Would being a KP affect your ability to get conventional loans?

Question

Hi BP, I was wondering if being a KP on a non-recourse Fannie Mae loan affects your ability to get conventional loans for SFH?

Michael Le · Answer

It should not but it has affected me before due to ignorance from the bank. I was in the middle of closing one of my apartments at the same time I was trying to refinance my house. They asked for my bank statement which included a large dollar transfer and asked me what it was. I stupidly told them it was the earnest money deposit for a commercial deal I'm doing and they asked for more information on it. Long story short they put the $5M Freddie Mac non-recourse loan against my debt-to-income ratio. So obviously I would no longer have enough income even to get a Chevron gas card at that point. In the end I had to go to another lender who wasn't so stupid.

Jerry Padilla · Answer

@Michael Jiang

Residential financing is going to look at all income including business income. Depreciation is added back in and not counted against you. It must be noted as depreciation on your business tax returns. Expenses for the property will be counted against the income.

Tj Hines · Answer

@Michael Jiang, no it should not. Multifamily (5+ units) is asset based lending. SFH conventional financing will based on your personal background: credit worthiness and your financial stability. With commercial financing they're digging deep into the income and expenses to determine if the property is generating enough revenue to cover operating cost, as well as service the debt.

Greg Dickerson · Answer

This should not be an isssue

Michael Jiang · Answer

@Greg Dickerson @Michael Le Just thought of another question, when a residential lender sees the K1s in my tax return, would they freak out when they see the huge depreciation or deep dive into the deal structure to find out my role/liability?

Michael Jiang · Answer

Good to know, thanks Michael!

Michael Jiang · Answer

Thank you!

Greg Dickerson · Answer

@Michael Jiang no that should not affect your ability to qualify for SFH as that is based on credit score and debt to income ratios. If your credit gets pulled that will cost a few points for a while but not a factor of your 720 and up.

Would being a KP affect your ability to get conventional loans?

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