How will Lender look at this situation??

5 Replies

My wife and I currently rent here in Hawaii and I am looking to buy and hold out of state where I am from.

Our current situation is I earn w-2 decent salary, same line of work for 16 years, same place for 10 years.  My wife owns her own business and we used my credit to fund the start up.

She is currently paying off the debt at a good pace but will still take a year or so.  She also does not have much income from last 2 tax returns, but her business is starting to grow.

My question is, if she transfers the remaining debt out of my name into her business (which is where it should be), can the lender look at just my income and debt?  what about shared debt like our current rent?  Can that be split?

I found a deal that is now owned by a local bank which is also a portfolio lender.

Any comment would be appreciated!!

If you are the only name on the loan application, they will really only look at your debt, not hers.  Joint cash accounts will be counted as yours if your wife signs a letter indicating you have unrestricted access to the full amount. 

Call a mortgage broker or two and talk through those things before you apply for a loan so you'll know what to expect. 

Thanks for the response @Doug McLeod .
Do you know how they would typically look at your rent in this case? Would they consider my whole rent in the ratios or can they split it?

Originally posted by @Todd Nordstrom:

My wife and I currently rent here in Hawaii and I am looking to buy and hold out of state where I am from.

Our current situation is I earn w-2 decent salary, same line of work for 16 years, same place for 10 years.  My wife owns her own business and we used my credit to fund the start up.

She is currently paying off the debt at a good pace but will still take a year or so.  She also does not have much income from last 2 tax returns, but her business is starting to grow.

My question is, if she transfers the remaining debt out of my name into her business (which is where it should be), can the lender look at just my income and debt?  what about shared debt like our current rent?  Can that be split?

I found a deal that is now owned by a local bank which is also a portfolio lender.

Any comment would be appreciated!!

 HI Todd,

The answer is it "depends," like with tax, law, and now lending it always comes down to this right?

So if you're using conventional financing you can consider your income and debts separately as long as you're wife is present at the time of closing to sign a quit claim as well (for community property states) because I assume you're buying this new subject property as a married man sole and separate right?

The problem is she may not be able to transfer the debt off your name because if shes still showing a loss or break even on her taxes not many lenders are going to agree to refinance (some may).

You mentioned rent and shared liabilities they would hit you for the full amount since it goes back to legal responsibility and lenders favorite "worst case scenario." So in a worst case scenario if she does not pay on your co-obligated debt the lender assumes you will carry the full burden so thats why you'll have to qualify for the full co-obligated monthly liabilities.

Medium new american funding logo  Albert Bui, New American Funding | [email protected] | 949‑514‑5106 | http://albertbui.com | CA Lender # 345453, WA Lender # 345453, TX Lender # 345453, TN Lender # 345453

Originally posted by @Todd Nordstrom:

My wife and I currently rent here in Hawaii and I am looking to buy and hold out of state where I am from.

Our current situation is I earn w-2 decent salary, same line of work for 16 years, same place for 10 years.  My wife owns her own business and we used my credit to fund the start up.

She is currently paying off the debt at a good pace but will still take a year or so.  She also does not have much income from last 2 tax returns, but her business is starting to grow.

My question is, if she transfers the remaining debt out of my name into her business (which is where it should be), can the lender look at just my income and debt?  what about shared debt like our current rent?  Can that be split?

I found a deal that is now owned by a local bank which is also a portfolio lender.

Any comment would be appreciated!!

It will look like this Rent + other obligations (cards/student loans/installment payments - min payment) + net rental income from subject rental property.

Example: Rent $1750 per month + 500 dollars per month of car/etc  = 2250 total monthly obligations. If you buy your rental correctly it will be positive income on your application so you will "not," have to qualify for it since its positive income it will actually help "boost," your income. 

2,250 of monthly obligations will require about $5000 a month gross income or about 60k annual gross income to qualify for in most cases.

Example 1000 Rent - 25% vacancy/operating factor (conv fin only) = $750 - 400 total payment PITIA = positive + 350

By having the positive income rental you could in essence make less than 5000 a month and still qualify -

Medium new american funding logo  Albert Bui, New American Funding | [email protected] | 949‑514‑5106 | http://albertbui.com | CA Lender # 345453, WA Lender # 345453, TX Lender # 345453, TN Lender # 345453

thanks for the clear response.  I need to consult with tax advisor on how I will hold title.  Wisconsin (property location) is a community property state.

I barely make the 45% ratio using our total current rent so I will need to talk to lender to see if positive projected cash flow would boost that number.  I talked to one other lender that said they would not consider that...I assume you need landlord seasoning for that...probably depends on the lender.

The deal;

5bed/3bath

$75,000 purchase price  (25% down) + $20,000 rehab = $95,000

$1600 rent with vacancy @ 8%:

Revenue = $1467

Expenses= $809 (59% gross income)

NOI = $658

Mortgage=$375

Mo. Cash Flow = $283

ROI = 11%