Lender · Los Angeles, CA · Member since 2017 · 916 posts · 647 votes
5y
@Bryson Scott I can see your confusion as its very frustrating getting different answers. Under FHA (3.5% down), you can purchase a duplex without subjecting the the self sufficiency test. But a 3-4 unit must adhere to this test meaning that 75% of existing rents MUST cover the NEW PITIA. Which in this market is closer to impossible. If you go conventional (5% down) you do not have as many conditions and will allow you to close while having another conventional loan. Your DTI is considered in all your scenarios and since I do not know your financial situation its unwise to give advice on this. But your front end/back end ratios need to be 36/43 all in.
Dm me for more specifics but I am in your same situation. Purchased a four unit with an FHA sponsored program and now after living there for two years Im moving onto my next purchase with 5% down but looking for duplexes to avoid the self sufficiency test.
Investor · Hawaiian Gardens, CA · Member since 2015 · 308 posts · 386 votes
5y
In regards to direct lender: depends on your DTI. If you're coming out of pocket and your DTI is way up from the first property, his response might be valid. If your first property cash flows and your DTI is not the issue, he's out of his element.
In regards to broker: I'm buying a second FHA property RIGHT NOW, with still another FHA loan on my books. Completely wrong
Investor · Huntington Beach, CA · Member since 2015 · 105 posts · 25 votes
5y
@Bryson Scott I am no lender, but what they consider “cash flow” maybe different from the actual. I remember when we bought the second property, I was surprised by how conservative they calculated the rental income. We ended up finding a broker that found us the lender whose rate was slightly higher than the direct lender that we used for the first purchase, but we had no choice.
Los Angeles, CA · Member since 2018 · 11 posts · 1 vote
5y
@Miho Y. Thank you for your response. I’ve reached out to a few more lenders. Hopefully they are more helpful. Maybe covid has changed their stance on these types of maneuvers?
Investor · Huntington Beach, CA · Member since 2015 · 105 posts · 25 votes
5y
Not sure about COVID-19 effects as we aren't feeling too much with our rentals, but many people say that's what happening. We are doing refi right now. Got desperate and input the info on quicken loans. Among 5 lenders that reached out to us (I had a hard time trying to hide that I was annoyed), one gave us an exceptionally low rate. But this is a refi from FHA to conventional so it's different from your situation. What I'd like to suggest is to reach out as many as you can in finding a lender and do due diligence on them.
Lender · Chicago, IL · Member since 2016 · 653 posts · 313 votes
5y
Broker is wrong. Lender should tell you the the actual formula: income from total number of units - 1 unit (whatever one you are living in) x .75
That's what the lender should have told you. That net result of that formula needs to cover your mortgage, also known as self-sufficiency test, which make it tough for investors.
Los Angeles, CA · Member since 2018 · 11 posts · 1 vote
5y
@Miho Y. I refinanced and closed right as covid set at the beginning of March. I’m considering refinancing my first property again if it helps this new purchase. I can understand your frustration. I am on my fourth lender right now. I’m awaiting his response to my current situation and what I am trying to accomplish. I may have to wait for the beginning of the year as I keep hearing things may shift again.
Lender · Los Angeles, CA · Member since 2017 · 916 posts · 647 votes
5y
@Bryson Scott I can see your confusion as its very frustrating getting different answers. Under FHA (3.5% down), you can purchase a duplex without subjecting the the self sufficiency test. But a 3-4 unit must adhere to this test meaning that 75% of existing rents MUST cover the NEW PITIA. Which in this market is closer to impossible. If you go conventional (5% down) you do not have as many conditions and will allow you to close while having another conventional loan. Your DTI is considered in all your scenarios and since I do not know your financial situation its unwise to give advice on this. But your front end/back end ratios need to be 36/43 all in.
Dm me for more specifics but I am in your same situation. Purchased a four unit with an FHA sponsored program and now after living there for two years Im moving onto my next purchase with 5% down but looking for duplexes to avoid the self sufficiency test.