Cant get approved for house hack

53 Replies

So I'm trying to start my real estate portfolio with house hacking, refinancing, and cash out pays for the next down payment.

My credit is 711, and my debt is low, BUT I only make 23k a year. Ew.

So I go to banks today, a mortgage company and a private lending company.

Not good, but dont worry, I knew I didnt have money.

Banks told me my debt to income is too risky, and one told me about down payment assistance grants offered in Houston and Harris County. Pretty cool idea, I'll be looking into that.

Mortgage company was a joke. All bad reviews online, I didn't even mean to go there, just happened to walk by. This lady was super rude, pretty much laughed me out, but whatever.

Private lending company said they do not allow owner occupied, gotta pay 25% down standard, and worst if all no refinance option without a 5% prepayment fee. Okay, not sure how I can use them ever.

I still have appointments at my own bank, Chase. A credit union that has a few reviews on Yelp, all positive. And like I said, I am not bummed out at all, i knew i didnt have money.

Still, cant help but to wonder whether house hacking is gonna work for me. Partnering would point me to finding someone with the money to get started on a conventional loan, let me manage everything and split the profit, but then how will the refinance work, why even house hack that?

What about wrapping mortgages? It's just as hard to find multi-family in my market that cash flows with me in one unit, and I really dont see the risks. As long as the numbers work and everyone knows what's going on, why not?

Seller finance could work too, but I would house hack, I'd just make sure the rents exceed my payments, good luck...

Any house hackers, feel free to jump in and give some ideas for funding or finding a way to qualify for a fha, ready30, 203k, or home possible loan.

Hey Pete!

I was in your shoes about a year ago. And last month on January 15th I closed on my first House hack! But there’s no way around your income you simply need to earn more. I would  highly suggest you push yourself to double your income in 2020. While your working on growing your income this year, why don’t you rent hack instead? Rent a cheap 2 or 3 bedroom and rent the rooms to cover or significantly reduce your rent. This will prep you for when you become an actual landlord and are dealing with tenants. If you do this for about a year, save aggressively, and end the year at 35-45k in income you’ll be in good shape to get a loan on a nice 3/2  house thats move in ready in an OK neighborhood.


As far as Lenders and Banks go remember Yelp reviews can be faked! I would suggest go out to some events and meet someone who is house hacking in Houston and asked them who they used as a lender and get an honest review. 

And lastly there’s no need to rush into something that will cause further strain on your income. Save, save, save and set yourself to be ahead. If someone were to approve you for a loan and a 5k expense came up on your house what would you do? This is just something to think about. Best of luck friend!

Seller financing actually could work, Pete.  You wouldn't be living for free, but at some point, you know you can refi later.

Originally posted by @Pete Storseth :

So I'm trying to start my real estate portfolio with house hacking, refinancing, and cash out pays for the next down payment.

My credit is 711, and my debt is low, BUT I only make 23k a year. Ew.

So I go to banks today, a mortgage company and a private lending company.

Not good, but dont worry, I knew I didnt have money.

Banks told me my debt to income is too risky, and one told me about down payment assistance grants offered in Houston and Harris County. Pretty cool idea, I'll be looking into that.

Mortgage company was a joke. All bad reviews online, I didn't even mean to go there, just happened to walk by. This lady was super rude, pretty much laughed me out, but whatever.

Private lending company said they do not allow owner occupied, gotta pay 25% down standard, and worst if all no refinance option without a 5% prepayment fee. Okay, not sure how I can use them ever.

I still have appointments at my own bank, Chase. A credit union that has a few reviews on Yelp, all positive. And like I said, I am not bummed out at all, i knew i didnt have money.

Still, cant help but to wonder whether house hacking is gonna work for me. Partnering would point me to finding someone with the money to get started on a conventional loan, let me manage everything and split the profit, but then how will the refinance work, why even house hack that?

What about wrapping mortgages? It's just as hard to find multi-family in my market that cash flows with me in one unit, and I really dont see the risks. As long as the numbers work and everyone knows what's going on, why not?

Seller finance could work too, but I would house hack, I'd just make sure the rents exceed my payments, good luck...

Any house hackers, feel free to jump in and give some ideas for funding or finding a way to qualify for a fha, ready30, 203k, or home possible loan.

Pete, since this will be used as your personal/primary residence, this is one of the few times I would say that conventional financing makes sense in the world of real estate investing. That being the case, I would recommend looking Cadence Bank's Affordable Home Loan Program that offers 100% LTV mortgages with no PMI or origination fees. I haven't looked deep into the product myself because I don't qualify for it, but I would think you should also be able to use gift funds on the purchase or, to show as reserves in the event you find something that works for 100% LTV. If you buy a multifamily property, 75% of the market rent can be used by the underwriter when considering whether or not you'll qualify based on income. Buying a single family home with extra bedrooms that you intend to rent out to roommates won't get you that same rental income consideration.

One thing I want to harp on that you said, because a few guys I'm trying to help in Houston do the same thing, is getting caught up on the notion that the property has to cash flow from day 1. House hacking is very powerful for a number of reasons, but in my opinion the most powerful tool this strategy brings is the recapture of disposable income. For example, let's say you currently rent an apartment for $600/mo but then buy a 4/2 duplex (2/1 each side) under the above terms (0 down and no PMI) that has a $1300/mo mortgage payment. If your tenant pays $1,000/mo in rent, you've now reduced your housing costs by $300/mo (was $600, now it's $300). Even though the property isn't generating cash flow in the traditional investment property sense, you've just increased your disposable income by freeing up $300/mo of W2 income no longer going to housing. So $300/mo x 12 months = $3,600/year. On a $23k/year salary, that's a 15.65% recapture of W2 income. This is the equivalent of staying in your current hypothetical apartment and getting a $300/mo raise. If you wouldn't say no to the raise, why would you say no to a deal like the one above? The numbers are the same but the situation is VERY different.

Anyway, that's my $0.02 on a few things to explore and consider to help you make this happen. Good luck and please keep us posted on how things turn out.

 

@Stanley Ezeadi

Thanks for the pep

Doubling my income wont happen at my current job. I can get another job, but 1) that will reset my work history, and 2) I like my job.

Saving more for a larger down payment, would lower the monthly payments so that the DTI would be less risky, and saving more would also put more in reserves.

I'm not afraid of the landlording. I have rent hacked before, and I'm not going to let capex scare me out of a deal. I will check the big ticket items and replace them upfront or get a warranty on them from the seller or get a discount from the seller for them to replace them upfront. Sure, things still break, but between insurance and warranties, the first year shouldnt have capex nightmares if I buy smart. Besides, I'm still running numbers with capex in the expenses.

@Adam D Rinehart

Thanks for the referral. I'll check it out today.

I should have mentioned, I'm 40, so I wanna get this boat in the water already. And I live for free currently, so though I dont expect to cash flow day one and doubt I'll see that deal in houston anyway, I am gonna be pretty picky about the numbers.

I'll use a conventional bank loan, whether its 3% or 25% down, but I dont think the MLS is gonna have my deal. Its gonna have to be a 80% deal. Its gonna have to involve some rehab for at least minor cosmetic and forced appreciation.

My work is cut out for me. Hopefully, today's lender hunt goes a little better and I come home and research those Grant's, get one for 15k, save up, find a deal, and by September I'm working on the upgrades in my side of a multifamily or building a ADU on my new property.

Originally posted by @Pete Storseth :

@Adam D Rinehart

Thanks for the referral. I'll check it out today.

I should have mentioned, I'm 40, so I wanna get this boat in the water already. And I live for free currently, so though I dont expect to cash flow day one and doubt I'll see that deal in houston anyway, I am gonna be pretty picky about the numbers.

I'll use a conventional bank loan, whether its 3% or 25% down, but I dont think the MLS is gonna have my deal. Its gonna have to be a 80% deal. Its gonna have to involve some rehab for at least minor cosmetic and forced appreciation.

My work is cut out for me. Hopefully, today's lender hunt goes a little better and I come home and research those Grant's, get one for 15k, save up, find a deal, and by September I'm working on the upgrades in my side of a multifamily or building a ADU on my new property.


That's a lot of limiting beliefs/criteria you put in your last post with a decent dose of "hopium" in your plan. From what I'm reading, you're setting yourself up for analysis paralysis and limiting the investment tools available by excluding so many avenues of finding a deal or funding it.

A couple things... changing jobs won’t reset your work history if it’s in the same track and you earn more. 

You just need more money. I’d get a second job or drive for Uber if you really want to get the ball rolling. 

203k type loans are a complete pain to work around. Everyone who I knows that did them has regretted it because it took far more time and energy dealing with banks, contractors, inspections, etc. than it would have taken to find a partner or hard money guy. 

I’d forget about multi family for the time being. It’s going to be hard enough to qualify for any kind of single which is presumably cheaper. 

Boost your income, network and go find a deal. If you have a deal then brining in a partner or lender will become exponentially easier! 

Originally posted by @Pete Storseth :

So I'm trying to start my real estate portfolio with house hacking, refinancing, and cash out pays for the next down payment.

My credit is 711, and my debt is low, BUT I only make 23k a year. Ew.

So I go to banks today, a mortgage company and a private lending company.

Not good, but dont worry, I knew I didnt have money.

Banks told me my debt to income is too risky, and one told me about down payment assistance grants offered in Houston and Harris County. Pretty cool idea, I'll be looking into that.

Mortgage company was a joke. All bad reviews online, I didn't even mean to go there, just happened to walk by. This lady was super rude, pretty much laughed me out, but whatever.

Private lending company said they do not allow owner occupied, gotta pay 25% down standard, and worst if all no refinance option without a 5% prepayment fee. Okay, not sure how I can use them ever.

I still have appointments at my own bank, Chase. A credit union that has a few reviews on Yelp, all positive. And like I said, I am not bummed out at all, i knew i didnt have money.

Still, cant help but to wonder whether house hacking is gonna work for me. Partnering would point me to finding someone with the money to get started on a conventional loan, let me manage everything and split the profit, but then how will the refinance work, why even house hack that?

What about wrapping mortgages? It's just as hard to find multi-family in my market that cash flows with me in one unit, and I really dont see the risks. As long as the numbers work and everyone knows what's going on, why not?

Seller finance could work too, but I would house hack, I'd just make sure the rents exceed my payments, good luck...

Any house hackers, feel free to jump in and give some ideas for funding or finding a way to qualify for a fha, ready30, 203k, or home possible loan.

This is going to be a REALLY blunt "what you need to hear, not what you want to hear" type post. Please feel free not to read if that's not OK with you.

So. All the people on BP here in the Bay Area talking, podcasting, blogging, and posting, about how they went from pennies to riches just from real estate? That's mostly a lie. I've seen a lot of their tax returns, they're on BP, they see me, so I'm who they call for a mortgage.

Most of them STARTED by having decent incomes from decent day jobs. They leveraged that into the next income level, absolutely. But they STARTED by having decent incomes from their day jobs, THAT was the first boot-strap they pulled up on. It takes money to make money. 

Suppose you have 50 hours to devote to solving this. Here's where I'm about to be REALLY blunt, again please stop reading if you're not OK with that or are feeling sensitive today.

You can spend that 50 hours on the empty promise of "wholesaling" or "seller financing," or any number of other whimsical things, but the problem there is that so far you haven't been able to sell anyone on hiring you for more than minimum wage 40 hours a week, how are you going to sell a homeowner on selling to you for 60% of fair market value? That seems unlikely. The people that pull this type of stuff off are typically really good at sales and marketing, and no one that's good at sales or marketing is working for $23k/yr, since they could at a very basic level market themselves to employers, and sell them on paying a decent wage.

I strongly suggest you devote that 50 hours to getting your basic personal finance 101 house in order. What that looks like for you is unknowable based on being strangers on the internet. You need to crawl before you walk, and walk before you run. Perhaps you have a really valuable skill-set, but you aren't selling it, because you think sales is bad or something, I don't know. If that is the case, read this book on ethical 21st century value-based sales - this book or one like it might be able to address BOTH this and the previous paragraph. Or maybe there's something else going on, whatever it is, I strongly suggest getting your personal finance 101 house in order before trying to bark up the real estate tree. 

if you are an owner-occupant then you have specific mortgage options - If you are an investor you have very different options.  Both scenarios have different qualifying rules for income, debts, credit, down payment etc.  You need to talk to a lender who knows both sides and then can advise you based on your specific scenario.
Feel free to contact me if interested.

@Pete Storseth   To me it's seems you have a couple choices.  The first is to postpone your dream of real estate and stay in the rate race longer and hope your fortunes turn (higher income, housing market collapse, etc). The second is to go "all in" and start building a "stash". This is extreme in that you would need to eat ramen noodles, sleep on a friends couch and have an entertainment budget of zero.  Also look for side hustles like bird dogging, cold calling for someone of another part time job.  No life for 2-3 years until you have $25k saved up to do a real house hack.  Most people can't do this.  And as @Chris Mason pointed out, most successful people on BP started with a solid foundation of six figure incomes, ultra low expenses and the extreme allergy of buying things that do not appreciate over time. 

@Pete Storseth just a heads up regarding the hard money lender. On a short term loan you generally want to find a lender with no prepayment penalty, however, long-term mortgages on non-owner occupied properties do tend to have prepayment penalties of some sort for the first 3-5 years.

@Pete Storseth

Really depends on how much you are trying to buy a house for. Everyone's situation is different. My first was $52k I put down 9k and change. I went and pulled 3k from a loan to help with closing cost. The 5-1 Arm loan I got was for $42k. It can be done, anyone can do it. I did a year rehab and it's my biggest ROI so far!

You’re living for free? At parents house? Here’s a question, can they co-sign? 
You can’t afford a duplex. You need to find the absolute cheapest property available and get it, with a co signer if you have to. 

That’s where you start if you wanna get in the game @$25k a year

@Pete Storseth

Down payment assistance plans usually require that you live in the residence for a minimum of 3 years. It’s a silent second mortgage. Most participating lenders increase the interest rate and have a no refinance clause. Be cautious with that option. It limits your freedom down the line. Depending on your state, assistance is for a single family, one unit residence only. If it’s possible to pick up a second job...Try to do that. If you can find something in property management or real estate that would be ideal. Best of luck to you! Where there’s a will there’s a way :)

@Chris Mason

Sure. Money to make money. The normal everyday answer is always there. Get a better job, make more money. I know.

I did sales and did very well for over 7 years, it wore me and bore me until I couldn't even sleep. It was time for a change, I had a mother to take care of so I retreated in a lit of ways. But I'm no coward.

Real estate isnt a get rich quick scheme. It's a lifestyle from what I've learned this year so far. Last year I made the goal, saved and lived on pennies. I still do. I save and i dont go out. I dont pay rent in return for driving my mom to doctors. I work 5 days a week at a retail store. I study real estate strategy every waking hour I'm not at work, and mostly have audiobooks and podcasts about real estate in bluetooth earpods even at work.

I could drive an uber, not enough.

I could sell used cars, probably very good at it. I could do sales again and all my ambitions get stuck on the side because I dont have time for real estate because of long hours. But no.

I'm finding ways, without banks I guess, to find deals, find funding, and find financial freedom.

Searching for doubt in my words is great. I was in my pity party for one day out of 3 years since my career change. My heads high, my stomach is small, I'm leaner and sharper than ever. And this is just my beginning, 40 or not.

@Lindy Pond

My income is too small for banks, owner occupied isnt something the lenders I've spoken with allow at all, besides I'd need 20% or more down.

My goal is to hit the field, search for motivated sellers and once I have a deal, decide the best action.

I'd love to get a lender of some sort finance the down payment and basic rehabs, the seller pay the closing costs, raise the rents with market appreciation, and then go to a bank and refinance. But the bank I went to today didnt seem optimistic about refinancing.

@Pete Storseth

Seller financing would probably be my choice if I were in your shoes because you can negotiate almost everything unlike bank loans where you have to play by their rules. Good luck with everything, it will all work out in the end just keep working hard!