All Forum Posts by: Mark F.

@Sheryl Orwel Yes, you can invest proceeds from a cash out refi into a new property as a down payment, but you'll have to do it right so you don't create headaches for yourself. 

Once your cash out loan is done, put the cash in the bank and hold it there for at least 2 to 3 months. Pick an account that gets very little deposit activity because the lender you're financing the purchase with will want to verify that you've had the funds on hand for at least 2 to 3 months. They'll do that with bank statements, and if you have a lot of deposit activity into that particular account, it can create some paperwork headaches. Use an account that is very quiet to minimize these headaches. 

In short, pull out the equity, put it into a very quiet account for at least 2 to 3 months, and then get the ball rolling on the purchase. 

Having said that, take care not to over leverage yourself - that can make it tougher to qualify for an investment property purchase loan. The bank will also want to see that you have at least 6 months worth of principal, interest, taxes, and insurance (and any mortgage insurance) for the new investment property (and any other investment properties you have) on hand in the bank as well. And that's over and above the cash you need to close on the purchase. 

You never want to be a hungry landlord!  There's a reason banks don't lend even secured money to people with credit like that. 

@Brandon O. Yes, that is more feasible, but there are some guidelines that apply that could make it tougher to qualify. You would be considered a "non occupant coborrower", but because you're brothers, you shouldn't be subject to the max 75% LTV limitation that can sometimes apply . However, you'll be restricted to a one-unit property. See the following for more information:

http://portal.hud.gov/hudportal/documents/huddoc?i...

 Hope this helps!

@Brandon O. I've been in the mortgage business for 9 years and I would say don't do it. Yes, some people have gotten away with it, but you may be the unlucky one. Don't risk it.

@Willie Banks Hi Willie, yes, most traditional banks are going to lend based on the purchase price on the sales contract or the appraised value, whichever is lower. For example, most lenders want a minimum 20% down payment on an investment property, so if the purchase price is $100,000, then you need to come in with 20% down plus any closing costs and escrows. The lender finances the other 80%, or $80,000.

If the appraisal happens to come in lower at $96K, for example, then the lender would only lend a maximum of $76,800 (80% of the appraisal) and you would need to bring in another $3200 at closing to make the numbers work. 

On the other hand, if the appraisal came in higher at $125,000, the lender would still only lend you $80,000, or 80% of the agreed upon contract price. Yes, it's kind of lame, but that's how it works. Traditional banks apparently don't believe it's possible to negotiate a below-market price. 

If you go private capital or hard money, then you may be able to get a loan based on the ARV.

@Scott Trench I hope to be a "quitter" as some point in the not-too-distant future. 

BTW, shame on you for the blatantly click-bait headline :). 

@Bill Gulley Hi Bill, you're absolutely right that residential lenders don't use zoning classifications for lending. I've run across single-family homes that are zoned R2. We don't price and qualify the property based on the zoning, but the type of structure that it is - in this case a single-family home. 

Maybe we run in different circles where different terminology is used, but I can tell you that if you call a loan officer at a bank that does residential financing and say "single-family home", they are not visualizing a 4-unit building in their head. The terms "single-family" and "4-unit" have very different pricing and qualifying criteria. 

If you are financing a 4-unit building and you tell the loan officer it's a single-family, I guarantee you you're going to have some pricing surprises when the lender gets the title and/or appraisal and sees what type of property it is. 

Bill, I'm curious to know where you got that definition. I've been in the mortgage industry for 9 years and I've never heard that definition. One to four units are still considered multi family, but multi family residential. Five units and above are multi family commercial. A single-family dwelling is a one unit property (like a 3/2 house) where one family lives. 

@Lin Yin If you have a large increase in value, then you may be able to cash out some equity with a refinance of the purchase loan. For example, if you bought a property for $300K, put down $60K as your 20% down payment, and the property was later worth $400K, you could potentially cash out to 80% of the $400K value, or $320K.

@Donald Hruska With conventional you can traditionally do 5%, but there may be some lenders out there allowing as little as 3%. I would recommending doing the 5% if it works for you because the PMI premiums can be pretty steep with a 3% down payment.

If you buy with 3% or 5%, the lender is going to want you to move into it and occupy it as your primary residence. The official Fannie Mae guidelines don't specify how long you need to stay, but if you were planning to stay for a year, you should be fine. Frankly, there's probably not a way for the bank to know if you rented it out at a later date, but you will sign off in the loan documents that you intend to occupy as your primary home.