819 score and can't get a good mortgage loan
Little Rock, AR · Member since 2014 · 121 posts · 27 votes
819 score and can't get a good mortgage loan
Most Popular Reply
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
10yTry different lenders. Why not just buy it as an investment property and have the seller carry back a 10 to 15% second loan? This way you are only putting 10 to 15% down.
36 Replies
- Little Rock, AR · Member since 2014 · 121 posts · 27 votes10y
@Hugo Aguillon I applied at elender.com and a couple of other places that have opportunities for less of a down payment. I received email that someone will contact me. Stay tuned.
Hi, Diane. With an investment property you're likely going to need to do 25% down.
I'm working with a credit union and 25% down is the minimum for a Fannie/Freddie loan. I told them it's a secondary property and they told me since it's a multi-family it's got to be considered an investment property even if I was to life there seasonally.
All this despite having a high credit score - it's not as high as yours but it's close.
The best way I've heard this explained is your loan must fit inside a box. And as of now low interest loans are typically 25% down or higher. I chose a 10-year loan to keep the loan % as low as possible and am trying to get the closing fees down because they're absolutely ridiculous (they're computer-generated so they're likely lower in reality but some of the fees are bogus and some is work my RE attorney can provide for cheaper).
It sounds like Colony Financial and the credit union I am working with are following the same rules - if you get the 25% down you likely won't have a problem getting a low-interest loan.
If the deal is awesome then I suggest borrowing the extra approximately $5,000 so you can get the 25% down fixed-rate loan.
- Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes10y
Originally posted by @Diane Trotter:
@Sean Sullivan, I wasn't denied. I gues I, rookie, didn't know 25% was industry standard. I was attempting to purchase as 2nd home.
@Jim Adrian The rental of one of the houses is $800 a month. The rental on the other is $500. I plan to let my sister pay there and pay rent. This is long range planning because I always have to help my family.
@Keith Weigand It is listed in such a way that I thought it could be considered a multi-unit property. However, it is considered 2 separate properties.
My realtor originally wrote the estimate up based on 3 1/2 percent down. That looked really good. The shock came when I saw that I need $26,500 to close as opposed to something like $8K. The property definitely will pay for itself.
HI Diane,
The below with respect to conventional Fannie/Freddie financing -
First of all you cannot do a second home with 2 units only 1 unit condo/SFR/PUD etc. LIke another reply mentioned you have to sell this scenario to the underwriter so it can fall into criteria that would deem this property as a "second home." Is there a ski resort, beach, or something that at least makes it fit as a "second home?" The reason I ask is because it clearly states second homes can only be 1 unit.
If I was an underwriter and I saw a purchase contract for two units on one lot or two lots and your story is that you want to buy as a "second home," I would counter it as investor or non owner occupied financing as well. It doesnt matter if there is 819 fico or not these loans are designed to be sold to fannie and freddie mac and they must fit within the guidelines in order to be marketable on the secondary market.
If these two units have their own respective legal parcel numbers and are conforming SFR's in their own right to the current zoning then maybe you can potentially do 85% LTV investor/non owner financing on each property, but like Chris mentioned above pricing is "Yuuuggee," probably high 4's to low 5's with monthly MI.
If the properties arent conforming zoning wise you can potentially get a zoning variance from the local city planners to get the properties properly entitled to meet financing guidelines as well. I would recommend to pull up both APN's from your title agent to verify the legal description or pull prelims on lots.
3.5% down to address the above with Keith is only for FHA financing then you have to prove you're going to move into these as a primary. This will be horribly difficult if your current primary residence is superior to this property. The fact you have a rental locally as well doesnt help and or distorts the case as a second home or primary so I can see why this would be declined.
At the end of the day this file was probably structured poorly or perhaps the loan officer did not understand your objectives and put it together, turned it in, and prayed for the best.
- Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes10y
Originally posted by @Karl B.:
Hi, Diane. With an investment property you're likely going to need to do 25% down.
I'm working with a credit union and 25% down is the minimum for a Fannie/Freddie loan. I told them it's a secondary property and they told me since it's a multi-family it's got to be considered an investment property even if I was to life there seasonally.
All this despite having a high credit score - it's not as high as yours but it's close.
The best way I've heard this explained is your loan must fit inside a box. And as of now low interest loans are typically 25% down or higher. I chose a 10-year loan to keep the loan % as low as possible and am trying to get the closing fees down because they're absolutely ridiculous (they're computer-generated so they're likely lower in reality but some of the fees are bogus and some is work my RE attorney can provide for cheaper).
It sounds like Colony Financial and the credit union I am working with are following the same rules - if you get the 25% down you likely won't have a problem getting a low-interest loan.
If the deal is awesome then I suggest borrowing the extra approximately $5,000 so you can get the 25% down fixed-rate loan.
HI Karl,
There is 15% down for SFR's and condo's but I've never personally done one because when a borrower see's the points, interest rate, and monthly MI on this lower down payment for a non owner occupied property they will usually put down 20-25% to avoid the cost.
A high credit score is one aspect of qualifying for a loan however all 3 aspects are needed (assets/down payment, credit, and income). One aspect of a qualification cannot overcome the other areas, the min in all 3 areas must be met.
I see a lot of articles where people have 800 + fico and they dont qualify and are flabbergasted about why but the income and downpayment/assets is just as important as the credit score and history.
If all areas of the qualification are not put together it can be a real tough time getting conventional financing. The funny part is commercial financing is so much easier to get than residential financing with the right financials.
- Little Rock, AR · Member since 2014 · 121 posts · 27 votes10y
And now the property won't qualify for a loan because there are two separate houses on the parcel. Lenders say the parcel should be separated into two.
Another issue is I wnted to purchase under my LLC. Even if I get past the first hurdle, it looks like I won't be able to do this.
- Little Rock, AR · Member since 2014 · 121 posts · 27 votes10y
@albert Bui Thank you for your information
It looks like all of the lots on the street were deep enough to put large houses on but back in the day houses were less than 1100 square feet. This owner had a corner lot so instead of the houses lining up with the others, the houses were built facing the side street.
Now it seems to be a big mess. The selling agent is telling the seller what the problems are. My agent suggested buying one of the houses if the seller will agree to include the other house as a mother-in-law quarters or "another building" on the lot.
- Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes10y
Originally posted by @Diane Trotter:
@albert Bui Thank you for your information
It looks like all of the lots on the street were deep enough to put large houses on but back in the day houses were less than 1100 square feet. This owner had a corner lot so instead of the houses lining up with the others, the houses were built facing the side street.
Now it seems to be a big mess. The selling agent is telling the seller what the problems are. My agent suggested buying one of the houses if the seller will agree to include the other house as a mother-in-law quarters or "another building" on the lot.
Welcome Diane,
If you look for a zoning variance to consider that back house as a ADU or accessor dwelling unit make sure you check out those guidelines because some towns or city's have very specific guidelines on where the ADU can be or whether it can be detached or not. Often times ADU's can only have 1000 sqft or lower in living sqft and depending on zoning ADU's can or cannot be detached.
Sometimes deals like this are priced lower because the structures may be non conforming.
- 10yShawn AckermanPro MemberReal Estate Entrepreneur · Mid West, East Coast · Member since 2015 · 3k+ posts · 1k+ votes
@Diane Trotter interesting scenario. Just keep plugging away and you'l be fine. Good Luck!
- Little Rock, AR · Member since 2014 · 121 posts · 27 votes10y
@Albert Bui ADU? Thank you for the new homework?
@Shawn Ackerman I will. Thank you for the encouragement.
- Rental Property Investor · Portland, OR · Member since 2015 · 338 posts · 332 votes10y
@Diane Trotter 2 houses on one lot is essentially a duplex. It might also be house + ADU, but in many cities, the requirements for a house to be considered an ADU are strict. In Portland, an ADU can't be bigger than 800sf or 75% of the main house, whichever is smaller. And Portland's ADU rules are more lenient than many other cities.
If the houses were "condos" on one lot, with an HOA etc., they could be purchased separately, one as a second home and one as an investment property. But changing that designation with the city will probably take time and money.
It sounds like the seller is willing to work with you though. I like @Joel Owens' idea of carrying back a second. If your realtor doesn't know how or want to facilitate this, you'll either want to educate him/her or find an agent who does.
I also don't understand why, if you can buy it cash for $70k soon, you couldn't just put 25% down when you get the cash and call it good? In the end, you want this specific property for a variety of reasons, and based on the numbers you gave, it even seems like good cashflow at $100k. Maybe the seller would accept an option to buy for $5k (or some amount) until X date?
- Little Rock, AR · Member since 2014 · 121 posts · 27 votes10y
@Dani Z. I know it sounds like a deal I can't afford to pass up. We are working on it. Thank you for your input. I'm using all tips to pursue possibilities.
Stay tuned!
Join the conversationCreate a free account to reply, vote on answers and follow this thread.