All Forum Posts by: Stephanie Medellin

Hi Chris - have you checked the zoning for your parcel to see if it allows 4 units, or would you be able to subdivide?  That would be the first step.  

Are you planning to live in the one of the units or is this purely investment?

Hi Alex,

Lots of good advice so far. If this is your first property and you're currently renting, your best bet might be to use an FHA loan (or VA loan if eligible) to buy a 4 unit property and live in one of the units. It will give you hands on management experience and a place to live (hopefully inexpensively with tenants covering much of the mortgage). Even under a 580 score, you can use FHA to purchase a 4 unit with 10% down. Would any family members consider gifting your down payment, or can you set some money aside from your salary to put together a down payment?

In regards to the collections and late payments, the sooner you can get those paid off or settled, the sooner your score can start recovering.  Simply paying off the debt will not remove it from your credit report, but the older the derogatory information is, the less impact it has on your score.  After 7 years, it should fall off your report.

When talking to creditors, it would be best to NOT mention that you want to clean up your credit so you can purchase a home.  If they know you need to deal with the account quickly, you'll have less leverage.  

The very best thing you can do right now is talk to a good loan officer and have them pull your credit.  It can even be a soft pull with all three bureaus.  They can guide you in the next steps once they have the full picture (how large the balances are, how recent the late payments or collections are, types of accounts such as medical debt, installment debt, or credit cards only, which accounts have been disputed, etc.)

Debt settlement companies usually charge a monthly fee, so the longer they take to resolve your accounts, the more they can collect in fees.  Just something to be mindful of when monitoring how they are handling your accounts.  

Loans for self employed borrowers aren't necessarily more difficult - you just need to find a good loan officer who knows their guidelines. Getting a thorough pre-approval / pre-qualification where you submit your tax returns and other income documentation is essential. If you can qualify for conventional financing, there's no need to pay a higher rate with the DSCR route. If there is something preventing you from qualifying for conventional financing, then non-QM bank statement or DSCR loans are a good option. I'd recommend talking to a mortgage broker to discuss which types of programs are best for your scenario.

I've seen at least one or two programs that allow you to qualify with a 12 month rental history.  It has to make sense.  If the investment property is further away from your current home and job and you intend to stay where you are, underwriting may be ok with it.  The concern for most lenders is that you'll move into the property and then it becomes a "consumer" loan, rather than a "business" or investment loan.  You will typically need to sign an affidavit at closing that the loan is not being used to buy a property that you or your family members will occupy at any point the loan is outstanding.

Yes, some do have an interest only option, which can help with cash flow the first 10 years. If you go with an I/O option, when the interest only period is over, the loan will be amortized over the remaining term. The interest rate would still be fixed.

Really the difference is in how you qualify. Commercial lenders often want to look at your net worth and other finances, but DSCR loans focus only on the rental income of the property and your down payment / credit score / reserves. Typically they do want you to own your primary residence, and may also want to see some recent landlord experience.

DSCR loans have come out in the past few years for small commercial rental properties (5-8 units, mixed use OK), and they offer 30 year fixed rate loans. Rates will vary based on LTV, credit score, etc., but low to mid-8's is a reasonable estimate.

 Credit bureaus don't really know anything about your income or whether your properties cash flow.  While it won't directly affect your credit score, obviously having money to pay your bills on time and keep you credit card usage down will help your score.

It's possible to get a mortgage on properties on leased land, the lease just needs to meet the lender's guidelines. Typically they want to see a term at least 5 years longer than the mortgage term. For example a 20 year mortgage would require a lease with a minimum of 25 years remaining. Conventional loans as well as some DSCR programs allow land leases.

A W2 job is not required to qualify for conventional financing, only steady income that can be documented.  People have income from many different sources - investments, pensions, trusts, rental income, etc.  If you show enough rental income after expenses on your tax returns, you could (in theory) qualify on that alone.

New mortgage accounts (or any new account) may temporarily lower your score, but they should bounce back after you establish some payment history.  There are plenty of investors with multiple mortgages who have excellent 740, 760, 780+ credit.  Be sure to keep your revolving credit utilization (credit cards) at a low percentage of your total credit line, and that should keep your score up if everything is paid on time.

I'd guess it's a smaller lender or bank that might keep its loans.  It sounds like they have guidelines against absentee landlords.  Conventional financing from national / large lenders (and brokers offering conventional financing) wouldn't have these restrictions.