All Forum Posts by: Ryan Gillette

Well, don't tell your lender you're going to rent out or have other occupants on a USDA.. I rent rooms in my PR to young professionals my own age. I find them on CL or word of mouth. I don't keep leases when they live with me. One reason is that it reverts to state statutes, and it's easier, if worse comes to worse, to evict on an oral, month-to-month. Mainly it's that I live with them. If I get 3-5 applicants that meet the basic criteria, I pick the one that's most in line with my living habits (level of cleanliness, how much time they spend cooking, etc). In 3 years, I've never had a problem. One month one of the guys had car problems- we sat down and came up with a payment plan to get him back on track. Now he pays a week early and budgets better. My big piece of advice is pick your battles. If your lifestyles turn out to totally grate, just end it and find someone else.

And about the girlfriend.. I've always said no. You now have to live with another person in your house (extra car, more noise, more depreciation, possible drama, etc). Typically, and this is my opinion, couples won't hang around for too long. Soon enough, they'll want their own place anyway. You also have to watch your local zoning in terms of max unrelated persons in a SFR. I also once had a tenant in another property go through a domestic violence incident. Turns out the girlfriend moved in with the tenant, then filed her restraining order from his unit. So he paid rent, meanwhile he couldn't go to the property. Took him 4+ months to get back in. I lucked out that he paid rent, because it would have been an ugly eviction since technically she wasn't a tenant but had a cable bill in her name..

I underwrite a few every month- we're linked up with a local community loan fund. Not sure I understand your question though but yes, we do them.

Lots of reasons. (1) Faster purchase (2) Easier to negotiate with sellers, or beat a similar financed offer (3) Avoid lender headaches during a time-sensitive period (4) Low debt-to-equity may provide a lower yield but it also lowers risk (5) Some people have a lot of cash the cap rate is better than it sitting liquid (6) There's still always the option to cash-out refinance at your convenience- that is you can still accomplish the same ROI, but you can accomplish a quick, painless, possibly cheaper purchase first.

Your typical lender would need at least a 12 month history of you earning the commission- and typically would average it over 12 months. Some will require 24 months history. Again of you on the job. They may request the previous person's history if they're making an exception for that 12 months. There's a few reasons behind it. Mainly it's that some commission jobs are similar to self-employment in that the income varies (seasonally or annually) and it's reliant on the person's drive/skillset. It's not that a lender is saying you won't be able to maintain those clients or those level of sales- it's that there's little historical data of you doing this. They're putting a lot of money out for a long maturity period and are looking for at least a stable 2 year history of that income.

Now if it helps, there are exceptions to this. I've done them before for certain job fields with a few months history. Generally it's in the financial field and if they are bringing their client base with them- for example, money managers, loan officers, etc. who we see have a long year history with their previous institution making stable commission incomes- and if they switch to a new institution, I'm usually okay with that so long as I can document their fee structure will continue to yield at least if not greater income. (Take a money manager who has a $40million book and makes .5% off the top - take a position with a new bank, bringing his client base, because he gets .75% off the top.) But take a different example, say you're a commercial truck driver making $40K a year. Then you buy a bread route making $60K a year and you have a 3 month history. A portfolio lender might look at that 3 month history in conjunction with previous proceeds of the previous driver- but your conventional Fannie/Freddie lender would not. It's all back to not knowing how you'll perform in this new business- just not enough historical data of you doing it. I hope the difference is clear..

Base salary is often averaged for commission employees because unlike a salaried person, a commission employee's base income is not consistent. There are of course exceptions- but from the description it didn't sound like a salaried 40 hour/week position. For pre-qualifying, an average is a safer bet for what the underwriter will use.

In regard to the commission- 2015 YTD would not be pro-rated. Fannie you can get away with 12-24 months at lender discretion, but there usually have to be compensating factors and usually the applicant has to have a history of earning commission income. It's just a riskier income class. Or riskier at least than a salaried employee who doesn't have the dips and peaks of a commissioned employee.

What it seems like you're talking about is assumption of the first lien and creating a second through seller financing for 100%. How that works, if you get a seller and a lender to agree to it, is this: You buy a property for $100,000. The seller has a first mortgage with $60,000 outstanding in principle. You assume (in the event the mortgage is assumable and you qualify) the $60,000, and then create a second mortgage subordinate to the $60,000, for $40,000. So you make PITI payments on the $60,000 to the first mortgagee, and then you make PI payments on the $40,000 to the seller. Typically the seller will have a balloon clause which means you may need to be able to pay that second off whenever the balloon comes due- or be able to get a subordinate second to replace it. That may be difficult to achieve.

Lenders in my state do non-warrantable condos on primary residences up to 75%. I don't know any that would do an investment condo non-warrantable. You might want to go to a few brokers and see what's out there in your local bank market. That's a pretty risky product in a risky state.

Just curious- why is it unwarrantable? If there's a risk factor (low reserves, pending litigation, deliquent fees, etc) that's causing it, have you investigated? The reason it might be releveant is that if the HOA is unhealthy or is en route, that $200/month cash-flow could go the other way pretty quickly. Might not be a good deal for you long-term.

1. DTI on a conventional investment is 45% max. You'll need to use a Fannie Mae lender. The way Fannie Mae sees it, if you provide lease or leases for the units, they will allow use of 75% of those leases. So $3000 * .75 = 2250 - 1200 = 1050 income. For an investment property, Fannie will wash the income and expenses. Almost like they would for a business. Which it is. Where the 75% comes from is they assume you'll write off 25% between vacancy and expenses. It's actually conservative, but less so than Freddie which requires the two year landlord history- although Freddie does give the lender discretion to use higher income if they feel it's warranted.

2. Underwriting will generally take a two year average, treating each category separately. And typically we use YTD (2015 earnings) to support, but the average is a 2013 + 2014 / 24 months in terms of your qualifying income because YTD can get skewed by seasonality or a big commission paid year-beginning. Make sure you wrote off any 2106 loss on your Schedule A, that it's being removed from your commission income. I'll give you an example. Let's say

Base 2014: $50,000

Base 2013: $40,000

You'd use: $3750/month

Commission 2014: $20,000

Commission 2013: $15,000

You'd use: $1458.33/month

2106 loss 2014: $1200

2106 loss: 2013: $1000

You'd use: -$100/month

Altogether, the underwriter will qualify you with $3750/month in base wages, and $1358.33/month in commission.