Here is my situation. I would like to start buying, rehabbing and selling homes. I started my own company (service business) last year and had no income in 2006. This year projections look like maybe $25K. Prior to starting my own company I had six figure income. I want to know realistically how I can buy homes and how much I can be approved for with this low income stream. On the plus side my wife and I own a home and owe about $225,000 and it is worth $800,000 so $575,000 in equity, we have no other debt (car payments etc.) and about $100K in liquid assets. My fico score is in the low 800’s and my wife’s is about the same, maybe high 700’s and her income is about $50K a year. Specifically how would it work to use my equity to get a mortgage on a fixer property without any proof of an income stream and how much do you think I would qualify for? The area that I am planning to look for property in is fairly expensive so I am going to be looking at maybe $500K to $700K houses. Thank you in advance for your help and clarification. I have been told I can probably get a loan, but having gone through my original mortgage and a refinance I know how much documentation and proof of a steady income was needed.
If you plan to flip homes, you do not go through traditional lenders. You go through hard money lenders, private lenders, take houses sub2…etc. methods that do not require qualifications.
Hard money lenders still require qualifications if you expect them to put up repair money.
In your case, what I’d do is get a heloc on your primary property. Since you only plan to use these funds short term, they’ll be a great source for fix up money.
Hard money lenders that do loan rehab funds will base the loan on the after repaired value. The loan will normally include purchcase, fix up, costs, and somtimes payments rolled in. Expect to pay anywhere from 14-16% and 4-6pts. You’d qualify for one of these with no problems other than loan size which would still be managable. Many of the hml cap themselves around the $300-$400k range.
There are also hard money lenders or private indvidual lenders that loan based upon the as-is value and do not include rehab funds. You’ll find these sources closer to your home area…ie newspapers, rehab clubs, etc. Expect to pay ~1.25% monthly and about 2-3pts. Dollar volume may be difficult here as well.
Conventional loans at 100% may even work for you. Depends on the debt to income ratio. Needs to be full doc but probably wont be able to use your income since their is not a 2 year history for the business. These lenders do have a couple rehab programs but again, proving income may be challenging. Lenders that dont offer rehab programs will only make loans on properties that are in average habitable condition.
With a heloc, assets, and great score, you’ll be set just about anywhere.
I’d strongly suggest contacting a nationwide mortgage consultant that specializes in investment loans and scenarios just like this. In addition to this you’ll want to build a relationship with several banks in your area. This may require further explenation. The previous poster also mentioned other creative financing options that could potentially work for you as well.
I’d find a really good loan broker who works with investors.
I was in the same situation as you…decent credit and some assets, etc., but not much in the way of income because my wife technically makes all of the money (and I didn’t want to put her on the loan).
I found a bank that would give me a loan for 80% of the ARV. They just treated it like a construction loan. The first loan I did, the property appraised for like $175K ARV, and I borrowed $133K, enough to finance the purchase at $115K and the cosmetic rehab.
I actually left settlement with about $1,000, and did the whole deal with no cash out of my pocket. The points and rate were very reasonable.
There are still some very aggressive banks out there, you just need some help finding one.