to buy it under an LLC. You could buy a 2-4 unit property and live in one of the units. If that's what you had in mind as an investment property, that could work.

You also won't be able to borrow your down payment.  It could be a gift from family, or money that you have saved.

I would suggest getting a part time job now, then transitioning to full time once you're done with school so you have work history to qualify for a loan.  Save as much money as you can from working to use for a down payment.  You'll also need to start building a credit history.  As mentioned above, you'll also need to be old enough to legally sign loan documents.

It's great you're learning all of this now, so you can work towards your goal!

Are you under contract right now, or just considering a purchase?  If you have physical cash saved, it needs to be deposited in your bank account, and it must sit in your account through at least two full account statements.  This is considered "seasoned."  If you don't have two months or more to wait, then it sounds like your lender is asking your family to give you gift funds for your down payment or closing costs so the funds can be documented.

Yes, funds coming from your wife will be considered a gift if she is not a borrower on the new rental loan.  Unfortunately, conventional financing (Fannie/Freddie) does not allow gift funds to be used when purchasing investment properties, even if the funds are from your spouse.  

Will the proceeds be deposited in a joint bank account?

Some other investment loan programs allow gift funds, so there are options out there besides conventional financing. 

When you refinance, the lender will order an appraisal to determine the property value. Every loan program sets a maximum percentage of that value that someone can borrow. For example, if you have 700k in a property, and you can borrow a maximum of 70% LTV (loan-to-value), the property will need to appraise for $1 million for the loan to be approved.

If the property doesn't appraise that high, you will have to lower your loan amount and won't be able to get back all of the cash that you invested.  If you owe the full 700k, you may need to bring money to closing to pay down that balance.

You would also need to financially qualify to cover that new monthly payment.   

Yes, you can pay the additional amount to bring your loan amount to the maximum county loan limit.