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All Forum Posts by: Daniel Hennek

Daniel Hennek has started 0 posts and replied 217 times.

Post: Non Occupying Borrower Overlay HELP

Daniel HennekPosted
  • Lender
  • Lewis, CO
  • Posts 218
  • Votes 159
Originally posted by @Hank Powell:

@Andrew Postell

Andrew thanks. Could you shed some light on how it would be different if the property I am attempting to buy is an investment property?

What I want to do is purchase a duplex and rent out a side. This would be my first home purchase.

Thanks.

Investment vs owner occupied doesn't matter when it comes to excluding a debt paid by others for a conventional loan.  That wouldn't make sense based on risk assessment.  Investment loans are more risky so there wouldn't be more flexible guidelines.  As to what he was suggesting we'll have to wait and hear...I'm assuming he's referring to other(private/portfolio) investment mortgages and not conventional loans.

Post: Non Occupying Borrower Overlay HELP

Daniel HennekPosted
  • Lender
  • Lewis, CO
  • Posts 218
  • Votes 159

If you have 3 years of payment history and can provide documentation to show the most recent 12 payments were made by the co-borrower then you should be able exclude it even with a refi in the last 12 months.  This is pasted from the Fannie Mae selling guide.

Traded or refinanced loans in the last 12 months:

  • Documentation to support the loan was refinanced, traded in, or a new lease replacing an old lease.
    • Obtain the mortgage coupon or Notes for both mortgages in order to confirm that the co-signer is the payer on both the current and old mortgage in order to exclude the debt.

So, if you're having trouble it might be because of people not knowing their guidelines.  You would provide the last 12 months of payments along with a copy of both notes from the loan they had before the refinance, and the loan they just got with the refinance.  Tell your loan officer to look up the guidance in the selling guide for "excluding debt paid by another" if they are not clear on this.

Post: Non Occupying Borrower Overlay HELP

Daniel HennekPosted
  • Lender
  • Lewis, CO
  • Posts 218
  • Votes 159
Originally posted by @Hank Powell:

I am a non occupying coborrower, on a rate in term refi, attempting to purchase my first home.

The issue I am running into is lenders having an overlay requiring 12 months of payment receipts in order to dismiss this debt from my DTI.

I can provide written documentation that the occupying coborrower has taken responsibility for this debt.

I am looking for a lender that will signed documentation and payment receipts from the occupying coborrower proving that they are assuming the financial responsibility of the loan.

Can someone put me in touch with a lender that will lend based off this information?

Thank You!

The word "overlay" is not used to describe what you are talking about. An overlay is an additional guideline that a lender has imposed on top of Fannie/Freddie Guidelines, or USDA/FHA/VA guidelines. Common overlays for FHA loans are minimum FICO 620 and now with COVID there are lots of additional overlays. Removing a debt "paid by another" from your debt ratio by showing 12 months cancelled checks is NOT an overlay. That is a guideline for all lenders if they are doing conventional, FHA, VA, or USDA loans because it's in the actual guidelines from each agency.

12 months cancelled checks or bank statements IS the "written evidence".  You said you can provide written evidence, what can you provide?  I'm guessing it hasn't been 12 months yet and that's your problem?  You can't just decide what documentation is acceptable to provide, the lender tells you what is acceptable.

If your co-borrower has not paid on the debt for at least 12 months then per the guidelines a lender cannot remove it from your DTI. Agency guidelines state that a "debt paid by another" cannot be removed from DTI unless you can provide proof it has been paid by another for 12 months and there are no late payments in the last 12 months. You must document the 12 months payments by providing cancelled checks or 12 months bank statements from your co-borrower so the underwriter can verify a 12 month payment history by the other party.

So, the way you're asking these questions isn't quite right. Lenders will absolutely accept "payment receipts and documentation proving the co-borrower is paying". But they won't just accept 2 months or 6 months. They have to document and demonstrate that the debt they are removing from DTI is likely to be paid in the future by the other party. With a short time frame there is not enough history to "demonstrate" the likeliness of that debt being paid by another. The 12 months is required to demonstrate stability and frankly is a short time considering the implications. Even many portfolio and private money mortgages will require 12 months proof that another party is paying to remove a debt from DTI.

The loan officer who worked this rate/term refinance for your co-borrower should have explained the implications to you with regards to future credit applications.  The person you co-signed for has a house with a nice low rate because of you, and you're stuck waiting and holding the bag.  Getting a portfolio or private loan that would allow you to move forward prior to having 12 months documented payments is going to mean a much higher interest rate.  You're probably better off waiting for the 12 months.

Post: Fha loan Occupancy

Daniel HennekPosted
  • Lender
  • Lewis, CO
  • Posts 218
  • Votes 159

You're asking about mortgage fraud. You don't HAVE to do anything. However, when you declare on a loan application that a property is owner occupied you get better rates because there's less risk associated with a property someone lives in vs renting. Idea being if **** goes down people keep paying for the roof over their heads vs a rental. It's a risk thing. If you lie about your intentions to influence a lender to see your transaction as less risky and they give you a loan under those terms, that is mortgage fraud. This happens so often there's a name for it, occupancy fraud. Your closing documents on any FHA will have you make a declaration that it is your intention to occupy the property for at least 12 months. If that is not your intention you should not sign that declaration, therefore you would not get the refinance.

Conventional owner occupied will have you make the same declaration. This is a perfect example of how nobody reads their application documents or knows what's inside them. It's all right there for you to read.  

Originally posted by @Chris Turek:
Originally posted by @Daniel Hennek:
Originally posted by @Chris Turek:

@Philip L. it is possible. Peapack-Gladstone bank in NJ is currently working on a loan for me at 3.5% for a 2 family in an LLC. Anything you are buying in an LLC will be commercial. Peapack is a great local bank. I'm not sure if they will lend on something out of state but give them a try. If you can't get them to do it you will find a local bank in your area just keep dialing. I actually found peapack buy calling a bigger local bank, they said, that's too small for us, call peapack they are great they will help you. When I heard that I new I found what I needed.

Are you sure you are actually closing in the name of the LLC? The name of your LLC is on the paperwork?

Their website does not have a tab for "commercial lending" only "residential and consumer lending"...That's why I'm asking because those rates line up with conventional residential mortgage rates. Very few lenders doing actual commercial mortgages on a 2 unit residential property...

I'm 100% sure I'm closing in an LLC. I understand this sounds too good to be true. It took me a long time to find these guys. Over the summer I was getting quoted between 5.0% - 9.5% on the same loan. Call Amaro below. He only does commercial, I believe you need to speak with someone as for a non-commercial. There are a NJ based small bank so they probably will only want to deal with NJ or tri-state properties but my point of sharing was it took me 100 calls and a bit of luck to find them. The key is to call banks then are small. As someone above mentioned any large bank doesn't want to do loans under $1,000,000 so you need to find a bank who thinks it is worth the time. Research you local area find bank with 5-15 branches. Most want to do business banking. If they do business banking they probably do business lending. It will help if you create a relationship with them by moving your LLC and personal business accounts to them. Once they do 5 loans with you they will want your 6th loan and work with you to find a creative solution. Update I tried to post my banks phone number and email but seems like I can't because of the forum rules but you can call Peapack and ask for him.

Thanks

Chris  

That is a smokin' deal!  I commend you on your diligence because it can get real annoying...

Originally posted by @Chris Turek:

@Philip L. it is possible. Peapack-Gladstone bank in NJ is currently working on a loan for me at 3.5% for a 2 family in an LLC. Anything you are buying in an LLC will be commercial. Peapack is a great local bank. I'm not sure if they will lend on something out of state but give them a try. If you can't get them to do it you will find a local bank in your area just keep dialing. I actually found peapack buy calling a bigger local bank, they said, that's too small for us, call peapack they are great they will help you. When I heard that I new I found what I needed.

Are you sure you are actually closing in the name of the LLC? The name of your LLC is on the paperwork?

Their website does not have a tab for "commercial lending" only "residential and consumer lending"...That's why I'm asking because those rates line up with conventional residential mortgage rates. Very few lenders doing actual commercial mortgages on a 2 unit residential property...

Originally posted by @Philip L.:

@Jason Wray Thank you that's been very helpful and I'm very pleased it is possible, I've spoken to a large number of lenders and getting a lot of no's or we only do personal loans or we only do 5+ units or more - I'll keep calling now I know it can be done.

@Marco G. Spoken to three CU in my area and two of them don't do inhouse lending and bounced me to an external company who only offers personal loans and the other one said all the right things at the start but insisted the property needs to be transferred into my personal name then said once that is done I will need to start the seasoning period again and after some questioning it turns out they only do personal loans! 

The loan officer you spoke with was probably trying to get you a conventional residential mortgage. Transferring out of the LLC then back in is something that happens a lot with investors using conventional mortgages. The key is learning all the right language and using it properly. This is a scenario where using the wrong words will lead to confusing conversations, and loan officers are salespeople. Most of them are pretty bad so they're just scraping for every deal that comes there way. So, if you get really clear on the words you're using and understand when a loan officer is grasping then you'll have a better time searching. Also, you're looking for something that is very rare.

You said you wanted a "commercial loan to an LLC on a SFR". The truth is that you're looking for a loan in a market that isn't very attractive for a business owner so not many business owners are interested in serving it. As you indicated with your search results you've found a lot of lenders doing residential mortgages (not personal, residential), or doing commercial at 5 units plus. They do 5 units plus because conventional residential mortgages can do up to 4 units. Commercial is a different ballgame and don't typically compare with conventional residential rates. Many investors looking for residential real estate secured by a mortgage are going for conventional mortgages. There just aren't many people interested in that in between space which is why they're hard to find.

If you're buying residential real estate, then residential mortgages will save you money, that's why there isn't a market for commercial loans for SFRs because it cannot compete with other loans people can easily obtain for the same property. What is the purpose of using an LLC and a commercial loan? Why not buy as a "natural person" with a residential mortgage then transfer to your LLC?

 I used the term "natural person" because residential mortgages are typically using that term to indicate who they do loans for, but mortgages are not "personal loans" they are secured loans.  

Post: Rental Property Financing

Daniel HennekPosted
  • Lender
  • Lewis, CO
  • Posts 218
  • Votes 159
Originally posted by @Scott Krone:

@Jasmine G. Both large and small banks do.  The more important question is, how hard is it to work with a large national bank on a small asset, and is it in their lending goals.  I would suggest developing relationships with local banks and utilizing a commercial mortgage broker to assist you.

Unless she is planning on buying commercial property she wouldn't want a commercial loan or commercial mortgage broker.  If she's talking about conventional mortgages then she is obviously talking about residential real estate.  I can broker commercial mortgages through my company but I choose not to because it means I would have 2 business channels and would rather focus on one to make a better living with less hassle.  A broker who does both is not very good at either.  I do support brokers though because I am one, and I know first hand how much I beat my competition by.  Brokers are better there's no arguing that.

Post: Rental Property Financing

Daniel HennekPosted
  • Lender
  • Lewis, CO
  • Posts 218
  • Votes 159

There are exceptions to enforcing the due on sale clause.  Fannie Mae guidance can be found at this link below and I'll leave Freddie out to keep it simple.

https://servicing-guide.fannie...

Conventional loans are generally to "natural persons". The exceptions to natural persons are inter vivos revocable trusts, HomeStyle Renovation mortgages, and land trusts where the beneficiary is an individual. You cannot close a conventional loan in the name of an LLC. However, you can transfer ownership, of a property closed with a conventional loan, to an LLC after closing without triggering the due on sale clause if:

1: The mortgage was originated after 6/1/2016

2: The LLC is controlled by the borrower by a majority interest.

If you want to refinance the property down the road with another conventional loan the property needs to be transferred back to a "natural person".

The property is ALWAYS collateral so protecting yourself from personal liability with an LLC is a renter/landlord consideration to protect your personal assets.

To answer your questions:

1: If using a conventional mortgage you finance the property as an individual and then transfer it to your LLC

2: Banks do not typically offer residential financing to LLCs. Most banks use the same Fannie guidelines and originate conventional loans for investment properties, therefore they cannot close in an LLC. They want to be able to securitize their loans and free up cash if needed. If they are lending to LLCs its a private portfolio loan, or commercial loan that they can do whatever they want with and not be tied to certain GSE guidelines.

3: There is no point you can become "not liable" for the mortgage. If you don't pay it they'll take the property from whoever owns it, including an LLC. Transferring it to an LLC does not remove the lien.

4: Don't worry about the due on sale if you're following the guidelines and you own/control the LLC. The servicer "must process exempt transactions without review or approval" so per Fannie Mae they cannot hassle you if you do it right. So, just buy it yourself as a "natural person" and then transfer to your LLC with the proper paperwork.

Post: Colorado HELOC lender suggestions

Daniel HennekPosted
  • Lender
  • Lewis, CO
  • Posts 218
  • Votes 159

If you have good credit you can get 15 year fixed below 2% right now and 30 fixed in the low 2's...What's the reasoning behind the HELOC decision? Vs a conventional? Do you need to be running it up and down?