All Forum Posts by: Stephanie Medellin

As mentioned above, it could be the low current value in relation to the repair cost.  

It could also be lack of experience, which is a requirement for some lenders.  

Unique properties can also be an issue.  Is this a site built home, on the grid, with a standard size lot for the area?  Unique construction homes like log homes or barndominiums or homes with acreage where most of the value is in the land are harder to finance and might not fit their criteria.  

Do they require a certain amount of reserves?  A minimum credit score?  No derogatory credit history?

To improve your chances, get a really detailed breakdown of all costs with estimates for each portion of the project (plumbing, electrical, HVAC, etc).  You'll want details of the types of finishes you plan to install (types of cabinets, countertops, flooring, etc.).

You could even provide photos or renderings of what you expect the finished product to look like to really communicate your plans.  I love boxbrownie.com - they offer photo editing with virtual renovations - https://www.boxbrownie.com/virtual-renovation.

Finally be sure to provide several solid comps to support your finished value.  Comps should be within 1 mile (closer is better), sold within the last 12 months (more recent is better), and similar in bed/bath count and square footage (within 20-30% sqft).  Unless it's a very rural area with houses very spread out, comps need to be within those ranges.  Again, if it's a unique property for the area with no comps and hard to appraise, that can be an issue for many lenders.   

You can also let them know your exit plan - either selling or refinancing. 

I just re-read your post - is the undisclosed debt the private mortgage?  Was the property listed on your loan application?

Mortgage payment history always has to be verified for the past 12 months.  Typically this is done with a credit report, but for private mortgages it's 100% standard to show 12 months of cancelled / cleared checks.  The cleared checks would be obtained from your bank account, not the private lender's account.  This is not a result of your application being flagged.

I do think it's a problem that she hasn't cashed the latest checks, because there is no proof that they were sent to her.  Anyone could write a check and have a carbon copy, and rip up the check. (I am not saying you did this, but the underwriter has no way to verify payment.)

You should have been informed of these requirements upfront, at the beginning of the process, or at the very least after your initial approval.  However if this is the undisclosed debt, it makes sense that it's coming to light later in the process.  This is a legitimate loan condition, and I think the only way to get it cleared is to provide what they're asking for, or hope your lender deposits her checks or responds to you.  She may need to complete the verification either way to document that payments were made on time (since some were cashed the following month).  Is there any way you can track down contact information for her family to get in touch with her?

There are plenty of lenders who will lend on non-warrantable condos, and each has their own requirements.  Your best bet is to use a mortgage broker who has access to various lenders.  You are unlikely to find these loans at a bank.  Buildings with structural litigation / lawsuits against the builder, particularly those without a definite dollar amount to fix, are extremely hard to finance.  Other issues may have resolved since you purchased the unit, like one person or entity owning too many units.  What is the reason you believe it's non-warrantable?

I'm not sure how the lender would trick the borrower by using the forms - they wouldn't typically see the loan documents until the very end of the process, at closing, which should be handled by a title company or closing attorney depending on the state.  If you're unsure whether a lender is licensed to do business, or following lending laws, you might want to consider getting representation to look everything over. 

If you're refinancing, the title company handling the transaction should have a payoff form that they send to private lenders to outline the payoff details (balance owed, per diem interest, etc.).

How is the depreciation reported on your tax returns?  Typically depreciation is added back and won't count against you when calculating rental income.

For conventional loans (fannie/freddie guidelines), yes, the 6 months would apply.  There might some lenders that don't have that requirement, but I find that most do, even if they have more lenient guidelines.  If your Mom stays on title and just adds you, you could qualify right away.

I should have clarified that if you do not actually need the rental income to offset the payment to qualify, you don't necessarily need to show a lease.  So maybe you complete the refinance on your Mom's current house first, pay off debt, and get the down payment funds.  

Once she is ready to move and you go under contract to purchase the new house, then you could find a tenant and sign a lease, which would help offset the payment on the Wisconsin house.     

@Casey Martin  The comment above about your Mom selling tax free is definitely something I'd take into consideration if nothing has changed hands yet.  

From a mortgage perspective, it sounds like you might have enough room in your DTI to make this work if you don't have much other debt besides the student loan and the mortgages, although I have no idea what your current interest rate is, or your property taxes / insurance, or whether all your income can be counted. For that, you'd definitely need to talk to a loan officer licensed in your state to review your financials.

Here's what I'd suggest:

1.  Cash out refinance on the gifted home - you will need to be on title for 6+ months to qualify for a conventional cash out refinance.  You can borrow up to 75% of the value for a cash out refi, and can use 75% of the rent to qualify.  You will typically need to show the lease and first month rent / security deposit to use this income before it's reported on your tax return.  

When refinancing, any debt that will be paid off with the loan proceeds can typically be omitted from your debt to income ratio.

2. If you can show that your Mom has insufficient income to qualify for a new mortgage, you may be able to take advantage of Fannie Mae guidelines that allow you to buy a home for your parent(s) as a primary residence. This will allow you to put a minimum of 5% down and you would get the better owner occupied loan interest rates. Since you would not be buying this as an investment property, you cannot use any rental income to help qualify for the purchase loan, and you would need to qualify this additional mortgage payment (principal, interest, taxes, insurance, HOA). If you buy as an investment property, rates will be higher and you will need a larger down payment.

So, first you need to be on title to your Mom's home for 6 months.  Then it needs to be leased, then you can do a cash out refinance.  Once you have paid off your debt, have the home leased and you have your down payment funds, you can buy the new home for your Mom to live in.

Obviously before taking the first step, consult with a tax advisor to see if they recommend a better option, and also consult with a loan officer to plan out the scenario to make sure you will qualify for each loan. 

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.