4plex Under Contract - Financing Trouble

6 Replies

I’ve got a 4plex currently under contract with a 60 day closing (Aug 4) in Saint Joseph, MO. 

Quick backstory: $305,000 purchase price, using a mortgage broker. 

FHA Loan, owner occupying 1 unit.

PITI is $1933, current rents of 3 best units are $2215 (795,795,625). All well below market rents as they should be AT LEAST 850-900.

My lender wants 10% down FHA, 4.76%, 30 year am, with all three units having new leases signed at an average of $900 per month.

I don’t know know how I can have existing tenants and newer tenants be under my leases prior to closing, but I understand that mortgage brokers have to go through very strict criteria to sell those loans to FMae/FMac. So I’m heading to local banks tomorrow to hopefully have them work with me on the deal... do any of you have any advice on how I should present the deal to the local banks? I’ve got some DD along with all of my paperwork they need, as wel as the BP deal analysis. Also, if you know of any local banks in the KC area that work magic, let me know!! 

Are you running into issues with your debt to income ratio? You should be able to do 3.5% down. The lender also shouldn't care much about what they are renting at currently. If you don't have enough income to show the ability to repay I can see why having higher rents and a larger down payment to drop the monthly payment would come into play.

Either way I would figure out what the issue is specifically so that when you call around you can easily explain your situation. Some lender's are more flexible than others so if you're right on the line I would just pull out the phonebook/ google and call around.

Hello Kendall!  You definitely have to shop around.  One of the first questions that you need to ask if they can do the type of loan you need.  That Bank that turned you down might be one of the few there  that can do that insured loan and those Banks can be the hardest to get a loan from because they depend more about you personally and might require at least only 3.5% down.  There are several other types of loans you will have to apply for that are more easy to get because they will usually look more at the project than you even though they will probably charge you with a higher interest rate.

You might have to be more creative.  One way, that may not include a "house hacking" loan.  It will probably be looking to live in one of the units will not happen.  One way to salvage that is taking on a "cash rich" Partner who might help you to qualify but might require part of the profit.  Part of something is usually better than nothing.

Another option which probably not do a 203K loan but it might do a 100% loan plus invest with you including any repairs needed.  Unlike a Bank they can usually close quicker and only be short term with the loan with a period of 12 months or less.   Another way is an owner financing loan deal.  Show them on paper that they can probably make more money and spread out their tax liability over the age of the loan.  Their interest rate will probably be higher than a Bank but reasonable (6 to 8%).

The last you can pick is a Hard Money Lender.  Their loan usually looks more at the project than you.  It will be a short term loan (12 months or less) and charge a higher interest rate plus some points .  I hope you can work something out to do that purchase.  Good luck to you!

Originally posted by @Josh Engelhart :

Are you running into issues with your debt to income ratio? 

Yes, it’s a debt to income issue. I bring in about $4000/mo and the payments are $1933. They said they would count 75% of the rent as income, but that still is not enough. I will be contacting local banks and credit unions tomorrow. 

Originally posted by @Kendall Short :
Originally posted by @Josh Engelhart:

Are you running into issues with your debt to income ratio? 

Yes, it’s a debt to income issue. I bring in about $4000/mo and the payments are $1933. They said they would count 75% of the rent as income, but that still is not enough. I will be contacting local banks and credit unions tomorrow. 

 Why not suggest to the seller that they carry the note for 3 months to 6 months so you can raise rents and meet the bank's requirements?