All Forum Posts by: Mark F.

@Elvin Pena

You're probably going to have to go with some kind of private money, portfolio money, or wait until you have at least 2 filed tax returns showing self-employment income. Most lenders do primarily Fannie Mae financing and the Fannie guidelines require at least two years of filed tax returns to qualify as self-employed.

If you can't qualify for Fannie Mae financing, then you need to do portfolio or private financing. As you're calling around, let the loan officer know right up front that you've only been self-employed for a year and see what they say. You'll know right away if they can help you or not. 

@Jeff Trevarthen @Ken Badziak

Yes, for loans originated after June 2013, the annual MIP (which is part of the payment) is on the loan for a minimum of 11 years (if down payment was 10% or more) or the life of the loan if the down payment was < 10%. The only way to get out of the annual MIP early is to refinance to a conventional loan.

However, if you have an FHA loan originated before June 2013, the annual mortgage insurance can be dropped after a minimum of five years have passed and the LTV is 78% or less. The only exception is FHA 15-year loans that started with an LTV of < 80%. Those were exempt from annual MIP (but not anymore).

@Nicholas Kitchen

That depends on how long you plan to keep the loan. The lender can cover more of the closing costs, but the trade off is a higher rate. If you want to have the rate lower, then expect to pay more closing costs. 

If you plan to keep the loan for at least 7 to 10 years, paying more in costs for the lower rate can make sense. If you're going to only keep the loan a few years, you want to keep the costs as low as possible. 

Bankrate.com has some really good calculators that can help you determine the best setup based on how long you plan to keep the loan. Have the loan officer run a couple scenarios for you, including a low cost/higher rate and a lower rate/higher cost, then run them through the calculators to help determine which is more cost effective for your timeframe. 

@Modesta Lopez

If she's over 62 and has a decent amount of value in the home, a reverse mortgage is probably the perfect solution. It's pretty much made for what you said: increasing her income. It essentially turns a portion of her equity into an annuity that can pay her every month for many years or the rest of her life.

If you do decide to check into an RM, make sure to work with one of the top lenders in the business who fund a significant number of loans every month. You can find a list of lenders on HUD's website.

@Evelyn Randolph

Hi Evelyn, actually, the strict cash out rules are only on owner-occupied properties in TX. If you're living in a home and take out a mortgage that gives you even a penny of cash at closing, then you've flipped a switch that can't be flipped back for as long as you own and live in the home. Any refinance you do on the home in the future will be considered cash out as well, even if you don't take any cash at closing. 

Note that this only applies to financing on a property you're living in (and one you probably have homesteaded) and the maximum loan-to-value will always be 80%. Expect lending criteria to be stricter and closing costs to be a little higher on a TX cash out loan as well.  

If you want more information about TX cash out, do a search online for Texas 50(a)6 rules. 

Now, if you're talking investment property, the TX cash out rules do not apply. Be ready to hear differently from some lenders, but understand that many loan officers and loan processors aren't really that familiar with when the rules apply and when they don't.

I just ran into a very uneducated loan processor not long ago when I was refinancing a rental property in TX. The loan processor kept telling me I couldn't take any cash out at closing because of TX's weird rules. I had to politely correct her understanding of the rules and we were able to close shortly after that. 

Having said all this, note that there is one limitation that could apply to cash out on investment property loans - and it applies in all states, not just TX. You'll need to own the property for at least six months before you'll be allowed to do a cash out mortgage to recoup your capital. Make sure to plan for this if you decide to pay cash for the property. 

This six month rule applies only to Fannie Mae conventional loans, which is a very common financing source for investment properties. If you're working with a big-name and well known bank, they're probably offering Fannie Mae financing. If you're working with a portfolio lender (who keeps the loans on their books instead of selling to Fannie Mae) this limitation may not apply. 

Any more questions, let me know!

@Adam Ng

Don't forget property taxes, insurance, maintenance, management, etc., in your numbers. 

It looks like it's fallen out of escrow a few times. Maybe it has some major maintenance issues? Might be worth calling the agent and finding out exactly why it keeps falling out of escrow. If there's major deferred maintenance, definitely make sure to take that into account in your numbers. The deal needs to work for YOU not the seller. 

 LOL, awesome analogy! :)

@Chad K.

There can be exceptions on the 2-year tax return requirement if you've been in school, so be sure to ask the lender you're working with if there's anything they can do. 

@Matthew Drew

It's probably a good time to put them on your follow up list and check back down the line. The fastest way to get a bad deal is to be a motivated buyer. When the seller gets tired of not selling and continuing to make mortgage payments, pay taxes, insurance, maintenance, etc., then maybe they'll be a little more motivated to deal. 

As a side note, this is a good reason to always ask why the seller wants to sell. When you find out the motivation behind the sale and make your offer less about price and more about solving a problem, then it's much likely you'll get around the price issue. This won't always work, but it certainly helps. 

Try to dig into the "why" behind the sale and then incorporate that into your offers. Instead of the offer being just about exchanging a certain number of dollars for a house, it becomes a solution for a problem and makes it much more powerful.

@Chad K.

It's really not harder to qualify self-employed as long as you have enough provable income to qualify for the mortgage. What trips up self-employed people is when they write off so much that they don't show any after tax income on their tax returns. 

To qualify, you'll need to show adequate, stable income for at least the last two years from your business. The lender will likely ask you to provide two years complete tax returns (personal and corporate, where applicable) and a business license or CPA letter proving the existence of the business. If your tax returns show the net income (after deductions) you need to qualify and everything else on your loan application looks good, it should be easy to get the loan funded.