All Forum Posts by: Ryan Gillette

FHA basically frowns upon this. FHA will only allow this as a source of down payment if the lender can prove there is a positive difference between market rent and the actual rent paid. It requires getting a rent schedule to document it.

I would have him start with a local mortgage company - try several. First question is if he's 580+. If he is, they can pull credit and see if FHA will accept it. If not, there are credit tools (like re-scoring) to get it up enough points. Sometimes it takes day; sometimes months. But if he has an easily solvable credit problem (like his credit card balance is over 30% of the line), it might only take a week or so to get it ironed out.

With FHA you can pay up to 6% of the purchase of his closing costs and prepaids. That leaves him with a 3.5% down payment. It can come from a family gift (but not from you). He would be eligible to use his security deposit towards it. Short of that, you or he might look into down payment assistance programs. He's a mortgage company in PA who lists a few.

http://www.meridianhm.com/pennsylvania-down-payment-assistance

If you give exact numbers for taxes, insurance, maintenance we can look at cap rate and ROI - basically look at it like "Should I put $130K down and buy this property?". Overall running these numbers, it's probably a sell decision.

Insurance is a cash expense, as is maintenance. You have to cut checks (cash) to the insurance agent, the landscaper, etc. When you add in these costs, on top of the other costs to include like repairs, cap-x, vacancy loss - you're likely running in the red. Let's say your mortgage is $1300, taxes are $300, insurance is $100, maintenance is $200- you're positive $200/mo or $2400/yr. Then if there's any vacancy loss (tenant misses a month, you go through an eviction), repairs (dishwasher breaks) or cap-x (roof wears down, furnace life ends) come up, you lose for the year or years. Not to mention your opportunity cost on this is the $100-130K tied up in it. The upsides are (possible) property appreciation and a tax write-off, but cash-flow is what you want to look at. There's also a chance the property depreciates in value over the time horizon.

The balance gets reported to the credit bureaus at the end of your billing cycle. So if the cycle ends Jan 10, whatever the balance is on the 10th, that's what will be reported. In theory you could pay it off on the 8th or 9th, and then start making purchases again on the 11th. But you put a lot of faith in the exact dates it's being reported to all three bureaus and you'd be cutting it very close. The best way is simply to pay it off today, and put it in a drawer for a few weeks until your credit is re-pulled. Use a debit card, cash, or only use so much of your card you can keep all the balances under 10% during this period until your credit is re-pulled.

Your number one factor is outstanding balance. If you can, pay your balances down to 10% of the limit. It needs to be 10% by next billing cycle. If you simply pay it off now and re-rack up the balance by the next billing period, it will be reported with what it was at your next billing cycle. If you were 760 before, I wouldn't be surprised to see it shoot back up into that range. Unless it's a financial hardship, I would do it simply for what it would do to your pricing. I would go back to the LO and ask if it would change your pricing to have a 760 (if it doesn't, I wouldn't worry about it).

If they're not prepared with that information, it may seem like a hassle. There's also a slight possibility they didn't know what a rent roll meant - or thought you were asking for expenditures as well. Either way, if they're not willing to provide rental figures, you could get a written figure from them and make your offer contingent upon that figure being accurate contingent on leases being provided prior to your inspection window. You get your deal, and it alleviates any concern they have about you being a serious buyer or your offer being in their ballpark before they spend the time to gather those documents.

For tax purposes, it really depends on your other income, your marital status, your current portfolio and your long term goals in terms of the costs. For most folks, filing Sch E is the simplest and affords the same deduction.

It doesn't hurt to make a few phone calls, or even call a mortgage company to see if they can refer you somewhere. They'll have their nose to your local market. $400K is a reasonable limit though. Taking second lien position, the bank opens themselves up to a lot of risk relative to their equity position.

Just for information, when you shop for a mortgage it all counts as one inquiry. It shouldn't affect your score 50+ points, even multiple pulls. Ask the LO to look at your credit. Typically, if there were no late payments to explain it, the culprit in these situations is a credit card with a balance that ballooned. Even a $400 balance on a $500 card will do some damage - $400 may be nothing to you, but it looks like you're using 80% of that line. The reason it may matter is a lot of banks have 720 score minimums - and it will affect your pricing (700+ vs 760+).

Gift is when it is not to be repaid. A loan, secured or unsecured, is a loan. Neither are acceptable sources of down payment on an investment property purchase.

For owner-occupied loans, gifts and second (and sometimes third) mortgages are allowed. Take a basic 80/10/10 on a $100,000 house.  You borrow $80,000 from your first mortgage lender, $10,000 from your second mortgage lender, and put $10,000 of your own funds. Sometimes this latter $10,000 is gift funds provided it is from family and is not expected to be repaid. None of this is applicable to investment property purchases because of the additional risk factors present in investment properties - particularly the borrower's incentive to repay and the higher risk of fraud in the transaction.

Every state is a little different in abandoned property - check NOLO as a reference. 

http://www.nolo.com/legal-encyclopedia/handling-tenants-abandoned-property-an-overview.html But I would specifically read your state statutes on it. What you don't want to do is re-rent it, change the locks, sell the property without checking, simply in the event they show back up. Because their first step will be to call the police and the police (at least in CT) side with the tenant as the resident.

CT is more tenant friendly, so you might not have to jump through all of these hoops. Here you need two months of nonpayment (so if they missed day 10, you have to wait 30 more days) or have express statement from the tenant they are vacating. At day 40, you send a notice to their unit that within 10 days you will re-claim the property. Then you're free to lease it out and remove the property, provided you itemize it. 20 days after that (30 from the notice) you can do what you see fit with the property including selling, trashing, or donating it. So long as you follow the procedure and keep it all documented, you're set.