Financing barrier on a 4-family I've agreed to at $650k — appraisal isn't the issue,
I've reached verbal agreement with a seller at $650k on a 4-family in Orange County, NY (originally listed at $999k, sat 143+ days). If it appraises at or above $650k, I believe this is a solid first deal and a strong value-add opportunity: one vacant unit, one long-term tenant significantly under market, landlord-paid heat that can be separated post-renovation.
The problem isn't valuation or appraisal. It's financing. My current lender says my conventional purchasing power tops out around $525-550k based on their DTI/rental income calculation, leaving a real gap between what I've agreed to pay and what I currently qualify for.
A few specifics on why I think the number may be soft rather than a hard ceiling:
- Not sure if they're using the appraiser's Form 1007 market rent schedule vs. just the current (below-market) leases for rental income qualification
- Haven't yet tried adding a non-occupant co-borrower to the file
- Haven't shopped this against other conventional lenders yet
Questions for the group:
- Has anyone closed a 2-4 unit conventional deal where one lender capped them well below another lender's number for the same file? What made the difference?
- For those who've used the 1007 market rent schedule for owner-occupied conventional qualifying, how much did that move your number versus using actual lease income?
- Has anyone added a non-occupant co-borrower specifically to close a financing gap like this on a conventional 2-4 unit purchase?
- If the gap can't be closed through a bigger/better conventional approval, has anyone successfully structured a seller-carried second to bridge it, and how did the first-position conventional lender handle subordination?
- Any Hudson Valley/Orange County NY lender or broker recommendations who specifically work 2-4 unit owner-occupied value-add deals?
Property details: rent roll currently ~$6,025/mo (one unit vacant), market rent estimate ~$7,800/mo, taxes ~$15,900/yr, landlord pays heat (2 zones). Appreciate any real-world experience closing a similar gap.
Most Popular Reply
Lot of people here jumped straight to DSCR, but before you do, the one question that
actually decides this is whether you're planning to live in one of the units.
If you are, you keep the owner-occupied conventional path (5 to 15% down on a 2-4
unit), but you're stuck under the DTI ceiling, and that's what's holding you around
525k. The second you switch to DSCR to reach 650k, you give up owner-occupancy
completely (DSCR is investment only) and the down payment jumps to 20-25%. So what
feels like a financing gap is really a cash gap. DSCR can get you to 650k, but it's
going to want something like 95 to 100k more out of pocket than the owner-occ route
would. I'd nail that down first, because it decides which lever you even have.
On your actual questions: the 1007 market rents do help on conventional, but they
only count about 75% of it and it still runs through your personal DTI, so it loosens
the cap, it doesn't get rid of it. DSCR is the only one that ignores your DTI
entirely, and on 7,800 market rent against roughly a 5k PITIA you'd land around 1.5,
which is solid. One thing to watch though: some DSCR lenders use the lower of actual
or market on the occupied units, so that under-market tenant can drag your ratio down
until you get them to market.
On the seller second, honestly that's probably your cleanest bridge here. The seller
already came down 349k and sat 143 days, so they're motivated. Just know the
conventional first is going to fight the subordination, and owner-occ rules want your
minimum down coming from your own money. DSCR lenders tend to be more flexible on a
seller second up to a CLTV cap, so get that number in writing before you count on it.
Last thing, and it's the one that gets first-timers: underwrite the rough year, not
the stabilized one. You've got a vacant unit, a rehab to split the heat, and a tenant
under market. Run it with one unit empty and you still covering both heat zones, and
make sure you can actually carry it that long. If it holds up there, you've got a real
value-add. If it only works on perfect numbers, that's where people run out of cash.