1st Time buyer Financing for multi family

Financing, Hard Money Lenders, Private Money
1

Hey Guys,

I’m could use some advise as to the best way to plan in getting my finances in line to qualify for a loan.

I am looking to purchase a 3/4 Family in which I’ll live in 1 of the Apartments. I’ll be looking to purchase something in the $300-400K range. It’s reasonable to assume that I can pull in between 2000-3000 a month from the other 2/3 Apartments.

The BAD NEWS :-[

I haven’t run my credit but in 98/99 I had some credit cards that went to collections due to being in school and out of a job. Since 2000 I have had 4-5 cars loans all of which have been paid ontime every month.

I have 4 credit cards with 3-4 year historys and currently I have about 17K sitting on them, I probably have 25K in total Credit on the cards and I have been paying probably $100 a month to each, although never been late on anything in the last ~6 years. I have a car loan at $560 a month with about 55 months to go (Feb 06).

The GOOD NEWS :smiley:

I’m in the process of selling a 2nd car which will give me 10K in cash in August/Sept. I’m planning to give up my current Apartment of 6 years and move back in with parents so I can pay things down.

If things move along as I’m planning, I should be able to have 20K in cash by March 07 and add $2000 to the total every month after. March is the point I would want to start looking and staying an extra year isn’t an option to continue to save $2000 a month.

So Questions are:

  1. Should I pay off all Credit Cards as soon as possible for 0 balance. Will this make my credit look better?

  2. Just keep paying $100 a month to each one and save as much cash as possible for a DP. Cash in hand better with large debt owed?

  3. Something I’m not thinking of?

I currently gross 75K a year at a stable job with 5 year history. I’m looking to buy a house so I can have a tax writeoff and quit getting killed by the IRS every year and also to start building equity in something for the future. I want to do a 3/4 family because I don’t want to have much out of pocket expense and would rather other people pay the mortgage.

After I buy the 1st one, what would I need to do to purchase a 2nd one that I would not live in? IE 100% finance? It would work out so that the Tenants would cover the entire Mortgage.

Am I nuts?

;D

2

I would not pay off those cards. The more tradelines you have the better, or at least 2 or 3 cards is good plus a car loan. It’s best if the balance/limit ratio is under 50% on the cards or else those could be hurting you.

You should not have a problem getting 100% financing on the owner occupied property, there is 100% financing available for 3-4unit investor properties as well(your planned 2nd property) but it will depend on such things as the loan amount needed and your fico, its hard to say.

3

Thanks for the reply! I did some more reading and wandered over to one of the credit forums. I pulled my FICO scores from myfico.com and got a copy of my 3 reports.

I’m actually better than I thought I’d be.

TU 719
EQ 717
EX 680

I have nothing negative, guess all that stuff fell off (Sweet!). It says my Balance to Limit is high but I knew that.

I’ll keep reading how to improve the scores but I don’t think I’ll have a problem getting them above 750 by the spring.

4

you can do just about anything with those score, if you get the mid score above 720 than that’s really excellent.

5

Box,

Depending on where you live you may even be able to qualify for FHA financing on the multi-family as long as you are living in one of the units.

6

If your DTI is OK, you should be able to get a nice loan on a 3-4 unit with those scores. Good luck with everything!

7

What is DTI? Debt to Income?

When I apply I’ll have 0 CC Debt with 4 revolving cards, and about 24K on a car loan with 48 months to go. I just won’t have much money to put down but I’m able to show a gross yearly income of 75-80K.

8

Box,

Debt to income is the ratio of all your debts plus your house payment divided by your income. For example, in your case, let’s assume a sales price of $350,000, with your payment somewhere around 1% of that (so about a $3,500 house payment), plus a car payment of $400 a month, making your total monthly debt $3,900.

Now, if your income is $80,000 a year, monthly it would work out to $6,667 a month.

So to calculate your debt-to-income ratio, we would divide your monthly debt by your monthly income, so in this example, $3,900 divided by $6,667. This would give you a ratio of 58%.

This means your combined debts represent 58% of your pre-tax income.

Anything over 50% is usually regarded as high and would normally eliminate certain loan programs from your options, and most lenders would actually prefer it to be down closer to 38% or 45% (depending on whether you go conventional or Alt-A).

You might therefore consider doing an interest-only loan, which would bring your monthly payment down a fair amount, reducing your ratio.

Another option would be to implement a “no-ratio” loan program, where they disregard your ratio but at the expense of a slight increase in rate.

Let me know if this helps!

9

That makes sense but since I’m planning to purchase a 4 family and live in 1, how does the bank view the rent from the other 3 apartments? Say for instance the others rent for $800 a piece.

10

They will credit 75% of the gross rents as income.

11

That would reduce your debt by $1800, 75% of the 2400.