What am i doing wrong

26 Replies

So i have spoken with two brokers in the past three months, i had a very hard time getting the first guy to call me back, he missed appointments, didn't return emails and just left me high and dry. I almost gave up but then tried again this week and got on the line with a lender from a unnamed company in AZ Monday and ran through our numbers, ran our credit and we set up an appointment to speak today. he was no show, he didn't call, he didn't pick up when i called both his cellphone and office number and has yet to return my email.

So i turn to anyone here with knowledge to let me know if i just don't have what it takes to get approved for a loan and they just don't want to tell me or have i just run into to lazy people that didn't want to help me make money.

our run down

Credit between 630 and 650. Income: about 45K a year, debt: student loans of 85K (both deferred)between the two of us,  truck loan of 22K, credit cards with 1,500 debt with 10,000+ in leverage available. We are looking to buy a multi family that cost at a max of 150k with 10K in cash to put down. 

So are we just unfundable when it comes to getting a loan in AZ and no one wants to tell us or what? help cause i'm starting to feel defeated over here....

85k student debt is bad. You can't get rid of it through BK like other things.

Honestly this is why I tell people that schooling doesn't make sense for everyone with college etc. Your income is about 45k a year yet almost 100k in student loans. If you had the ability once graduating to make 100k to 200k a year starting out in your chosen profession that is different.

A lot of people rack up student debt and then can't get a high paying job and are stuck being underwater on loans.

I don't know if the area you are looking in that multifamily trades at 150,000. 2 doors would be 75k a door in price, 3 unit is 50k door, 4 unit is 37,500 a door. If you have family FHA allows 3% down and then family can even do a gift for all or some of it. Your debt ratio is going to be the tough part.

I think your chances of getting a decent loan if small, if there is any.

Your credit score isn't high, and the loan/value ratio is too high. You have so many outstanding debt. I believe the broker thinks about the same thing. Since there is hardly any chance for them to make the loan (to make money), I don't think they would be that interested in calling you back.

While they sound very unprofessional your debt is way too high and your credit score is much too low for most lenders.  You need to clear some of that debt first.

If you plan to put 10000 down from cash advances on your credit cards that will not be considered a down payment by the lenders, just more debt.  From your description of your debt you have more than 2 times your annual income in consumer debt so you are unfortunately not attractive to lenders.

Sorry to sound so negative but you asked.  Good luck!

Originally posted by @Kevin L. :

I think your chances of getting a decent loan if small, if there is any.

Your credit score isn't high, and the loan/value ratio is too high. You have so many outstanding debt. I believe the broker thinks about the same thing. Since there is hardly any chance for them to make the loan (to make money), I don't think they would be that interested in calling you back.

Thank you; that clears it up and at least i am not left wondering anymore.

 @Joel Owens : You offered no information on the issue and your thoughts on my education are not the topic, if you have nothing useful to say please move on.
Originally posted by @Martin Scherer :

While they sound very unprofessional your debt is way too high and your credit score is much too low for most lenders.  You need to clear some of that debt first.

If you plan to put 10000 down from cash advances on your credit cards that will not be considered a down payment by the lenders, just more debt.  From your description of your debt you have more than 2 times your annual income in consumer debt so you are unfortunately not attractive to lenders.

Sorry to sound so negative but you asked.  Good luck!

No the 10K we were going to use for the down payment was all cash and the idea of using a credit card would freak me out. would it make a difference if we are using an FHA loan?

That truck loan looks pretty irresponsible considering your current financial situation.

Lenny I disagree. Your large student debt not being dis-chargeable and figured into your debt ratio is a huge factor in getting a loan.

Also 150k for multifamily in AZ may or may not be realistic for that market. 2 to 4 units could trade at 30k a door or 150k. So before going to a lender you need to check the availability of properties for 150k. You might have to go outside your area if none are available.

Credit goes up in 20 point block increments. So for example 640 middle credit score is one interest rate, 660,680,700,720,740.

The lower your score the higher the interest rate on the loan which affects the mortgage payment.

Good luck to you.  

Originally posted by @Joel Owens :

Lenny I disagree. Your large student debt not being dis-chargeable and figured into your debt ratio is a huge factor in getting a loan.

Also 150k for multifamily in AZ may or may not be realistic for that market. 2 to 4 units could trade at 30k a door or 150k. So before going to a lender you need to check the availability of properties for 150k. You might have to go outside your area if none are available.

Credit goes up in 20 point block increments. So for example 640 middle credit score is one interest rate, 660,680,700,720,740.

The lower your score the higher the interest rate on the loan which affects the mortgage payment.

Good luck to you.  

Thanki you for your added input, but i have found over 15 properties that meet the 50% rule as well as the 1% rule that are around 150K and under. My only point was in your first post you didn't speak about my debt to loan ratio you spoke about  your opinion on student loans and education, but at this time it's moot.

 Hi  @Lenny Wilbourn  ! Yeah, you're not exactly golden in the eyes of a bank I'm afraid.  It's true that banks generally don't want to lend money to you unless you don't need it! Don't let that dissuade you unnecessarily though. First, talking with two lender/broker/whatever is not a lot- even when you get your finances in better shape you'll still probably be needing to turn over a lot more stones than that.

Second- to get into a property of 150k or so with 10k available, you'll be looking at an owner occupied situation, where you could get a mortgage with a 5% down payment or so. You need a considerably higher downpayment for a strictly investment type property, more like 20-25%. (just mentioning this in case you weren't already aware...)

That said, an owner occupied duplex or triplex is an excellent way to get started in investing, and I think a good thing to aim for at this point. You would also likely reduce your living costs, allowing you to pay down more debt.

I did a quicko glance at realtor.com and I see there are duplexes and triplexes available in Mesa for 150k and less. I saw one that specified that there was a possibility of owner financing. A situation like that, where the owner is willing to basically "be the bank" for the buyer might be ideal. Now, it was a pretty funk-a-doodle property (a lot with three mobile homes on it) but if you want to get into investing without a lot of capital you need to be willing to make a few sacrifices.   Maybe for you that's living in a trailer in a funky part of town, I don't know.

Or you could just buckle down for the next year or two and save money, pay off debt, build up your credit. You might want to check out the blog MrMoneyMustache.com for a little financial tough love about getting financially free. 

Good luck to you!

"truck loan of 22K"

Can you sell the truck off or are you underwater already on it??

That 22k loan car payment if you can payoff and buy a cheaper car for cash would take a large payment off your monthly DTI ratio. If you have credit cards get the balance below 33% of the available limit. That should help boost the scores more. You need to look at all 3 credit report companies. Not all report the same info. The lender will usually take the middle score for loan qualifying.

You could get a nicer vehicle later after you have bought your property and have cash flow coming in. Once you get the cash flow fever you likely will not want to get the vehicle with the high payment.

Just saw you said 1,500 in credit used with 10,000 plus available. If so you are at 15% to limit. Something else negative has to be holding your scores down to be at 630.

Keep calling various lenders until you get one. The credit pulls if all done within about 2 to 3 weeks count as one inquiry on the credit report. If you go for months with different lenders and get multiple inquiries it can affect your score.

@Lenny Wilbourn  Are you currently renting? What rate is your auto loan at? Is the $1,500 actually debt or just your floating balance (there is a definite difference)?

Without knowing the answers to the above questions, it will be hard for anyone to give you sound advice. We need to figure out if you should focus on reigning in your finances or if you have anything under control. For instance, if you have an auto loan at a 1% rate, I'd say congrats. But if the rate is 5%, I'd ask why you took that loan on given your financial situation and suggest that you may not have the financial competency to take on an investment property at this time.

Lenny, I'm not sure what's available in your state. But you may qualify for income based repayment (IBR) on your school loans if they're federal loans which can also count towards loan forgiveness based on your professions. Maybe a banker can chime in, but regular payments on the student loans even if it's like $50 a month based on IBR may look better than deferred.

Also not sure what your apr is, but may be worth using 1500 of that 10k and clearing the debt on the CC unless you never roll a balance over anyways

I agree with the folks on the truck. When I read your post that was the main thing that made me say ugh.

If you can't get financed can you find an investor trying to unload a duplex that will seller finance you?

Good luck, keep plugging away and don't let too any pointless hard inquiries pull your score down.

This may sound harsh.   But if somebody gave you a loan, its almost criminal.   You have no business investing in anything.   You're broke.   What happens 6 months after you close the place needs a roof and 6 months later, the air conditioner goes out.   You are sunk.  Take the $10K in cash and pay off the credit cards and cut them up.   Sell the truck and buy a $3K car and take whatever cash you have to try to right side up, because I'm sure you're upside down on the truck.  Whoever lent you the money on the truck should be put in jail.   Get a 2nd or 3rd job, undefer the student loans and pay them off.  You have $85K in loans and between the 2 of you are basically making $11/hr???   Or at least averaging that based upon 2 adults working 40 hrs a week.    You don't need a college education to work at McDonalds.    Go get a real job.  Or put your significant other to work.   As I said, sorry to be harsh.  

@Lenny Wilbourn  I totally agree with what others are saying about your current financial situation. Never mind the business setbacks, I'm concerned about your personal finances. What happens if you loose your job or get hurt and can't pay your personal bills? You could loose that truck or your house (if you own) or be evicted for non-payment (if you rent).

If I were you I'd focus first on eliminating as much debt as possible. Not only will you be in a better position for your personal finances, but you'll also look better (aka less risky) to the banks. Plus, you'll have the added benefit of knowing how to better manage money and be diligent to sticking to a budget and financial goals.

Now, if you are dead set on starting a business right away you do have some options. You can partner with someone who does have capital or who can qualify for a loan, you can possibly get a Hard Money Loan (HML) but they come with steep rates and very short (6-12 month typically) loan periods, you can look for Seller Financed properties as others have suggested (but that is pretty difficult). The point is there are other "non-traditional" options that you can use.

Again, rectify up your personal finances and you will be in a much better position. Good Luck!

if you found 15 properties that meet the 2% rule you should birddog 14 of them and use the cash for the15th

Perhaps I have a different idea. Is there anyone you know that you could partner up with? Hopefully with a better credit rating. Are you handy? If not get handy,get your hands dirty and see if you like rehab. You will need to replace your negitive credit situation with sweat. Try some real fixer upers, I know one guy that started with only $30,000, went into section 8, which is what I do. 13 years down the road he and his partner had nearly 500 rentals and sold out for millions. There is little you can do about your bad credit situation, but I am not aware of many things that can"t be solved by cash flow.But you need to be able to get your hands dirty and want to succeed. Put every penny you can into real estate, stop buying things, there will be time for that when you have real money. If you want it bad enough you can succeed. Don't quit.

@Lenny Wilbourn not to sound redundant but given your current financial situation it is unlikely that you will get a loan anytime in the near future.  I have a similar problem as you I have 55K in student loan debt because I co-signed my son's loans. I also have about 27K in credit card debt because I thought a Guru was going to give me all the answers and I would buy my first property 6 months later. It didn't happen. All hope is not lost though. I think you are the perfect candidate for doing some Wholesaling. Wholesaling is the business of getting a property under contract and selling that contract to an investor for an assignment fee. Markets vary but I have been told the average assignment fees are 3K-5K/property if you can get a couple dozen of those over the next few years you should be able to pay off all that debt. The best part about Wholesaling is that you don't need much money just a little to do some marketing.

I would recommend for your first step to listen to the BP podcasts paying particular attention to the investors that they have interviewed who do Wholesaling as their primary exit strategy. 

2nd seek out these people on BP. Read their posts and blogs ask them questions so you can get a little bit of education on how to do it.

3rd use some of the 10K to invest in marketing and start doing some Wholesale deals.


@Lenny Wilbourn  you are in a tough spot. But giving up cannot be an option for you when it comes to this business.  It's going to take some time for you to fix your situation. But that time will pass regardless; use  it productively. Quiting only results in staying at the bottom which is just as hard as the struggle to get to the top.

KEEP PUSHING MAN!

@Brandon Hall  @Joel Owens  DITTO these guys X 2. Keep things real on your financial situation and then back up and punt. You have 10 other ways to finance a property - just not this property.

Originally posted by @Jean Bolger :

 Hi  @Lenny Wilbourn ! Yeah, you're not exactly golden in the eyes of a bank I'm afraid.  It's true that banks generally don't want to lend money to you unless you don't need it! Don't let that dissuade you unnecessarily though. First, talking with two lender/broker/whatever is not a lot- even when you get your finances in better shape you'll still probably be needing to turn over a lot more stones than that.


That said, an owner occupied duplex or triplex is an excellent way to get started in investing, and I think a good thing to aim for at this point. You would also likely reduce your living costs, allowing you to pay down more debt.

I did a quicko glance at realtor.com and I see there are duplexes and triplexes available in Mesa for 150k and less. I saw one that specified that there was a possibility of owner financing. A situation like that, where the owner is willing to basically "be the bank" for the buyer might be ideal. Now, it was a pretty funk-a-doodle property (a lot with three mobile homes on it) but if you want to get into investing without a lot of capital you need to be willing to make a few sacrifices.   Maybe for you that's living in a trailer in a funky part of town, I don't know.

Or you could just buckle down for the next year or two and save money, pay off debt, build up your credit. You might want to check out the blog MrMoneyMustache.com for a little financial tough love about getting financially free. 

Good luck to you!

Thank you for your response; any property that we would acquire would be owner occupied, one of the reasons for looking into a duplex is i figure we will be paying to live somewhere and owning it is a much smarter idea than anything else.  after speaking with the lender (the second guy who missed the appointment but did call later) i found out a few great details. I also saw the mobile home unit you were speaking of but i could not put my wife nor myself in an area such as that. Granted i know one has to suffer in order to improve but i found out i will be approved for the loan so no need to stress.

As to some of the other post; nope not underwater on my truck it could be sold today for upwards of 26K

The student loan debt came from my wife finishing her masters 1.5 months ago, so yeah there will be much more income to pay that off and she already has a job lined up.

A lot of you make some harsh assumption rather than asking questions, and end up looking like jerks.

PS i spoke with the lender and was approved for the loan and with the other assets  i have besides the 10k (gold coins/ silver coins stocks) i'll just fine  with upkeep after the down payment.

 sounds good Lenny! Do remember that people are commenting on the limited info that you gave. The folks on BP are generally honest, helpful and yes, blunt. All in all , it's one of the more civilized spots on the internet, and certainly one of the most helpful. I'd say don't be too quick to accuse them of being jerky; if your investing takes off  you may be looking for more advice from those very jerks before you know it ;) I certainly hope that's the case!

Hello,

Jean gave useful advice.  I bought two properties where the owners financed.  It is possible if you work out the numbers that is a win/win for both parties.  

I think it is the 2% rule today, it use to be the 1% rule back in the 90's.  

Good luck and don't give up on your dream!

Melissa

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.