mortgage broker says i wont get approved to house hack?

Question

my and my brother bought a 3 family home in pawtucket, RI. I have about 25k and I wanted to try to get another 3 family home only in my name in pawtucket, RI . The mortgage broker said because its the same type of property in the same city that i would have to put down the 20% for an investment property this was after running all my information, I mentioned me and my brother are sharing an apartment in the first building i would be living alone in the second but he said it would not matter.

Is this normal ? is there anything I could do apart from buying in another city?

Also my other brother is in the approval process after all is said and done with conservative estimates we will have 25k again what would be our best option for real estate since we would not be approved for another mortgage.

David Weintraub · Answer

Probably best not to document your "fib" in a public forum, fwiw.

Anthony Thompson · Answer

@Sherwin Vargas The bank will scrutinize your source of funds for the down payment and deny the loan if you're getting the down payment as a loan from someone else, even if it's a second mortgage after theirs.

The usual way around this is for people to get funds as gifts from family and friends, but the lender will want a gift letter from each saying it is really a gift and not a loan that is expected to be repaid.

Also as @Wayne Brooks said, you're going to be hard pressed to find any hard money lender who will make a loan on an owner-occupied property since all the consumer-protection laws went into effect after the last bust. I don't know any that will, but if you can find any, good for you.

In general, and I can't emphasize this enough, do not lie to anyone involved in a mortgage transaction. Don't tell the bank you intend to live somewhere as your primary residence if you don't intend to do exactly that (and a few months for appearances doesn't count). Don't tell the bank something is a gift when it's really a loan. Don't tell private/hard money lenders that you won't occupy a building if you're going to.

I can't tell you how many people I talk to, and see here on BP, who are so eager to start building their real estate empire that they want to do anything to Grow As Fast As Possible, including "fibbing" about their intentions to occupy a property and/or their source of funds.

There are strict laws against fraud involved in mortgages. People can and do go to jail, actual prison, for this stuff. People tend to forget this in a rising market because mortgage brokers are trying to "make hay while the sun shines", but when the market falls (as it inevitably will), and banks start losing money, a lot of loans get looked at very closely and people get charged and convicted. If you find yourself lying or "fibbing" in the process of getting a mortgage, STOP.

In case a BP post isn't enough to convince, it's not hard to find examples in the news as they usually make the local paper, e.g., Providence lawyer among 6 indicted in mortgage scheme (Dec 2015)

David Weintraub · Answer

Not to bring up bad news, but just to satiate my own curiosity, I googled  "Sherwin Vargas Real Estate"  and it brought me right to this thread.

Jill F. · Answer

Have you tried commercial financing? Our lender is okay with a second for part of the 25% down payment so long as the bank is first.

Sherwin Vargas · Answer

Thanks for your insight. First mortgage i did fib and say i wpuld move in with my brother but didnts  time i do plan on moving in with him. I was planning on saying the hard money was a gift from a family member but maybe well just wait the few months and raise the funds shouldnt be too hard

Sherwin Vargas · Answer

I have a group of guys who would at favorable rates. We would just have to still get approved for the morthage

Wayne Brooks · Answer

You're not going to get hard money for a down payment, since they would require a first mtg.  A HML also won't lend on any owner occupied.

Sherwin Vargas · Answer

ok thank you he didnt really explain why but now I understand.

We figured we would have to just get hard money to get the 20 percent for that 3rd home.

Awesome thanks for clarifying

Marc Middleton · Answer

Sounds like they are not giving you the 2nd home criteria because its within 50 miles. You can get exceptions if one property is in the suburbs and the other  is in the city or by a beach. But you have to show the need for the 2nd home (i.e I work downtown 50 hours a week and its easier to sleep/live downtown during the week). But if its 2 multi-families, that will be a hard sell.

Obviously if you put the 20% down, then you don't have PMI, you have an easier time getting it approved during inspection, etc. But if you don't have it, you'll need to get a hard money lender to make up the difference until you have enough equity to cash  out and pay them back.

mortgage broker says i wont get approved to house hack?

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