I am new to REI and want to ask some seasoned investors to comment on my financing options. I am a construction project manager by profession and am interested in purchasing a rehab to flip. I have about $50k cash which is enough for the 10 or 20% down and am looking to work with Wells Fargo and their purchase-renovate loan which will finance the purchase and the value of the renovations. However, because my wife is staying home with our baby, it’s my income only when figuring the allowable back-end income to debt ratio. Even using a high 50% ratio- it only allows for about a $700/mo payment on the investment property. This limits the amount of the total loan I can qualify for to about $120k. Not gonna get me too much- most rehabs start at $150k in this area and allowing at least $15k for renovations means at least a $165 P/R loan. We own our home worth about $390k with a primary mort of $122k and a Home Eq LOC balance of $37k so our equity is about $230k. We have excellent credit scores of 815-830. My limiting factor here is the one income situation for repaying any debt. I don’t think I want to be a Landlord yet- don’t want to have to rely on rent to make payments. Anyone have any thoughts? How about using the equity in our house? Thanks.
Howdy Tdorsey:
With your business plan of buying to fix and sell the bank should not look at income as much as when you are buying to own and rent. Plus if you could not sell the house could be rented to cover most of the mortgage. Most banks/mortgage companies use 75% of the rent toward the mortgage payment. As part of your loan you should borrow about 6 months payments and even prepay them. This is what I do when using hard money lenders. You have it good being able to use bank financing with less closing costs, points and a lot lower rate.
How are you? I sent you an email . A good game plan can be put together, similar to what TedJr said. Thanks and talk to you soon.