What would you do in our shoes?

Question

I'll try to keep this short, my wife and I bought our first home(parent co-borrower since I'm self employed) in August 2020 in Dallas TX. Bought for $247k, current value is around $325k+. My wife goes to school and I moved my residential painting company down here. We just finished paying off $25k credit card debt, we have one auto loan, student loans and the mortgage. My income from painting is great we have $20k saved. My question is how could someone in my position find a lender for a single family or small multifamily property when I don't have a "valid" proof of income? I've been thinking hard money lenders, but am unsure and hope to get some good feedback from this forum. We've been running numbers through the rental calculator, getting used to analyzing the numbers and trying to find good deals to get practice with that. We are doing everything we can to be proactive and set goals to move forward consistently and learn as much as possible. My wife and I are motivated and excited to be real estate investors. What would you do if you were in our shoes? Thank you for spending the time to read this.

Wilfred Kolkman · Answer

@Kevin Sobilo, So far the lenders have been only considering conventional frannie/freddie loans. I think reaching out to small, local banks and credit unions is a great idea. I'm going to pursue that more and hopefully they have some good options and information around portfolio loans. My business income is substantial enough for our DTI ratio to be around 20% so hopefully that will give us some leverage along with a higher down payment if necessary. Thank you so much for your help Kevin!

Jacob V. · Answer

Hi @Wilfred Kolkman , Are the parents that co-signed interested in investing in rentals? I would think about either partnering with someone to guarantee the loan (if buying off the mls), or saving up more if you want to do the hard money route.

Having a big cushion of cash and/or partners to offset risk when dealing with hard money will help build confidence and can get you better terms.

Kevin Sobilo · Answer

@Wilfred Kolkman, these lenders could be talking about a couple different kinds of loans. Conventional fannie/freddie loans or portfolio loans.

Conventional fannie/freddie loans will be resold by the lender and need to conform to strict rules. However, the loan officer you talk to often doesn't know all the rules intimately. Talk to a lender and ask them to talk to an underwriter to see if you really need to wait 2 years. I suspect there are some possibilities they have not explored. It may depend on if your income now is similar to what it was before.

I would also talk to small banks and credit unions about portfolio loans. These are loans the bank will keep. So, they can use any criteria they want. You may need to talk to their commercial lending people because often they are the only ones who deal with portfolio loans (although this varies from bank to bank). They don't have to follow any strict criteria and can make their decision on the full picture of you as a borrower.

Tanner Sherman · Answer

@Wilfred Kolkman The easiest way would be to purchase the property on a commercial note. You will typically pay a point higher interest rate, but they don't look at your income as much as a traditional loan and closing costs are similar

Wilfred Kolkman · Answer

@Jacob VosWinkel, the parents are planning to retire here in a few years which makes them hesitant about it for at least the next 5 years. I've been thinking about trying to find someone to partner with... I guess being new to this, I'm really unsure about where to begin to find someone. If it comes down to it and I have to wait to qualify on my own that would suck but we would have more resources to maybe afford Multi-Family properties more easily by then. I was going to find a realtor that is experienced with investment properties, which looks like you are. Do you do business in the North side of DFW like Plano, Frisco, or Prosper/McKinney?

Wilfred Kolkman · Answer

My business has only been operating in this area since January 2021. Lenders typically require 2 years returns to verify income. Have been told since I moved from Wyoming to Texas that time scale resets because it's a 'new to me' market. This is leading me to look towards non typical lending options if I want to get a deal earlier than waiting.

Kevin Sobilo · Answer

@Wilfred Kolkman, what do you mean you don't have a "valid proof of income". You have a business, your tax returns are your proof of income, or aren't you paying your taxes like you should be.

What would you do in our shoes?

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