Can't Get a Loan Due to Low Income

20 Replies

Greetings all,

I'm up against a not uncommon scenario; can't get a loan from my credit union because of my low income. I'm hoping investors more experienced than myself may be able to steer me in a more productive direction:

Objective: owner occupy a single family for live-in rehab/flip for approx. one year then sell or refi.

Approx. price of single family: $150k - $200K

Anticipated down payment: 5%

Income/work history: $22,500/yr. Went back to school a few years ago, finished this June, now working part time in same field that I went to school for. Schooling can often be counted as work history. Have not found full time work yet.

Assets: duplex(both units currently occupied), purchased 6 yrs ago for $265k; close to $400k market value now.

Duplex total rent: $2,225/month

Duplex loan: approx. $150k remaning on loan (had put down large down payment)

Other debt: none

Cash assets: have enough for down payment and reserves for above mentioned single family

Credit score: good (don't know the #)

If anyone has ideas of how to approach acquiring the above mentioned property I'd greatly appreciate your thoughts. My low income seems to be the credit union's sole reason for not granting me the loan.

Much thanks.

Assuming you aren't an astronaut (that 1 in 1,000,000 who can be successful at anything no matter what & I am not one of those people), real estate alone isn't generally a way to go from poor to rich.

It's a great way to bump yourself up a socioeconomic bracket or two, absolutely, over time. But not 5 brackets at once in a year.

Often times step #1 is focusing on that day-job. Real estate is capital intensive. I strongly suggest focusing on the basic personal finance stuff, like finding gainful full time employment. 

Gotta crawl before you can walk, gotta walk before you can run, gotta run before you can long-jump.

Originally posted by @Jesse Stein :

Greetings all,

I'm up against a not uncommon scenario; can't get a loan from my credit union because of my low income. I'm hoping investors more experienced than myself may be able to steer me in a more productive direction:

Objective: owner occupy a single family for live-in rehab/flip for approx. one year then sell or refi.

Approx. price of single family: $150k - $200K

Anticipated down payment: 5%

Income/work history: $22,500/yr. Went back to school a few years ago, finished this June, now working part time in same field that I went to school for. Schooling can often be counted as work history. Have not found full time work yet.

Assets: duplex(both units currently occupied), purchased 6 yrs ago for $265k; close to $400k market value now.

Duplex total rent: $2,225/month

Duplex loan: approx. $150k remaning on loan (had put down large down payment)

Other debt: none

Cash assets: have enough for down payment and reserves for above mentioned single family

Credit score: good (don't know the #)

If anyone has ideas of how to approach acquiring the above mentioned property I'd greatly appreciate your thoughts. My low income seems to be the credit union's sole reason for not granting me the loan.

Much thanks.

@Chris is correct. It's all about income & credit or who you know. The "who you know" are the people around you that do have income and credit and are willing to team up with you to Joint Venture. That means you find the opportunity (and Spokane and the Tri Cities are great investment spots) and they provide the money. You do the work and you all split the profits. It helps if you learn how to find and recognize money making opportunities. Also, Contact the NationalREIA.org and find a Real Estate Investment Group in the Spokane area. And don't buy any houses "down wind". ;-) (Hanford)

 

I'm gonna throw out a couple comment/ideas...




One, the bank should be counting the income from your duplex, right? Is that included in the $22.5K? Depending on what the mortgage is, you should be showing a tidy net on that monthly. If that still isn't enough to swing things fine, but make sure that's being counted properly.


Another option is would you consider buying a live in flip duplex or triplex? If such a building is already rented out at the time of purchase, I believe they can count up to 75% of that rental income as being income that can be considered for loan purposes. That's a little known nugget of wisdom a lot of people aren't aware of. Perhaps finding a really modest duplex could help you in that regard.


Finally, owner finance! If you already own a rental, and find the right situation, I can imagine it being relatively easy to convince an owner to do a shortish term couple year owner finance loan with a balloon payment after a couple years. You can show you already know real estate somewhat with your current rental... Presumably you have handy man skills you can mention, which makes the remodel viable... And to a guy, saying that you just went to school to improve future earnings can carry some weight and they may be more understanding than a bank. In other words you have a reasonable "story" to sell, you don't just seem like some bum off the street who doesn't make any money or have any life skills or ambition. If a seller has a property that isn't financeable with a conventional loan because it needs repairs, you could appear to be a decent option. With a few bucks down you could probably swing something.



I would also add that in Spokane, why go for a $150-200K property? There are areas there where you could buy in at FAR more modest prices than that, especially if one is looking to buy in a condition that will benefit from being remodeled. Prices have gone up a lot recently, but I still see sub $100K houses that need repairs popping up in my saved searches.



It should go without saying, but if you are tight on cash due to not being fully employed, make SURE you have the funds to even buy materials for the remodel. If you get a 2 year balloon on owner financing or something and can't get it repaired and saleable in that period, you could find yourself in a bad spot. You could always consider getting a 2nd part time job, even if outside the new industry you want to work in, in order to bump up your income as well. If whatever you were doing before going to school pays okay and you have experience there, perhaps doing a bit of that part time wouldn't be a bad idea. Hope this post gives you some ideas!

Diddo owner finance! Pursue that avenue! Your’s be surprised how many tired landlords want to get out of their properties because it is causing them a headache, but they still want a monthly payment. I thing that would be you’re golden ticket without having to go get a loan my man.

@Vaughn K. Those are all great ideas; thank you. The duplex rent is not included in the $22.5k; duplex cash flows around $500/month. Regarding the duplex live in flip; that was my first idea, but scratched it as I presumed I would never qualify for that higher loan amount. Will look into whether or not my CU will count pre-existing tenant rent as income.

Regarding owner financing; I hadn't thought of that. I know very little about the intricacies of that process but will research it.

Regarding $150-$200k properties; that is  ballpark figure based on what I've seen for ugly houses in good neighborhoods (i.e South Hill). Yes, you can find cheaper houses but they are in very undesirable neighborhoods. At least this is what I've been seeing.

Much thanks again.

@Connor Deneen Thanks for that tip Connor; I've never dealt with owner financing, but I will research that; sounds like a good option. As a starting point how does one start that process? ; simply ask the buyer if he/she would consider owner financing? 

Literally exactly that, it helps to have a good list of benefits in you mind that you can tell the seller about. (Like how they could actually make more money in the long run by being the bank and collecting interest as well as principal, how you could buy as-is and there would not be any need for realtors, possibly no fixes, etc)

Originally posted by @Jesse Stein :

@Vaughn K. Those are all great ideas; thank you. The duplex rent is not included in the $22.5k; duplex cash flows around $500/month. Regarding the duplex live in flip; that was my first idea, but scratched it as I presumed I would never qualify for that higher loan amount. Will look into whether or not my CU will count pre-existing tenant rent as income.

Regarding owner financing; I hadn't thought of that. I know very little about the intricacies of that process but will research it.

Regarding $150-$200k properties; that is  ballpark figure based on what I've seen for ugly houses in good neighborhoods (i.e South Hill). Yes, you can find cheaper houses but they are in very undesirable neighborhoods. At least this is what I've been seeing.

Much thanks again.

Hi Jesse. Glad that got the wheels turning in your head. If you toss in the duplex income, and can find a very modest duplex to buy, and get that income partially factored, it in MAY be juuust enough to squeak you in to get a proper bank loan. So hopefully that helps.

If not, seller financing is a great option. There is a lot of info out there about creative financing options, read a ton of it! It mostly comes down to finding somebody in the right situation where it appeals to them (Read NOT somebody who needs all the cash in their hand that minute), and being able to sell the benefits to them. For a flip you would only need to convince them of doing a short term loan, maybe 2-3 years, which makes it easier. You can tell them how they have no downside, because they'll be making interest income, AND you'll be actively fixing the house up... So even though you WON'T default, IF you did they'll be getting a house in better condition than they have now anyway! There are a lot of angles to work there. Read up on it.

With respect to the "nice neighborhood" thing... I suppose everybody would love to be doing remodels in Beverly Hills too... But if your budget lets you swing doing something on the edges of West Central near Kendall Yards, or Garland, etc that isn't super ritzy... But the math works... Don't write that off as being completely unworthy of doing.

Remember, you're not going to be living there forever, so what do you care? If it makes you money it makes you money. IMO many of the smartest real estate investors I've ever seen tend to make most of their money in mediocre neighborhoods, because a lot of the time the math works out better there. That's more for buy and holds, but is still somewhat true for flips in that you can get in for a lower cost and do more deals. Just think over WHY you really want it to be South Hill... Is it for the ego stroke, personal preference, or because the math is better? If it's the ego or personal preference, can you set that aside for 24 or 36 months to make some money? 

 

@Jesse Stein   With 5% down, I am going to guess that you will live in one of the units meaning you show have lower payments than your current rent and if you hold on to it you will have a tenant in the other unit helping with payments.  

You mentioned your current duplex is worth about $400K and you bought it for $265K.  What about pulling money out of that? Make sure you have more than enough reserves to cover the unexpected if you are doing a rehab.  Are you doing the work yourself or hiring someone?

You also say you are only working part time.  How many hours?  Why not get another job to increase your income?

I agree with @Chris Mason , sounds like you are trying to skip a couple steps here and this is why BP is awesome because you can get sound advice from people who live this stuff day after day. 

Put your head down and focus on getting more established in your career, get a second job/side gig if you need to, spend less, and save more as your income increases. I know these sound boring and basic, but these habits will eventually get you to where you want to be. 


A quick background on who I am. I have owned a piece of property most of my life. Familiar with loans but not to the extreme of a loan rep or real estate broker. I am not an investor; I just bought for my own living quarters though when searching, I was seeking a mother-in-law type of set up with pool, and jacuzzi. This search was all before the internet blow up or right when it was starting. Real estate didn’t have the virtual tours at the time. My point here is after seeing over 100 homes either going inside or doing a drive-by., I finally found my diamond in the rough. The property had exactly what I was looking for, a nice area, a turnkey home, pool, Jacuzzi, and a condo in the back yard separate from the house. Basically a studio apt. It’s been rented every month for past 17 yrs missing only 1 month. My brother lives there. He got has a great deal paying 800 monthly also so he has benefitted as I have. So I make my living as an insurance broker. Been doing this for 28 yrs. I've been attempting to refi ever since the day Trump came to office. Had this yoho say yakety ,yakety yack, paid for an appraisal, was left with an appraisal costing me 500 dollars and no loan, after all, said and done. So we, meaning my brother and I got serious about it, focused, got his credit established. It took about 5 months and we are now attempting to make things happen as far as refinancing. Fortunately, I continued to look around checking out a few of the “out of the box” type offerings. One place you might check out is company called Unison. Here is there deal if I qualified. They would give me 100000. I would pay 5000 in closing cost. ( 5% )From there, I would not have to make a payment on the 100000 at all. I believe one cant sell for 3 yrs and when you do sell, you pay back the 100000, no interest cost by the way, but they wanted 60% of the equity increase from the time of the funding to me til the time property got sold. If property stayed the same in value, you pay the 100000 back, no interest cost. I called it the “Holy Grail’ initially. I learned about this plan back when I was unable to use brother due to having no credit at all. In the meantime, I ran across a better situation that seems very interesting. This is the “bomb” I will say. I am actually speaking with the person that preaches this “bomb” method today at 500 pm so I will know much more about it. But from what I understand so far, this is a really valuable money-saving mechanism. It is so amazingly simple. It is really too good to be true. I might even attempt to become an affiliate of some sort with this company if they will offer . I mean, if I can help a person with their largest purchase of their life for most, a mortgage and save them 1000’s, surely they would insure with me forever. I see it as a win, win, win type situation. So I can’t let the cat out of the bag til tomorrow as I do want to receive referral fees from this company if they will strike up a deal with me. Last point I want to make here is that his magical mechanism vehicle to make is or I should say the information that is give out on how and what to do is all free. They are not selling me anything, I am not selling you anything unless you would like to insure with my agency. I can do wonders for folks in the commercial arena of insurance. Mercury auto for the personal lines. Talk about “the bomb”. I dint plan on writing a book tonight but I am pretty excited about this simple tool. Its basically beating the banks at their own game. I hope to be back in touch on this method as soon as tomorrow night. Stay tuned.

Mark

@Vaughn K. Much thanks again for your ideas Vaughn; very pragmatic. Regarding South Hill; my thinking is only that it will (I'm generalizing here) be easier to find tenants on a more consistent basis and hopefully higher quality tenants. I'm just going off the worst property in the best neighborhood mantra. My duplex, which I was so fortunate to be able to buy when I did, is in Bellingham in a more desirable part of town; not upscale just desirable in terms location. This has served me well thus far in that getting tenants has never been an issue. But your point of view does make sense to me; West Central, as you mentioned, seems positioned to undergo a drastic change at some point with Kendall Yards being only a few blocks away. To answer your question, yes I'd live wherever if the numbers looked good and the neighborhood was good enough, even if it wasn't my ideal.

Regarding seller financing; I will be researching that. Certainly hadn't thought of some of the perspectives you described above.

My impression is that you have quite a bit of experience, so thank you again for your feedback.

Jesse

@Theresa Harris Hi Theresa, the 5% down would be for a single family. A duplex, which would require a higher down/15% (at least from my CU), is my first choice and yes I would be renting out one of the units, but I don't think I would qualify for the higher loan, hence I'm now focusing on a single family. A refi from my duplex is also a possibility for the higher down for the duplex, but then I'm back to not qualifying for the higher loan because I've now increased my debt on my pre-existing duplex, plus the high down results in a poor ROI given duplexes are pretty pricy where I am. In terms of the rehab; I would do most of it myself but hire out the more involved projects; plumbing, electrical.

Regarding working more; yes, that is in the works. Just started working in a new field at 18 hrs/week and haven't been able to get towards full time yet.

Thanks again.

@Michael Noto Thanks much for the pragmatic feedback; I'm currently working toward increasing my income. I'm pretty good at the frugality end of things, it's the income aspect that is currently challenging.

@Jesse Stein - not having verifiable income is a solvable issue.  I had zero income when I started my rental portfolio 5.5 years ago and I have 127 rentals now.  You just have to find the right lenders.  I work with a bunch of them.  Or  partner with someone that has income and give them equity in the deal without them having to lift a finger.  Their income gets them equity and your hard work gets you your equity.  The other issue you need to solve is down money.  5% is not going to work with most lenders.  Again though, you have options: partner with someone, do seller financing, a seller 2nd, lease option, subject to...  Good luck!

You're going to have to "put a little skin in the game". If you're already on the "low income" side according to banks, attempting to put down only 5% isn't going to help your odds. There's non-qm lenders that don't care about your income, but again, they'll require 20-25% down.

As @Chris Mason mentioned above, real estate can offer great opportunities to establish long lasting wealth, but it takes time and a little more than 5% down.