No Ratio Loans

Financing, Hard Money Lenders, Private Money
1

Hi all,

About a year ago I jumped on a piece of property that I intended to make my first investment property. Because we scored a desirable piece of property in our current neighborhood, my wife and I ended up building our dream home. The intention was to move into the new home and either lease or “Flip” our longtime home which has appreciated nicely. We took a Heloc on our current home which took us to 80% LTV.

On the new home there is the following financing:

1st mortgage of $562,500. (Interest Only for 2 years)

2nd mortgage of $521,000. (1 year Construction Loan, hard money w/12 months interest prepaid)

The market value of the finished property is estimated to be $1.5 - 1.6 Million.

We’ve struggled to reach the end of the project having to use our personal credit to do so but we are almost their with the help of our Contractor. We owe the contractor and have been trying to do a cash out refinance on our new or existing property with our usual broker but because our debt to income ratio is out of whack he can’t pull anything off.

On the current property we have:

1st Mortgage $457,000
Heloc $199,000

The market value of the current property is between $800,000 - $850,000.

We have reasonably good credit right now (680+ median) and our combined income is good.
(approx. 200K/yr)

Unfortunately we do have a lot of revolving credit that we used to get the new house to where it is.

I am asking any of the seasoned vets here if it is possible to do a no ratio refinance on the new
home pulling some cash out to pay our contractor and perform needed repairs on our current house to better position it in the market. We’d be looking for about 80% LTV on the new home.

We are looking for some quick options here before we decide to just list our current house with minimal improvements.

Though it seems unlikely, I wonder if we could do a 90% refinance (cash out) no ratio on our current property at the same time since we plan to sell it anyway?

Once the smoke clears and our DTI ratio is back under control we would likely want to refi the
no ratio to a conventional to get the payment down.

Any advice would be welcome.

If you know someone reliable in the Los Angeles Area who can do this, please advise.

2

Sell your current home right now. Put your stuff into storage and rent a cheap apartment for a couple of months until the new house is finished.

You are way out of control with your borrowing habits.

3

680 is a low score in today’s finance environment. The fact that you have four loans, plus high revolving credit, almost all lenders are going to be extremely leery of doing anything with you now.

I would expect the best thing you might get done is do a refinance in which paying off all or a chunk of your revolving debt is part of the deal. Then you would have some room on cards. That said, I agree that you sound like you are overstretched on credit. If your market value of your house truly is $800k, I agree it would be best to sell it ASAP and make some temporary living arrangements until your dream home is finished. Then, when you refi the construction loans on your dream home on completion you will be fine.

The problem is depending on your market, it may take longer than you think to sell your current home, plus many people have found that “estimated market value” for new construction is no where near what it was 7 months ago. You may have much less equity than you think.

In any case, from what you describe, your solution is not to take on more debt. You need to pay some off. A $200k income isn’t so hot when you are paying out more than you are taking in.

4

What you are trying to achieve is possible to a degree using the existing home. However any loan that you qualify for is most certainly going to require you to pay off some off of your revolving debt. Another question is how long has it been since you took out the heloc? Is getting yourself another 10% going to even make a dent or just put you deeper in the hole? Just doing the math on your home situation says you may be in danger of not qualifying for a permanent loan and putting you in serious financial jeopardy. The LTV limits on super-jumbos have been cut tremendously. With a 680 you may be limited to 75% LTV which would give you a max loan amount of1.2M. Your two loans combined come to 1,083,500. I am sure that you have spent more than that because you stated that you have used revolving credit to get you where you are currently and still owe the contractor more money. Once you add in closing costs and any extra interest you will be in serious danger of not qualifying due to LTV issues (and that takes into account the value being 1.6M) anything lower in value and you would be over 75%. Once you get the loan is where the real pain starts. Using a generous interest rate of 6.5% your P&I payment is gonna be 6K not including taxes and insurance which could run you another 1.5K per month. With a 200K salary you bring hime $16,666 per month pre-tax. Do you really want a $7500.00 house payment??? Is the question you should be asking yourself. If it takes you long to sell your current home you could put yourself in the poor house. I say you put both homes on the market and whichever one sells first you keep the other. If the “dream home” selld first you could make yourself a tidy profit pay off all your debt and start over in a much more favorable position.

5

Thank you all for your feedback.

We know we are pushing it and are prepared to sell either to avoid disaster.
However, the 1.6M was actually conservative. Similar houses are selling for 1.8M plus.

Still, the scenarios you present are why I inquired.

The new house is basically done (1 - 2 weeks).
And actually, yes an extra 10% would help us bridge the gap so to speak but I agree that we have pushed it as far as we can on the existing house.
We’ve had the Heloc for almost a year.

We will have to consolidate debt and bite the bullet for some time.
Christopher, your numbers are exactly what I projected a year ago when we started this.
Of course, I didn’t anticipate the lending market melting down.

Whacky as it sounds, houses north of $1.5M in our area have been pretty stable in resale value.
I’m know this is unlikely to last.

Regardless, we are moving ahead with the plan to sell our current home immediately.
If we see any stall in interest then we will list the “Dream Home”.

Again, thanks for the savvy advice.

Best Regards,