Feeling hopeless with getting financing
So my problem is the following: I'm a 22 year old engineer in Tacoma WA. I make 100k, have 740 credit score. I bought my first home in April 2022 few months ago as a conventional mortgage 5% primary residence and have been househacking it to the max. It has 5 bedrooms plus 2 rooms that don't have closets so aren't considered bedrooms but im living in 1 and renting out the other 6. Mortgage $3,650/month, rental income $5,100/month. So it's going great, especially since I'm living here too. And I'm ukrainian so our community is well connected and people know what I'm doing so I get someone calling like every 3 days asking if I have any rooms left to rent (I'm all full!). Seeing how much demand there is I've been trying to buy another house and rent it by the room. I'm having trouble getting financing though. I have 70k in savings but a house that would work well would be like 450k in Tacoma. I'm unable to get a conventional investment property loan because it requires 15% down or more, and the 6 months of reserves so like 100k total. Cant get it as a second home because they won't count my househacking "boarder" income. They only count my engineer job income so with the current house my DTI is already high at like 45%. DSCR loans all require 20-25% down. Any advice on how to get funding? Family members/friends either don't have money or too scared of risk to lend me like 50k or coinvest. Seller financing is hard to persuade. Just seems like I'm bottle necked. I feel like I could grow a lot if I could get funding. Can't cash out refi my current home, I just bought it and it's got only 5% downpayment equity. Do you think i could get approved for some type of loan to get a deal done without waiting a over a year to save money and build equity in my primary residence? I'm okay with paying a bit higher interest rate, just don't want to pay something crazy like 10%. I can refinance into a conventional investment property loan in like a year anyway after I build up some savings. Do you have any good mortgage broker recommendations?
Have you considered cross collateralization in the hard money space? If you have enough equity in your primary you could potentially buy with little to no money down. The only issue with this is that it is meant for short term financing. So you would have to sell or refinance when the balloon is due. I have a contact that might be able to point you in the right direction.
@Ben Sorochuk - would you be open to buying a new primary home and moving? Technically, there is a 12 month occupancy cert you signed at closing, but many lenders will let you (the next lender/undewriter on the hypothetical purchase) buy a new home in 6-12 months from the date you closed. So April 2022 means you might be able to buy a new primary as early as Oct 22. That way, you can put 5% down.
BUT - the only way a lender will count rental income on the property you would be departing would be leases. Even if they are room by room, that is ok, but signed leases and you can negate the payment.
I am a Mortgage Broker, but we are not licensed in WA so I can not assist. But PM if have any other ideas or questions.
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I had a similar thought to Zach. It sounds like you don't have the equity to cross collateralize or cash-out, therefore your best option is to purchase a new primary residence. You would need to make the case to the underwriter as to 'why' this new home is a better primary residence for you, and you would need 12 month leases on your departing residence.
Yup, good call Jay. The underwriter will definitely ask for a letter of explanation as to why you are moving. In my experience, underwriters are willing to accept any sound reason besides I want to rent my home out. The home is too small, I got a promotion and want to upgrade, the neighbors are loud and annoying, etc etc.
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Lender CA (#60DBO94130), TX (#1825506), CO (#100507291), AZ (#MB-0951257), and FL (#MBR5265)
- 480-336-3737
- http://www.waincapital.com
- [email protected]
Quote from @Ben Sorochuk:
So my problem is the following: I'm a 22 year old engineer in Tacoma WA. I make 100k, have 740 credit score. I bought my first home in April 2022 few months ago as a conventional mortgage 5% primary residence and have been househacking it to the max. It has 5 bedrooms plus 2 rooms that don't have closets so aren't considered bedrooms but im living in 1 and renting out the other 6. Mortgage $3,650/month, rental income $5,100/month. So it's going great, especially since I'm living here too. And I'm ukrainian so our community is well connected and people know what I'm doing so I get someone calling like every 3 days asking if I have any rooms left to rent (I'm all full!). Seeing how much demand there is I've been trying to buy another house and rent it by the room. I'm having trouble getting financing though. I have 70k in savings but a house that would work well would be like 450k in Tacoma. I'm unable to get a conventional investment property loan because it requires 15% down or more, and the 6 months of reserves so like 100k total. Cant get it as a second home because they won't count my househacking "boarder" income. They only count my engineer job income so with the current house my DTI is already high at like 45%. DSCR loans all require 20-25% down. Any advice on how to get funding? Family members/friends either don't have money or too scared of risk to lend me like 50k or coinvest. Seller financing is hard to persuade. Just seems like I'm bottle necked. I feel like I could grow a lot if I could get funding. Can't cash out refi my current home, I just bought it and it's got only 5% downpayment equity. Do you think i could get approved for some type of loan to get a deal done without waiting a over a year to save money and build equity in my primary residence? I'm okay with paying a bit higher interest rate, just don't want to pay something crazy like 10%. I can refinance into a conventional investment property loan in like a year anyway after I build up some savings. Do you have any good mortgage broker recommendations?
Be patient and save. Last five years anyone could make $ in real estate, lets see how people do in the next five. Those who are over leveraged will soon realize they are over leveraged.
great questions and great job doing the by the room rental. so, i have been by room rentals since 2012 and its amazing. as you know, the cash flow is really great. i hear you on the struggles of getting another loan for your next property.
have you looked into hard money? most are much more of an asset based lender but do look at your credit score, experience and available cash.
i think you should find a property you can fix up or raise rents in and drive up value. happy to share more thoughts if you'd like
@Ben Sorochuk you've gone through the first three logical options but there are lenders who can lend UP TO 90% CLTV as long the lender holds first position at 75% LTV. If you are have an option of either seller financing/friend or family/ private lending for 5-15%, you can come to the table with % difference. At 70k you have a sizable down payment and are close to getting your second property. These rates will be higher than conventional but if the numbers you stated are on market, the new loan amounts may be worth it.
But good job so far and your mindset is in the right place.
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Lender CA (#02115256) and NMLS (#1993906)
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@Ben Sorochuk
Academy Mortgage can go 10% down and no MI on 1-4 unit investment properties since we portfolio the loan on our own books.
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@Grant Schroeder terms? rates?
@Ben Sorochuk, have you considered DSCR loans?
@Ben Sorochuk you may need to wait the full year (April 2023) and go FHA while keeping that boarder income and making sure you have a signed lease so when you move out, you can use that income to offset your next property.
You might even consider investing out of state until you get more equity in your current home and get a HELOC. I live near Seattle, too so I know the amount of down pay and zero cashflow is near damn impossible to invest here without some crazy luck. Not sure if you're open to partnering, but since we're in the same state, we can talk about that option?
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Another approach which is a bit more expensive, but allows to you to move faster.
Purchase with private money through your network or local firms such as Flynn Family Lending then refi into a conventional product. Check with your lender, but it is typically easier to get a conventional loan via refi then purchase. Ask if any seasoning is required.
Private loans will have hefty up front fees and ~10% interest only monthly payments. A lot of investors who are not able to qualify for a traditional loan on purchase go that route: no W2 income, well optimized tax returns showing no income, ect. It's all about the numbers and moving forward.
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Quote from @Grant Schroeder:
@Ben Sorochuk
Academy Mortgage can go 10% down and no MI on 1-4 unit investment properties since we portfolio the loan on our own books.
Hey Grant - would you email me some info on your 10% portfolio loan program? All my info is in the signature below :)
Hey @Ben Sorochuk! Congrats on your first househack. Great to hear your doing well.
I work with a lot of buy and hold & househack clients in Tacoma and have had some in similar situations. A lot depends on what you can justify to the underwriter. Let me know if you’d like to chat further.