I am closing on my 3rd conventional mortgage (1 primary residence in CA , 2 rental duplexes in OH). They are all from the same bank and all less than a year old. My usual loan officer has told me that this last mortgage will push me to the limit of my acceptable debt to income ratio. This will make it impossible to approve me for any further rental loans until I can show 2 years of rental history.
My question is as follows: If I find another rental property deal in the next couple weeks and use a new bank to finance the loan, can I close on that and get the money before this current mortgage is documented on my credit report? Essentially, the new bank would not see it so my debt to income would still be acceptable until it posts on my credit report.
I don’t know if it’s legal but it’s immoral if you knowingly do something that you know would upset someone who trusts you. A lender goes by certain information. If you CAUSED the false info by getting another loan before the bank found out, that’s wrong. It may be illegal also. Reputation is a big part in business. What type of reputation do you want?
Also, if you have to ask if something is moral or not, it’s not.
You are signing a loan application (1003) indicating that your assets, liabilities and income are listed accurately… you know you owe the money, it just hasn’t shown up on your CR yet.
You may not get caught… chances are you wouldn’t get caught but you don’t want that hanging over your head.
THe last thing that my lenders do is pull a credit report just before closing to catch stuff like this…lenders are not stupid (hardheaded sometimes but not stupid).
What everyone has said is true. However what I am wondering is if your current lender has been counting the full payments against your debt to income instead of using rental income to offset some of the debt? Are both properties rented? If so you should be able to qualify for more houses. Either that or you are taking huge losses on your current properties. You may want to just consult with your current lender and ask how he is calculating your debt to income ratio. If he is forced to qualify you by using the debt only then you may want to look for another lender becuase that is NOT how everyone does it. Hope this helps.
The banks that I’ve spoken with require a minimum amount of rental history before they will consider the rental income. I’ve been told by my bank that once I have 2 years of rental history, the income will count toward my debt-to-income ratio.
That policy and that bank is ridiculous. Maybe a better word would be ultra conservative or even scared. You income is your income and your debt is your debt whether it’s tomorrow or 2 yrs. from now. I have deals with 4-5 different banks. One of them will not lend on investment property unless you have been in the business for 2 years, similar but different from your situation. Are you doing your deals on the residential lending side? If you are and you are in buy mode switch to commercial lending. Those guidelines are geared more towards the properties performance as opposed to your personal financial situation. They will still want to see your personal financial statement and so on, but I can almost guarantee you won’t run into any of that 2 year :bs. Good luck
I didn’t know you could get commercial lending for less than 4 units? I will look into that. In addition, I think it’s time to go through a broker. It seems like I would prefer to have access to many different programs, rather than the limited ones a bank has assess to.
You’re currently working with a loan officer on the bank’s retail side. Those loans are sold off into the secondary market so must follow Fannie Mae guidelines. It’s the same type of loans that a broker would use on the wholesale side.
The guideline is not always a requirement. Loans, whether reatil (lender directly) or wholesale (through a broker) are run through an automated underwriting engine. The application info you give is submitted online and the automated system generates a denial or approval with conditions needed from the bank. If you have a low ltv or high assets or other compensating factors the 2 year history may not show up on the approval.
If the approval does ask for a 2 year to use income, Fannie Mae is only specifying that this for the SUBJECT property. So while the income from the subject would need to be left blank, income from other properties could be used. For homes purchased within the last 12 months 75% of the leases will be used; purchased greater than 12 months the sched E from your tax returns are used. Income on the sched E is calculated by taking any negative cashflow per property and adding back in depreciation/depletion then divided out by 12.
If your loan officer is not allowing income from any of your properties due to the “2 year” requirement, then he’s absolutely wrong.
I’d suggest contacting a mortgage professional who specializes in investment loans as you may have a long road to travel if keeping this guy for current and future deals.
JBaldwin made a comment worth exploring. Once you hit 10 financed properties most bank/lenders/brokers wont be able to work with you. Many investors are scrambling now to find a way to get there multiple properties out of their personal name and into a business name (not just title but the actual loan). This clears up the ability to get additional conventional financing. A blanket loan is an option for those with a decent size portfolio. Otherwise you need to find local commercial (not retail) bank loan officers that can get you commercial financing on your properties. Rates will be a bit higher with shorter terms. May as well start looking for that source in your area now.
And if you’re wondering how much commercial money will cost you I just closed a commercial deal last week and got 7% on a 20yr note. Some people think you shouldn’t post what rates you’re getting on this forum but I like to give an idea as to what other people are getting.
Also, commercial lenders will lend on any size deal. Single family home up to apt. buildings. The whole 1-4 unit thing is followed by the residential lenders. Residential lending won’t lend on anything over 4 units but commercial will do SFH, duplexes, triplexes, etc…Good luck.
Investment Loans is right that some of the loans are sold off into the secondary market, but not all are. Banks hold loans for their own portfolio (hence the name ‘portfolio loans’) and they can stretch guidelines and sometimes create their own when doing a deal for you.
My 2 cents on brokers. They have their place and they have access to so many programs it’s unreal. I don’t use them much and here’s why. If you go to a local commercial lender they’ll give you 80% LTV, so you have to come up with 20%. I never use my own cash for that, rather I use other equity, seller’s funds, etc. It’s been my experience that broker products don’t allow this stuff and that means your 20% is going to have to come in the form of cash, that hurts! The deal I closed last week I got 90% LTV and my equity came in the form of items I had already paid for i.e. blueprints, site plans, engineering reports, etc…Essentially I got 100% LTV, you’re not going to get these deals on secondary market products. So brokers have their place.
With that being said I would love to have an excellent commercial broker. Even if he/she funded some deals with local banks that would be fine with me. It would be awfully nice to say to someone that you have a deal, now go get it funded and have multiple avenues to pursue. Good luck!