Real Estate Investor · Albuquerque, NM · Member since 2013 · 9 posts · 0 votes
I made an appointment to pre-qualify with a mortgage broker to purchase investment property. On my own credits, I qualify for $260,000 loan at 5%APR and 25% down payment.
I have a private investor lined out with $70,000 for the down payment if needed, but the Mortgage Broker told me my income-to-debt ratio would be to great if I included the $70,000 in my pre-qualification.
His advice was to have the private lender deposit the $70,000 into my account for 60 days to season it, then there would be no questions asked.
How would I structure the $70k with the private lender and keep the payments off my debt, and cover the PV legally?
Concord, CA · Member since 2014 · 12 posts · 8 votes
12y
@Karen Margrave , I'm a new investor, and I too have borrowed money for a down payment from friends and family to do a rehab flip (as suggested in some bigger pockets podcasts). How would you recommend that I go about using the borrowed money for a rehab flip?
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
12y
I understand what the mortgage broker is saying, but I think you got bad advice. Why? The advice is to get $70K deposited in your account, seasoned 60 days, with no corresponding debt. Effectively, you gain $70K in net worth. Even if a private lender would agree to this madness, what you are doing is hiding the $70K that is not truely your asset (technically it is your asset, along with an unsecured, undisclosed $70K liability.) This deception can lead to some bad consequenses all the way around. On top of that, it's a really bad business practice for the private lender.
Assuming you follow the rules (a 'true' 1003, full disclosure, etc.) your options with a GSE-based loan are limited.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
12y
When you get that mortgage you will get asked "is any part of the down payment borrowed". If you tell the truth and say yes, the lender won't fund the loan. If you lie and say no you have just committed loan fraud. You're not going to be able to get a conventional loan with a borrowed down payment.
Real Estate Broker · Ellenton, FL · Member since 2010 · 101 posts · 23 votes
12y
While it's true you can't borrow money for a deposit you could receive a gift from a family member. I understand, it's a long shot but I figured I would throw it out there. Heck, if you are going to get a gift from a family member you may as well JV with them to buy it.
Flipper/Rehabber · Louisville, KY · Member since 2008 · 1k+ posts · 1k+ votes
12y
I think your Mortgage Broker got his training in 2005 and hasn't kept up with his required ethics training since.
He is suggesting that the underwriter won't notice and approve the loan and he is probably correct. However, he is also suggesting mortgage fraud. 60 days in the bank simply masks the true money trail, it does not make it legal or ethical.
Borrowing a down payment can only hurt your debt to income ratio...can never help it.
San Rafael, CA · Member since 2014 · 5 posts · 2 votes
12y
This is all very interesting in regards of how everybody is pointing out the legal and ethics aspect of borrowing money. So in essence, Bigger Pockets are full of crap when they are telling me to borrow money (other peoples money) or do creative financing!? Im confused. I thought that this website encourages using OPM or creative financing. But then again Im not an expert in mortgages, so can someone tell me how I can use other peoples money or do creative financing (the way Bigger Pockets are implying) and that is legal and ethical??
Nothing wrong with OPM and creative financing. But, when you borrow $70k for a down payment, then on your application lie about that debt, and represent the money as from you own funds....that is mortgage fraud.
San Rafael, CA · Member since 2014 · 5 posts · 2 votes
12y
I completely agree with you @Wayne Brooks. But in regards to @Ricardo M. defense, how would you go about using that borrowed 70K to purchase a home (without getting involved as a Joint Venture)?
Is there a different procedure, different loan type?
Is 70K too much? how about 20K? Should you break up the amount in two different accounts?
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
12y
@Dianna Salinas I don't do any GSE loans (all via commercial lender) but the "rules" are all spelled out in the Fannie Mae Selling Guide. Page 418 is related to what this thread started about. "Copies of bank statements or investment portfolio statements. The statements must cover account activity for the most recent two-month period..."
See "B3-4.3-15, Borrowed Funds Secured by an Asset" of the Selling Guide for how to use borrowed funds. "Borrowed funds secured by an asset are an acceptable source of funds for the down payment, closing costs, and reserves, since borrowed funds secured by an asset represent a return of equity."
Just follow their rules if you want government subsidized money. You don't have to read all 1270 pages. There are 4 or 5 you can skip;)
Regarding "...can someone tell me how I can use other peoples money or do creative financing (the way Bigger Pockets are implying) and that is legal and ethical?? " Yes. Find a private lender that will loan you 100% (or 90% or 110%) of the acquisition price, fix-up costs, and holding costs on your once-in-a-lifetime steal of a deal. That will be a very tall order for your first deal, but may not be out of reach after 4... or 10... or 50.
Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
12y
@Dianna Salinas Pointing out the legal and ethical issues involved with any transaction doesn't mean anyone is full of crap It means as experienced investors, people are giving the person that asked the original question the benefit of their wisdom and pointing out the dangers that can be involved with what he wants to do.
There are many different ways to get creative in doing real estate deals, seller carry backs, partnerships, private lenders, using other collateral, using money from retirement accounts, exchanges, trades, etc. All of which are perfectly legal means. If you came on to Biggerpockets thinking you were going to find ways to do things under the table, and illegal, you came to the wrong site.
On the other hand, if you want to learn the true business of real estate deals, and get the benefit of a wide swath of investors, Biggerpockets is the best site out there. Welcome to Biggerpockets!
Real Estate Investor · Albuquerque, NM · Member since 2013 · 9 posts · 0 votes
12y
Thank you all for your responses. The private lender is not willing to fund 100% of the money needed, but is willing to go in as a partner. I will still need to come up with a substantial amount on my own.
I am going to change my game plan and try to wholesale the property i had in mind. On the bright side, i now know my limitations when it comes to conventional lending.
Concord, CA · Member since 2014 · 12 posts · 8 votes
12y
@Karen Margrave , I'm a new investor, and I too have borrowed money for a down payment from friends and family to do a rehab flip (as suggested in some bigger pockets podcasts). How would you recommend that I go about using the borrowed money for a rehab flip?
Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
12y
@Henry Salinas Maybe if you post a little more information I, or others can help give you some direction. (purchase price of home, amount to rehab, etc., amount you have borrowed, etc.) Have you already borrowed the money?
Concord, CA · Member since 2014 · 12 posts · 8 votes
12y
@Karen Margrave , yes I have already borrowed 25k from friends and family. I'm looking to purchase a home for around 80k. And I still need to borrow another 10-15k for rehab costs. The comps in the location I'm looking are around 140-160k.
Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
12y
@Account Closed Sometimes I wonder if you are on the same planet as the rest of us. Your comments are uncalled for, and add nothing to the conversation, so why do you make them?
Thanks for the sarcasm remarks. I and just pointing out when people have none of their money in a deal they can walk away and say screw everyone I did not lose anything. I think we are on the same planet sometimes I wonder.
Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
12y
@Account Closed first off, the poster is trying to get more information and educate himself so as NOT to place the money he's borrowed at risk. Therefore; insinuating that because someone borrows money for a deal means they are going to walk away and not act responsibly is based on what? It's insulting. Aside from that, how exactly does your comment add value to the conversation and help the OP learn the ropes of investing? Oh... it doesn't, it's just sarcasm.
Concord, CA · Member since 2014 · 12 posts · 8 votes
12y
@Account Closed , I'm borrowing money from friends and family that trust me, support me and offered me the money to get started. Even though it may take me a while to accumulate that down payment on my own, I can get started in investing right now with borrowed money. Borrowed money is an excellent tool for leverage and gives me an incentive to work harder to succeed. If all else fails, I would rather sell the 140k house for 25k to pay the money back and get left with the burden. I would never say screw everyone I did not lose anything. My good credit and my integrity is on the line. Besides, aren't all mortgages borrowed money too? How can you justify which borrowed money is ok and which one isn't?
@Karen Margrave , I'm a new investor, and I too have borrowed money for a down payment from friends and family to do a rehab flip (as suggested in some bigger pockets podcasts). How would you recommend that I go about using the borrowed money for a rehab flip?
I believe 'borrowing' from friends or family may be considered a 'gift' when it comes to disclosures mentioned earlier. Your grandmother for instance can 'give' you (or Ricardo) $70k and I doubt there'd be any problem running afoul to the conventional - or private - rules.
I made an appointment to pre-qualify with a mortgage broker to purchase investment property. On my own credits, I qualify for $260,000 loan at 5%APR and 25% down payment.
I have a private investor lined out with $70,000 for the down payment if needed, but the Mortgage Broker told me my income-to-debt ratio would be to great if I included the $70,000 in my pre-qualification.
His advice was to have the private lender deposit the $70,000 into my account for 60 days to season it, then there would be no questions asked.
How would I structure the $70k with the private lender and keep the payments off my debt, and cover the PV legally?
I appreciate any insight and alternative advice.
Thanks-
Ricardo Martinez
Ricardo,
Starting out is tough. But everybody starts out someplace....even seasoned investors started someplace.
If I were a private lender and didn't want to get my hands 'dirty' working the deals I'd look for a newbie willing to go 50/50 on the profit. The newbie finds the deal, fixes the property and sells it. The PM (Private Money?) funds the deal - purchase and rehab - 100% and splits the profit 50/50.
Its a steep price to pay for OPM but you gain experience and the lender is secured by the (sweet) deal.
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
11y
A GSE is a government-sponsored enterprise (GSE) is a financial services corporation created by the United States Congress. They provide subsidized mortgages. Fannie Mae and Freddie Mac are the biggest, and combined account for roughly 90% of all single family mortgages in the US.
In my opinion, a private lender would be foolish to lend a newbie 100% on a 50%/50% profit split. Too many variables (can the newbie execute?) even assuming a great 'deal'.