All Forum Posts by: Zack Karp

@Shawn Slaven you're talking to the wrong lenders.  You absolutely DO NOT need 2 years of tax returns showing rental income.

The only situation where you would need 2 years tax returns is for a new VA loan, and to be able to use rental income for additional properties that you own, and this does NOT include the property you are vacating. This is called a Conversion of Primary Residence (where you are going to keep your current primary residence and rent it out).

Either the loan officers that you are talking to either don't know the guidelines, or the lender has an overlay on the actual guidelines.

Feel free to reach out if you need help.

TYFYS and best of luck!

@Johanna Kerns that rate/cost combo seems a little high for a Conventional investment 4-unit for $880K with 25% down. That rate should come with no points. With a point the rate should be closer to 7.

@Chris Roberts

The short answer, no.

For using rental income on the property you already own and are vacating, you cannot use an appraisal for the amount of rental income, you would need to have a signed lease prior to closing, and you use 75% of the gross rent, which will wash against the mortgage payment. Proof of receipt of rental income and/or security deposit is NOT a Fannie Mae or Freddie Mac requirement, that is a lender overlay if they are asking for receipt of income/security deposit.

For using rental income on an investment property you are purchasing, that is where you can use the appraisal to determine market rent, which can be used in lieu of a lease for a vacant property (since you don't yet own the property, and can't control whether it's currently rented or not).

Hope that helps explain. Best of luck!

@Auguste Salom sadly ME is one of the states we are not licensed in, otherwise I would offer to help...

This is an easy fix. VA says that you need 1 year landlord experience in order to use rental income. OR, the use of a property manager. So the workaround is that you would need to sign a contract with a PM during your loan process, and then you can use rental income from the other legal unit(s) for qualifying. And if your lender won't let you do that, find another lender.

TYFYS and best of luck!

@Robert Boyde Jr. not sure how much your GF makes, but she might be eligible for a 5% down Conventional 2-4 unit using Home Possible.  That's what I would be coaching as the next step in your strategy, if she can qualify.  If her income is over the cap, then a SFD with 5% down.

Also (if I was coaching you), you should have used FHA before VA. There are some underwriting guidelines that makes the order in which you do these house hacking steps important.

I'd be happy to discuss further if you want to reach out, there's way too much variable info to explain it all here.  A lot of the optimal house hacking strategy is based on your income and goals, and is very much relative to each person's situation.

TYFYS, and best of luck!

@Ian Fisher if you can get the entire 90% at 8%, grab it.  That's really good in this market right now for a non-QM at 90%.  Just make sure there are no surprises, like points or insane fees, or a 3 year prepayment penalty.  Make sure you have an exit if you either become financeable for a standard jumbo loan, or if rates drop so you can refi.  Better to take a slightly higher rate with no PPP, imo.

Best of luck!

@Grant Shipman if you read my first post, yes I mentioned both VA and USDA, but neither of these are applicable for the OP. Which is why I said he has 2 options.

When I say low down payment, I am talking 5% or less. Yes, there are much more expensive options out there for 10% down and 15% down. However, if you really do the math, when you factor in the cost of the rate and fees/points, and the potential prepayment penalty to get out of the loan quickly, frankly they will just eat away at your profits. I am not a fan of these loans unless you have zero other options. And I wrote a lot of subprime loans back in the day, I can speak from experience. These newer loan products are the same thing just packaged with a new PC name, because no one wants to call it subprime again after that meltdown. I'd rather see someone get financial help from a partner or family member and put 20% down, than these non-QM/DSCR/hard money/whatever you want to label them, loans. Just my 2 cents...

@Jacob Mitchell this is where the confusion lies. These aren't various loan programs. There are only 2 programs...FHA and Conventional. It's that simple. However it's the deep understanding of the guidelines of each of these programs that matters. 24 years writing mortgages, I know these guidelines inside and out, and how to use them in a way to help real estate investors and house hackers. It's not something you can easily learn. It's years of practice, and learning what you can do, what you can't do, and the repetition of doing thousands and thousands of loans and the nuances of working around the guidelines. This is what sets someone like me apart from the order-taker LO's in the call centers and banks. Any LO can quote a rate, or teach a room full of realtors a few nuggets, but very few can actually do what I do.

Let me be clear. You CAN house hack a new 2-4 unit property every year with a low down payment. But people talking about it on BP is very different than walking the walk. Any decent LO can explain how to buy properties 1 and 2. But very few LO's can actually guide you through getting to properties 3,4,5... I have done that successfully for dozens if not hundreds of house hackers. You just need a very realistic and pragmatic approach to the properties you buy, and the right LO and realtor team to support you, and as I mentioned you already have one of those :)

@Jacob Mitchell some good info here, but I think people are missing the point and not giving you the straight answers that you need.

One critical part that you mentioned is multifamilty (2-4 units). Most of what people are referencing in this post are 1-unit criteria. These are VERY different.

The other critical part you mentioned is not being ready until 2024, which likely means that's when you will have 2 years of self-employment income before you can qualify. To your question about using salary, yes that's part of how you qualify with your debt-to-income ratio (DTI). Your DTI is the ratio between your employment income plus rental income, compared to your monthly liabilities (housing, car payment, student loans, credit cards, etc).

With 2-4 unit properties, you have 2 options (if you are not a Veteran or buying in a rural area) to buy with a low down payment. Either FHA, or Conventional Home Possible. Period.

FHA allows 3.5% down. Conventional Home Possible allows 5% down. With HP, there is also an income cap that you have to navigate.

Strategy-wise, FHA is best to do first. Why? Because when qualifying for a FHA loan, and vacating an existing property with a mortgage, you must prove with an appraisal that you have 25% equity in the vacating property in order to use rental income for qualifying. For most people, without being able to use rental income is a deal breaker. So if you do HP first, and then try to do FHA 2nd, chances are very high that you will be stuck, unless you did some kind of value add and gained 20% more equity in 1 year.

So then for the 2nd property, it's best to do HP (assuming your LO is smart enough to help you to qualify under the income cap). HP only allows you to have 2 financed properties, counting the subject property you are buying, which is why you want to do this loan 2nd. If you can't qualify for HP, then you skip it and just keep doing FHA.

So now you have 2 properties under your belt. For the 3rd property, you now have 2 options for another low down payment. Either buy a 1-unit with 5% down, or if that first property has at least 25% equity, then you can refinance out of the FHA loan and use FHA again for another 2-4 unit. You can only have 1 FHA loan at a time (unless you relocate for work > 100 miles away), which is why you have to refinance out of it to a Conventional loan (or some other product) in order to use it again. And with Conventional financing, as a primary residence, the max LTV for 2-units is 85%, and for 3-4 units is 80%. If you have already moved out and it's an investment property, for 2-4 units it's max 75% LTV.

There are a LOT of nuances with the guidelines, and there should be a lot of mapping out your strategy of the order that you finance, BEFORE you get into any property. Seeing 2,3,4 moves ahead is extremely important to make sure that you don't get stuck. It is very much an art (that even many/most loan officers don't understand lol). The goal is to make sure that you don't get one-and-done, and then forced to save up 20% down for the 2nd property, because you were working with the wrong person who didn't care about your long term plan. Any realtor can sell you a house, and any LO can finance a loan. But finding the right realtor and LO that understands REI and these strategies is critical to your success. Luckily you already have the first part of that solved :)

Hope that helps. Best of luck!

@Jacob Pham if you are planning to house hack 2-4 unit properties, and stretch your loan down payment opportunities as far as possible, it's actually best to use FHA first anyway.

In a perfect world, here's the order of how you should finance these:

1. FHA

2. Home Possible (if your income is below the qualifying income cap)

3. VA

4. VA (using secondary/bonus entitlement)

There are strategic qualifying/guideline reasons for this order.  Take it from someone with 24 years writing mortgages, and I also teach VA lending. If you follow this order, you can get up to 16 doors in just over 3 years, following the 1 year occupancy rule. And even better, you can divide and conquer, and your fiancée can do the same if she can qualify on her own too, making it up to 32 doors between both of you.

Your best bet is to talk to a loan officer who knows how to navigate all this with YOUR best intentions in mind, and map it all out for you.  That means stay away from the call center LO's, and make sure your LO is an expert working with real estate investors and Veterans.

TYFYS and best of luck!