All Forum Posts by: David A Lisowski

@Benjamin Kleschinsky

I think there are things being conflated here.

You cannot use future rent on a future primary to qualify for the loan to buy said primary. That would make your tenant a coborrower on the loan. At that point, you should look for a non-occupying coborrower.

The rule you are referring to would apply in regards to you using the FHA loan to purchase your primary residence, but then moving out and making it an investment property still under the same FHA loan.

FHA doesn't do investment properties.

But if you are talking about renting a room while you also live there, then go ahead. But that is boarder income and usually won't count in any future loan qualifications anyway. It might, but probably not worth the hassle of having a roommate paying you rent. To each his own though.

But why not have your future wife just be a coborrower? Her income (and debt) will be used in qualifying for the loan. No worries if you don't want to answer this one publicly. Just food for thought

You will never get the money spent on PMI back.

But if the property cash-flows with either interest rate, less down means you have more capital to continue to invest. Plus, who cares what the rate is if someone else is paying for it?

You can also refinance and get rid of PMI (hopefully, just based on appreciation alone).

But less down will also mean less cash-flow.

The option depends on your goals and current asset situation.

@Quentin Jivery

General mistakes:

1. Over-estimating income

2. Under-estimating expenses (including time, carrying costs, capital expenditures, vacancy, etc.)

3. Over-analyzing (analysis paralysis)

4. Under-analyzing (which usually creates issues 1 and 2)

5. Weak team (even if you "go it alone," you will rely on other people such as agents, brokers, lenders, title offices, property managers, spouse, etc. to get, analyze, and execute the deal. Be appreciative.)

6. Market knowledge (local market, that is. Key data in and around your investment property. This is why most novice investors start investing near where they live before expanding to other areas or out of state).

7. Property Manager (this is key to your success, scalability, growth, market, property, etc. If it's you, then great! If it's someone else, even better! But the old adage is true: "you can pick any two, but can't have all three: Good, Fast, Cheap." Choosing a property manager should not be taken lightly)

As others have pointed out, usually beginning investors will be low on funds, knowledge, skill, or resources (or any combination). Plan contingencies, and always know your "out." When budgets are razor thin, a week delay to something could be just as costly as a $5,000 emergency repair. Sometimes it is better to pay for someone to do something because cost isn't just money. Focus on what pieces of the process you enjoy and leave the other pieces to respective "experts." But again: "Good, Fast, Cheap" holds true.

@Brady D'Hont

Commission income will require a 2-year history to be considered stable.

It will be averaged over two years also. So if 2022 only has 3 months of commission income, using a 2022 and 2023 average would not be as beneficial to you as using the 2023 and 2024 average (assuming you earn the same or more commission each year).

So you are looking at qualifying in 2024 at the earliest. Qualifying in 2025 will give you two full years of commission (better average, ideally).

Yes, there are other loan options available, but most would be tailored to a true S/E borrower. You are just commission-based W2 so those options might not be available to you.

@Breonna Mahana

Employment history is based off of a 2-year history, in the same job or similar job with no gaps and no decline in income.

Whether you leave a job cordially or go out on a blaze of glory doesn't matter to an underwriter. Your income and income average does.

Any variable pay such as bonus, commission, over time, etc. requires a consistent receipt and must be verified for two years. If, say for example, your bonus was $2,000 then $0 then $5,000, even at the same job, the year receiving $0 would make it inconsistent so it would probably not be used as income. A good underwriter/processor/LO should attempt to get the 2- year average used, but guidelines and regulations and overlays will ultimately determine what a lender/ broker can do.

Which leads to the last point: it seems the explanations you interpreted are misinterpreted or you are speaking with lenders/ brokers who are bad at explaining things.

There are overlays for specific loan programs or products. These are additional requirements for approval such as requiring reserves, certain DTIs, certain LTVs, certain credit scores, or can even be limiting factors such as the income limit for certain programs.

Additionally, a credit score under 640 is typically not accepted. I don't know many programs that go under that. Maybe a few that go down to 620.

@Amy Mitchell

You can close DSCR loans in LLCs relatively easily. No need for a strictly commercial loan. But commercial loans will also work for LLCs.

But you cannot close a government loan in an LLC (i.e. Fannie Mae, Freddie Mac, VA, FHA, USDA, conventional loan).

There's more to consider, as others have pointed out. Some great responses here already!

If you want to avoid taxes, don't sell or die are pretty much the only options.

You can defer taxes using a 1031 Exchange. But that's because you never actually receive any proceeds, and they get reinvested into another investment property.

I'm sure there are plenty of places to dig in on 1031s.

@Pillar Jane Lagrito

Use the cash now to purchase new properties (2 or 3 as you mentioned). You'll need to cover down payment and closing costs on each, but as long as those properties cash-flow, you can always refinance those properties to pull out cash, or improve the rate, or possibly use the gain in equity to cash-out enough to pay one of the mortgages off entirely.

I'd suggest you look for a DSCR loan. And don't forget you'll need reserves so it might be useful to calculate that in the cash you have from the refi, or have other accounts available as reserves.

480 square feet?

I'd go for durability over inexpensive.

As most mentioned, LVP.

But you might consider EVP (engineered vinyl planks) for extra durability.

@Anthony Jones

Regarding qualifying for a conventional loan, your schooling counts in the "two year employment history." You will just need to provide transcripts, and probably have your cutrent employer complete a written verification of employment.

Go for a Home Ready (Fannie) or Home Possible (Freddie) loan with 3%-5% down. You will just complete and online course to get a better rate (personally I think Freddie is easier overall).

In 6 months start looking to refinance so you can drop the Mortgage Insurance Premium (simply refinance based on increased value to get you under 80% LTV). See if you can qualify using a Mortgae Tax Credit Certificate (MCC) - ask the lender about this. Student loans should be calculated as 1% of balance as the monthly payment.

Quick stuff, others mentioned as well for DSCR:

DSCR is debt service coverage ratio.

Sorry if you know this already:

It is calculated by taking the monthly income established by the appraisal form 1007 (and/or form 216). Those are in addition to the appraisal report (which is mostly used to determine property value, but also tons of other info.)

The DSCR ratio is a factor in qualifying at most lenders. Some will have a cut-off ratio and other will apply lock pricing adjustments or have other restrictions (overlays) based on lower DSCR ratios. You might get better rates or terms for higher DSCR ratios, but not usually (the benefit will ultimately be to you as the Landlord collecting rent).

For example, the investment property monthly expenses are $2,500. The projected rent on Form 1007 is $3,200 so you'd have $3,200/$2,500 = 1.28

Some lenders allow short term rental instead of l9ng term rental on the 1007, but will probably also require the current owner (seller) to provide the past 12 months rent rolls, or rental income.

Some will have loan-to-value (LTV) adjustments as well depending on certain things.

As a first time homebuyer (which would mean also first time investor), there will be additional restrictions like requiring more reserves or lower LTV or rate adjustment.

Typically, you can close DSCR loans in the name of and LLC/Corporation and hold title the same (this is not allowed on Fannie and Freddie or any government loan like FHA or VA).

You personal credit score will matter, but the DSCR really determines the viability of the loan, not your personal income.

I'd say you should expect to put at least 20% down, but probably really need 25% to 30%.

You may also need more down to improve the ratio as well.