My partner used to work a corporate job making $120K/yr - she bought her first home in September 2019 and has since rented it out to cover the mortgage. She moved to a start-up and now makes 60K/yr so her approval amount will be very low. I was working a sales job with a base salary + commission from September 2019-March 2020, then got laid off due to Covid. I became a fully licensed agent by the end of June and have been working in RE since July 1. I'm closing two deals at the end of August, but the lender wants to see 2 years worth of commission so I effectively cannot get a loan (which is kind of ironic imo). The market we want to buy in is very hot - multiple offers on most homes - and we would need $250K-$350K to get what we want.
Has anyone had a similar problem getting financing (or enough financing)? What are some creative ways we can qualify for a loan over $250K?
You could try for seller financing. I was in a similar position about 5 years ago. My father-in-law did a pre-sale inspection on a house and wanted me to look at it. It was for sale by owner. I walked over, looked at it, and asked the owner if he would consider seller financing. They said, what's that? I said "you would be the bank and I would make downpayment and monthly payments to you through an escrow company--if I quit paying, you get the property back".
"Sure, with large enough down"
Downpayment ended up being small enough that I could cover it with a cash advance from my credit card. I set up the escrow account with my bank and agreed to a 15 year amortization with a 5 year balloon. I made payments for 2 years then refinanced with a bank once I had the required work history.
Jeremy, You have a few options. You can always use a bank statement loan where the bank/lender uses 24 months of personal BK statements to factor a monthly income. You can also use the cash flow of the upcoming property to get approved without showing 1099/W2's. Both of these deals require 25-30% down. Last option would be to both go on a loan and get approved with a bank/lender who does not have overlays. Your back end DTI would still be a factor but if its under 50% it's till possible to get a conforming loan.
@Jason Wray, thank you for that info! These are option I had not heard before. Usually people suggest getting a co-borrower who's better qualified or using hard money. Putting 25% down probably isn't doable for us at the moment, but I'm interested to figure out how we might find a lender who does not have overlays or maybe overlays that aren't as strict as the industry standard. Are those hard to find? Do they generally come with higher interest rates or unfavorable terms to the borrower?
I would say that isn’t ironic at all. In fact it’s a common sense protection for the lender. I don’t RENT to people with less than ~6 months at their current job why the heck would any lender loan money to them (without a significant increase in interest rate as a “tax” on the higher risk file)?
You could try for seller financing. I was in a similar position about 5 years ago. My father-in-law did a pre-sale inspection on a house and wanted me to look at it. It was for sale by owner. I walked over, looked at it, and asked the owner if he would consider seller financing. They said, what's that? I said "you would be the bank and I would make downpayment and monthly payments to you through an escrow company--if I quit paying, you get the property back".
"Sure, with large enough down"
Downpayment ended up being small enough that I could cover it with a cash advance from my credit card. I set up the escrow account with my bank and agreed to a 15 year amortization with a 5 year balloon. I made payments for 2 years then refinanced with a bank once I had the required work history.
@Kris H. Thanks. I think the what I am getting at is I need 2 years of paystubs from any kind of commission job (I was previously in software sales, now real estate). So from what I understand, if I start a new sales job I wouldn’t be able to buy a house for 2 years even though I had previous employment with good income history and good credit. Or is it possible to use income history from past jobs spanning 1-2 years?
@Jason Wray she owns a primary residence. However, she bought it 1 year ago and took out a loan for 95% of the purchase price. Not sure if she could pull anything out of it yet? Maybe I’m wrong.
There are always lenders that will lend to high risk files. They charge a risk premium, as they should. If you want to use an A lender, yes being fresh at your job (or even self employed) will hurt your chances. Even changing employers within the same industry (nursing/ teaching/ sales etc) will trigger this. And again, for the same reasons you would scrutinize a tenant applicant who just started working for _____, or hasn’t passed their probation period at ___, or was laid off from ___ and now works somewhere else.