Commack, NY · Member since 2013 · 29 posts · 8 votes
I live in NY, I own a home that I live in, and it has a decent size mortgage as you can imagine. I was looking out of state for rental properties, in a particular area, looking to make contacts to explore the feasibility of doing it there. I started talking to a mortgage guy and I pretty much feel like i'm screwed now. The basic requirements as some of you may know are as follows (simple single family res.) 20% down, credit 720 and up, DEBT TO INCOME RATION of 36% or lower. I make a decent salary. I just have NY expenses. I'm pretty sure I am out of the game. So frustrated.
Real Estate Investor · Central, TX · Member since 2012 · 479 posts · 165 votes
12y
Where there's a will, there's a way. I was in your shoes not too long ago.
You've reached a road sign that says "Road Closed", it's time to get creative. Most people will turn around and keep the excuse in their back pocket that they tried. How bad do you want to get to the other side?
Commack, NY · Member since 2013 · 29 posts · 8 votes
12y
I have a few things to say. First, thank you for all the kind encouragement. I do not plan on giving up, but i'm not going to lie, i feel like I am treading water not knowing which direction to swim in now.
Some of you have brought up interesting points, and I think i need to clarify that my big concern is not coming up with the 20% down, its passing through the debt to income ration barrier. Some of you have suggested that I should shop around to find more investor friendly brokers - i think thats a good idea, but i think ultimately, DTI is going to remain a problem for me.
Some of you have suggested I look in markets where the houses cost less: I am, I am looking in North Carolina right now.
There was a suggestion of using private money - I don't have a problem doing so, as long as the terms are such that both myself and my private money guy (whoever that would be) can make profit.
I started actively looking in this area because i wanted to stop reading books and sitting on the sideline, and actually make positive movements towards ultimately buying...but right now, I feel lost in a sea where i don't know where to go.
Rental Property Investor · Baltimore County Maryland and Tampa Florida · Member since 2013 · 2k+ posts · 2k+ votes
12y
@John Giamundo Are you planning to buy the rentals in your name or a business name?
I bought in a LLC and when I first started, I was talking to several banks and insurance companies about my plans. Many banks claimed to be "investor friendly", but then would either talk about how they may not be able to "do that"...a simple loan to a LLC or they'd talk so much, it was just confusing...
I even talked to one insurance guy that said he couldn't insure our LLC properties unless the partners were married. Why? I have no idea. I went elsewhere.
I also found a local bank that was ready to work with me and we're now going on our 3rd loan together. Local banks are probably your best place to start. Go in person! Good luck.
Rental Property Investor · Baltimore County Maryland and Tampa Florida · Member since 2013 · 2k+ posts · 2k+ votes
12y
Nah, it's not impossible at all. You'll have to sign as a personal guarantor (sp?) most likely. We do. But definitely not impossible since I'm doing it and got the first mortgage within a month or two of forming the LLC. Then a few months later, the bank issued us a $20K credit card out of nowhere.
Either way, interview some local banks and you'll find someone. Some people tell you crazy requirements and then the winners are the ones who are truly ready for your business.
Wholesaler · Owings Mills, MD · Member since 2014 · 9 posts · 2 votes
12y
John: If you are feeling lost, I would suggest finding a local mentor to help get you over these roadblocks. You can use the Marketplace here to find one or do a Google search for Real Estate investor clubs in your area. Show up to one of those events and I guarantee you will find someone who can help get you to the next level. Good Luck!
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
12y
Its not possible to get a conventional loan in an LLC. Its very possible to get a commercial type loan for an LLC. The difference will be that you are either looking at a shorter term (15, maybe 20 years) on a fixed rate loan or an ARM or balloon loan with a longer amortization. Thirty year fixed rate loans are "conventional" and those have more limitations.
DTI may be a problem at first because you have to qualify for the loan with your existing income. Once you have two years landlording experience (maybe less with some lenders) you will be able to include the rental income. Lenders will look at your Schedule E's for existing properties. They use a rule of thumb that "net rental income = 75%*rent - PITI" for new properties.
The DTI calculation is very different once you start including rental income. I believe this is how it works: First, ignore the rentals. Add up your monthly income from other sources and your other debt payments. That's your starting DTI calculation:
DTI = debt / income
Now, compute your net rental income using actuals for existing properties and the rule of thumb for the new one. If that's positive, it adds to the income:
DTI = debt / (income + net rental income)
If the rentals are losers, it adds to debt:
DTI = (debt + net rental loss) / (income)
Hopefully you've not fallen for the "profit = rent - PITI" myth and are buying good rentals. If so, every new rental improves your DTI.
Commack, NY · Member since 2013 · 29 posts · 8 votes
12y
@Jon Holdman thanks for that information. I have not fallen for anything so far. I'm trying to get into my first one. So i still haven't screwed up. Basically, from what you have written, I can see that after the first one, things will get easier. But I still have to find a way in the door! :)
Rental Property Investor · Baltimore County Maryland and Tampa Florida · Member since 2013 · 2k+ posts · 2k+ votes
12y
I personally found that the more I worried and thought about it, the less I was accomplishing. Just move forward and do something actionable. I think that would be interviewing a few banks.
If you tell them your plans and they don't want to or "can't" help you, then just move on. When you walk out of a bank that you had a good discussion with, then you'll feel very thrilled and confident to move on to another actionable step.
Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes
12y
If you have available cash (I'm guessing, since you are not worried about the down payment) than you can do some things that some would say are financially dumb, but will improve your DTI.
Refinance on your primary residence, for example, even if doing so would not otherwise be worth the fees. You could also buy points when you refi, to reduce the monthly payment further.
Commack, NY · Member since 2013 · 29 posts · 8 votes
12y
@Richard C. I do have the cash, for the non NY market. But my expenses are ny so i don't have the cash to make a significant difference in my expenses. For example, I could pay off a student loan which would cost me about 7 thousand but all that would free up on me on a monthly basis is $180. My home mortgage as a comparison is 3400 per month.
Banker · Bend, OR · Member since 2014 · 15 posts · 7 votes
12y
The 2 year landlord experience requirement to count rental income has been dropped by Fannie Mae. Many lenders still have kept the requirement even on Fannie Mae loans.
Residential Real Estate Agent · Miami, FL · Member since 2013 · 195 posts · 138 votes
12y
John,
If your personal finances don't meet the financing requirements, the quick/short solution is to find a partner (who does).
The other option is to change your personal finances. This could mean paying down debt or regular expenses (maybe get rid of a car payment, etc.).
The last option I see is to avoid financing all together. This could again mean a partner. Or, assuming you have sufficient equity in your personal residence, you can try to get a home equity line of credit (or refinance, I guess) to get the necessary funds to get in you in the NC market. You mention already having the down payment. If you're targeting affordable housing, as mentioned earlier in the thread, you may be able to use your current equity as a substitute for conventional financing.
That definitely is not in Top Gun, Dawn. You must be thinking of some other movie. In Top Gun, the opening scene has them in the air and landing (on low fuel) on an air craft carrier. They are already very skilled pilots. Top Gun is the name of the school where the best of the best (pilots) go......
Phew. I thought I was having a memory lapse. My ex husband LOVED Top Gun and we saw it at least 3 times in the theatre when it came out. That was way back but I thought I remembered it pretty well. Dawn through for a loop with that one.