Selling is the ONLY option??

Buying & Selling Real Estate
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Selling is the ONLY option??

Sang Yi
Member since 2021 · 32 posts · 5 votes

Need some help on this matter.

My sister has a home in Torrance, CA. It's worth around 1.15mil. She has 245k left on mortgage plus around 100k equity loan she used for kids school. Around 18yrs left after last refinance for 4.50 interest. They both have excellent credit.

They have a small mom and pop store for nearly 20 yrs. They always never reported proper income. With the covid pandemic they were struggling till today but getting by.

They want to refinance only to lower mortgage with lower interest..no cash out.. But they can't do it without showing proper/qualifying income. They have a lot of equity but are they stuck? Only way is to sell??

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Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
5y

They probably could refinance. They probably could just pay extra. They’re pretty far in to a relatively small mortgage. BUT. If the truly don’t make enough to qualify for a $245k mortgage, maybe they shouldn’t be living in a $1.1.million house? 

What if they sold and moved in to a $500k house? Pay off both the mortgage and the LOC and put $150k in their pocket, and have no mortgage left.

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  • Taylor L.
    Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
    5y

    I would look at where they are on the current amortization schedule and how much of their payment goes to interest, compared with if they start again at 30 years worth of amortization.

    4Reply
  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    5y

    They probably could refinance. They probably could just pay extra. They’re pretty far in to a relatively small mortgage. BUT. If the truly don’t make enough to qualify for a $245k mortgage, maybe they shouldn’t be living in a $1.1.million house? 

    What if they sold and moved in to a $500k house? Pay off both the mortgage and the LOC and put $150k in their pocket, and have no mortgage left.

    6Reply
  • Sang Yi
    OP
    Member since 2021 · 32 posts · 5 votes
    5y

    They have 18yrs left on mortgage. Excellent credits with no miss payments ever. They're goal is to just lower the mortgage with no cash out but no lenders will approve without proof of income. They have like 800k equity. They showed prior pandemic around 4k/month income but not the case on paper now. No late payments or any forbearance.

    0Reply
  • Sang Yi
    OP
    Member since 2021 · 32 posts · 5 votes
    5y

    By the way, 1.15 mil in Torrance CA is not a great mansion. It's old and tiny single story home.

    1Reply
  • Alfredo Castro
    Lender · Torrance, CA · Member since 2017 · 14 posts · 9 votes
    5y

    @Sang Yi

    HI there. So if I understand correctly, the hopes would be to refinance the property by combining both debts for a new $345,000 mortgage. It would be done by getting a lower rate, because rates are definitely lower than their current rate of 4.5%. I'm guessing today's rates are no more than 3.5%, but I'm sure you can probably get one for lower than that (I personally just recently got a 2.5%, 30 year primary residence rate on March 3rd). Plus if they don't mind starting the 30 years over, that payment will drop dramatically. Even if they want to do a 20 or 15 year mortgage, I'm guessing they will still be able to drop their payment because of the drastic interest rate difference. Their income may not be so bad to qualify for a $345,000 mortgage. Plus with so much equity, banks might be willing to go for it. Try some experienced mortgage brokers who work with investors. They may be able to finagle some things with their income. Also, Rocket Mortgage reminds me of Country Wide. They spit loans in and out like a factory so they aren't as strict. Best of luck.

    1Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    5y

    Guessing this is a short term thing where they have no/reduced income.  What about a line of credit or a heloc if they need a bit of money?  Once things go back to normal and they have the proof of income, they can look at refinancing the balance of the mortgage.

    Selling won't help as they'd need to buy another place and could they find something with the money they have?

    0Reply
  • Sang Yi
    OP
    Member since 2021 · 32 posts · 5 votes
    5y

    They have 18yrs left on mortgage. Excellent credits with no miss payments ever. They're goal is to just lower the mortgage with no cash out but no lenders will approve without proof of income. They have like 800k equity. They showed prior pandemic around 4k/month income but not the case on paper now. No late payments or any forbearance.

    0Reply
  • Sang Yi
    OP
    Member since 2021 · 32 posts · 5 votes
    5y

    Thanks all for the replies. Much appreciated.

    I'm beginning to think my sister who is not so savvy keeps mentioning their current mortgage of 2k and saying multiply by 3 for income verification. I believe they are not correctly thinking of the appraisal and having to only mortgage 240k plus 100k. 

    They don't want the cash out. Only looking to reduce mortgage with refinance to 30 yrs again for lower payment. Any advice on where or who to talk to??? Countrywide? Rocket mortgage? Bank??

    0Reply
  • Sang Yi
    OP
    Member since 2021 · 32 posts · 5 votes
    5y

    They have around 800k in equity but not wanting to sell. The kids are graduated from college. They used the 100k from equity to finance education which I think it's no use.

    0Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    5y
    Originally posted by @Sang Yi:

    Thanks all for the replies. Much appreciated.

    I'm beginning to think my sister who is not so savvy keeps mentioning their current mortgage of 2k and saying multiply by 3 for income verification. I believe they are not correctly thinking of the appraisal and having to only mortgage 240k plus 100k. 

    They don't want the cash out. Only looking to reduce mortgage with refinance to 30 yrs again for lower payment. Any advice on where or who to talk to??? Countrywide? Rocket mortgage? Bank??

     If she's not that savvy, you may want to sit down with them and go through the numbers.  Otherwise, they may end up getting themselves in trouble trying to refinance.  They can talk to their bank who they have the existing mortgage with.

    0Reply
  • Account Closed
    Rental Property Investor · Torrance, CA · Member since 2016 · 724 posts · 1k+ votes
    5y

    @Bill Brandt 1.1 million is a 3 bed 1 bath 1,300 sq feet. They’d have to leave LA completely to find something under 500K that wasn’t in gang territory.

    0Reply
  • Account Closed
    Rental Property Investor · Torrance, CA · Member since 2016 · 724 posts · 1k+ votes
    5y

    @Sang Yi Look on the bright side. If they have to sell, many Americans would kill to have your parent’s problem. Your parents are almost millionaires without ever trying to be.

    1Reply
  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    5y

    Can they rent a decent place for $2,000/mo? If they sold and started eating they would have $650k in heir pocket, enough to pay for their housing for the next 25 years even if they put the cash in a safe and earned 0%. Pus they’d be saving the mortgage and heloc payments. Heck, pay $3,000/mo and they still have almost 20 years of living expenses covered. Maybe they’ll be ready to retire by then and move out fo LA or even Cali.  

    1Reply
  • Account Closed
    Rental Property Investor · Torrance, CA · Member since 2016 · 724 posts · 1k+ votes
    5y

    @Sang Yi Sorry your sister, not parents. Maybe what @Bill Brandt is the right move. Maybe it’s time to leave. They could buy a nicer home up in Santa Clarita or the IE in cash.

    0Reply
  • Sang Yi
    OP
    Member since 2021 · 32 posts · 5 votes
    5y

    They have around 800k in equity but not wanting to sell. The kids are graduated from college. They used the 100k from equity to finance education which I think it's no use.

    0Reply
  • Sang Yi
    OP
    Member since 2021 · 32 posts · 5 votes
    5y

    My sister and brother in law has 2 grown recently graduated adults at home. They still have the same shop for 20yrs plus near south central area. I've told them to sell and buy a condo but they are very old fashion. They don't have to live in Torrance CA. It's not like they need good public schooling.. Again, they are only looking to refinance. Please advise of any lenders, brokers or banks that they can inquire about the refinance. Why would they risk equity and not pay a smaller mortgage if refinanced? 

    0Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    5y

    I really confused now, have you actually had ever talked to the lender ? or not yet? just talk to the lender first, many smaller bank/CU is willing to negotiate as long as the LTV is very low such as yours. They can be qualified by other means. The recipe here is just talking to as many lenders as possible especially the one near your sister's place.

    1Reply
  • Chris Pasternak
    Real Estate Broker · Pueblo, CO · Member since 2013 · 366 posts · 303 votes
    5y

    Sometimes the truth hurts.  $4,000/month net or gross sounds painfully low for the area they live in but I'm basing that solely off the current market value of their house as you indicated and well, California cost of living.  Time to increase income or sell and start over somewhere else with no mortgage and no NEED to refinance (which is partially why they're in this situation to begin with).  

    1Reply
  • Derrick Dill
    Investor · Hawaiian Gardens, CA · Member since 2015 · 308 posts · 386 votes
    5y

    Why don't they use the CARES act forbearance? They have a business that was directly affected their business and they're having trouble paying now..? They are exactly who it's made for. Won't count against credit, can re-pay at end of loan, can refinance to new loan after.. 

    If they just want a lower payment, refinance to a 30 year and restart your loan at a lower price

    0Reply
  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    5y

    OK, well this will sound harsh, but anyway: according to you, they've run a store for 20 years and never reported their proper income. Now they want to refinance into (what would be) a government subsidized loan in order to pay less interest, but they don't have enough income to show to get it done. 

    It sounds to me like they're right about where they should be. Underreporting/non-reporting income might sound great when you're doing your taxes but it can have real consequences, as they are now learning - not to mention that it's against the law. 

    I don't really have any good answer for you. Perhaps they can go back in time and restate their 1040s to show the proper income, pay the proper tax, and then have something they can take to the bank. But seeing as how that would likely trigger a serious IRS audit, not to mention significant penalties and possible prosecution, they should probably just leave well enough alone and either live with their higher interest or sell and take their windfall and go elsewhere. 

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    2Reply
  • Stacey Ocampo
    Real Estate Agent · Santa Clarita, CA · Member since 2020 · 42 posts · 9 votes
    5y

    @Sang Yi Hi Sang! I used to visit Torrance a lot so am familiar with the area. I think your best option is to talk to a lender. I work with loan officers who will send you a free loan application to see your best option. I think it’ll help to see where your parents are and what their best options will be if they don’t want to sell. Education is your best friend when you’re unfamiliar! If you want to direct message me your email, I can refer you to them.

    They’re with Ge-Ke Financial and this is who David Greene is partnered with his lending! I work as the transaction coordinator on his real estate team which is why I have this information☺️

    1Reply
  • Todd Kelly
    Rental Property Investor · Redondo Beach, CA · Member since 2017 · 9 posts · 2 votes
    5y

    Sang, not sure if this helps any, but here are a few ideas. Convert the garage to an ADU to generate some rental income. Close the Bank of Mom & Dad, and have the 2 grown college graduates living at home pay them rent. Find a good accountant to get both the business and personal taxes in order for this year, and going forward. Then, talk to a lender about refinancing now that they have rental income numbers, and a business plan with more reliable revenue and income projections. If all else fails, then selling before all the moratorium housing stock hits the market is still an option. Best of luck to your family!

    0Reply
  • Charlie MacPherson
    China, ME · Member since 2014 · 3k+ posts · 4k+ votes
    5y

    @Sang Yi  If I read your initial statement correctly "they always never reported their proper income", they have been taking some significant amount of cash in their business, and it never hits the books or tax returns.  

    This, of course, is tax fraud.  As @Account Closed said, don't expect sympathy for those of us who have always paid our fair share.  We're shouldering the burden that your parents cheated their way out of.  That might sound harsh, but based on what you've said, it's just a fact.

    This is a case of actions having consequences.  Your parents are now paying the price for their tax evasion.

    As a business broker, I see this a LOT.  In fact, I have had more than one business that I could not list for sale because of it.  The owner of one small mechanic shop said he was taking home about $130K, but showed $28K on his books.  Another said he doesn't take any salary - he just pays for all of his personal living expenses from the cash he sticks in his pocket.

    The way we look at it is that these business owners have already been "paid" the benefit of that cash and a buyer won't pay for it again.  

    The way a lender looks at it is similar.  If it's not on the books, it never happened.  Here are a few things to look at:

    One option is to look for a local lender who will do a portfolio loan or a "bank statement" loan - presuming that they deposited their unreported income in a bank.

    Another option is to start reporting ALL of the store's income.  After doing that for 2-3 years, they should qualify for a new loan to refinance.

    Another option is to sell the store (not through me) and hope they can get a buyer to believe all of the unreported cash and pay them for it.

    I will point out that the IRS audits small businesses for exactly this reason.  Recently, they had an initiative to go after laundromats because they're predominantly a cash business.  They used water bills to calculate how much business was being done and compared it against the amount of income reported.  You can imagine the outcome.

    2Reply
  • Sang Yi
    OP
    Member since 2021 · 32 posts · 5 votes
    5y

    Thanks again for all the comments good or bad. 

    its my sister and not my parents. I'm just assuming that they paid less in taxes because majority do not report 100%. Again, this is my assumption and if it's the case...i hope it taught them a lesson.

    They had a rough stretch of 4 months at start of pandemic not expecting it will go thia long. They were still able to pay rent and few employees. Current situation is now better due to couple competitors that closed permanently.

    They are working now due to business pickup to hopefully show better income so that they can refinance in 2 years or so for 30yr refi. I just hope the rates stays low and home prices remain high.

    1Reply
  • Eric G.
    Real Estate Broker · Orange, CA · Member since 2015 · 79 posts · 86 votes
    5y

    @Sang Yi

    Of course it would be nice to refinance, but with the mortgage amount so low, we’re not talking about a major savings every month. If they currently have $350k in loans at 4.5%, refinancing down to 3% only saves $300/month. It’s a nice saving, but shouldn’t be the driver for any major decision like selling.

    0Reply
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