I expected that lending would be tough with the housing crisis, but I’m just amazed at how Freddie and Fannie guidelines are killing off residential investment. My FICO is 820. I make a pretty good salary, my debt load is slightly high, but not that high. I fall under 45% DTI. I pay all my bills. And I invest in properties that have rental income.
But all that doesn’t matter. Because I don’t get to count any rental income that isn’t on two years tax returns anymore. So I have to qualify for my own housing payment, and the full PITI payment of the rental property as if it weren’t generating any income. (Who the hell thought of this concept? I certainly don’t invest in properties that don’t generate rent. Isn’t the idea to have an income? Why wouldn’t you offset the payment with the estimated rent that’s on an appraisal? You don’t have to take my word for the rent.) What that also means is that I’m limited to buying a property every two years because any new investment I purchase won’t have the new rental income on my tax returns until two years have past. I suppose if I have A LOT of income I can qualify for my house, new rental property #1, and new rental property #2’s payments, but I just not bringing in over 200K a year, and I suspect a lot of other people don’t either. I’m trying to play this conservatively. Get fixed rate loans, have a cash flow positive home, but I’m hitting a wall. And when I tell my broker, that I have more than four financed properties, I’m suddently lower than pondscum. Then there’s the pricing adjustment for owning four financed homes, and the requirement that you come in with 25% down, tying up a bucket full of cash in one property that would otherwsie cash flow at 80-90% LTV. Hey lenders: I run more of a risk going under for having no liquidity than overleveraging when prices are at their bottom and rates are low.
Anyone have any lending sources that actually want to work with their borrower and not drive him out of business?
you might consider changing brokers,thats not right.
If I have held a property less than 2 years, I get 'credited" 75% of the monthly rent toward the PITI on that house, if the 75% is over the PITI, the difference goes positively toward my DTI, if the PITI on that house is more than the 75% of rent the difference is charged like a debt on my DTI.
On properties 5-10 the biggest difference is the requirement to have 6 months cash reserve for PITI for all rental property, obviously lenders have overlays that may require something a little different, but as I understand them, those are the specs…
If you want to take it a little farther, buy the property with hard money based on the ARV of the house, rehab the house, then convert to conventional financing (refinance), at 75% of appraised value,you will end up with extra cost because of the double close and hard money points, but you will have a lot less cash tied up in the deal
I always recommend local banks. Our banker didn’t require 6 mo cash reserves. Our banker didn’t require a certain percentage down as long as the deal was good and there was value going into it. Our lender didn’t have any set property limit.
It took developing a relationship with the same person at the same bank. He’s also the bank president of his location so he didn’t have to go thru 8 bosses to give us an answer.
Justin is right. If you are planning on investing long term, you need to develop a relationship with a local banker. Generally, the terms will be better and you will find that it is much easier to work with someone face to face that understands what you are doing.
Just to chime in, I agree with developing a good relationship with a community bank that loans for its own portfolios, makes decisions in house, etc. The problem is, in my experience anyway, that these banks will not lock a fixed rate for longer than 5 years, whereas Fannie/Freddie underwritten loans that they resell can be locked on rate for 30 years. With the great concern that rates could move up steadily, and possibly even sharply, it’s valuable to lock those rates in.
There are conventional lenders (30-year fixed loans) who will use 75% of your rental income as documented on leases, when buying a new subject property, and for evaluating your existing properties if you haven’t held them long enough to have tax return history. You will likely have to have 2 years of landlording experience.
The lenders I’m aware of that will work with investment property owners for your 5th through 10th property are Citibank and Flagstar. US Bank will go up to 6.