All Forum Posts by: Matthew Roder

Hello BP!

We own a rental condo on the north side of Indy. The tenants are turning over and we need a reasonably priced painter to slap a fresh coat on.

Thanks all!

Considering that FHA will require that you occupy one of the units within 60 days of closing, your lender may not allow you to close with the property still being tenant occupied. Either way, putting yourself into a situation where you have to evict a tenant from the get go, that sounds miserable. Talk to your agent/attorney about how your real estate contract is written to see if you can delay closing until the tenant is out.

@Noah Weitzman Sure.  Put a long term tenant in the property and provide the lender with a copy of the 12 month lease.  Then you can use 75% of the lease.  Not sure it fits with your plans for the property though.

@Noah Weitzman You can use 75% of the market rent for the property you're buying, but for the STR that you already own you'll need to wait until it's on your tax returns.

@Noah Weitzman When did you buy the STR that you currently own? If it was prior to this year, then any income received should show up on your tax returns, which would be used to calculate the qualifying income. If it was this year, then that could be an issue, as you'll probably need to provide a 1 year lease to use any income. If it's a STR then obviously you won't have a 1 year lease. The market rent will only apply to the subject property, at which point you can use 75% of the market rent. Not sure if that helps your situation or not.

I'm with Steve and Dan.  Before selling your existing house, I would analyze a scenario which involves keeping your current house and house hacking that, or renting it out completely.  How quickly will that cash flow allow you to pay down said debt?  Do you have enough equity to cash out refi in order to pay down the debt?  Without knowing more it's impossible to say what the best option would be, but I wouldn't overlook using the home that you already own as your gateway to rental property investing.  As previously mentioned, selling a home is expensive.

@Derek Persuit Then you really shouldn't be having any issues.  The lender in this circumstance wouldn't be the third lien holder unless you already had two mortgages on the subject property, which you don't.  Having two other mortgaged properties will not prevent you from finding a lender who will refinance your free and clear investment property.  So either the credit union just completely misunderstood the scenario, or they have a guideline that limits their borrowers from having more than two financed properties.  Either way, just check with a different, more experienced loan officer.  It won't take you long to find a lender who will do this deal.  

If I'm understanding correctly, you are trying to take cash out on a property that you already have two existing liens on, is that correct? Why not just roll all of the loans into one mortgage up to 80% LTV? Even if you could find a lender who would entertain the idea of being in 3rd position, the terms will most likely not be favorable to you.

The changes are directed towards borrowers with a combination of a lower credit score and higher debt ratio. If you have a 700+ fico and a 55% back end DTI, I think you'll still qualify. Their concern seems to be FICOs lower than 620 with higher debt ratios. Here is a good article from the Washington Post:

https://www.washingtonpost.com/realestate/new-fha-rules-make-it-tougher-for-people-with-heavy-debt-to-get-a-mortgage/2019/03/26/1fc5bcbc-4f21-11e9-88a1-ed346f0ec94f_story.html?noredirect=on&utm_term=.c540a86d124e

Also, see the letter from HUD below:

https://www.hud.gov/sites/dfiles/SFH/documents/SFH_FHA_INFO_19-07.pdf

Have him send you a Loan Estimate to see if it's true or not.  The only way to get a free refinance is for the lender to give you a 'lender credit' which is over and above the total amount of closing costs, including the new upfront mortgage insurance premium, which is 1.75% of the loan amount.  If they are going to give you a lender credit to cover all of those fees, then it probably makes sense.  However, if they are just increasing your new loan amount to roll in closing costs, then your not really saving what you think you're saving.  Even if they are giving a lender credit to cover the closing costs, but rolling the new upfront mortgage insurance premium into the new loan, that can still be a significant amount of money to add to your loan, which can negate any potential benefits.  Point being, get it in writing to understand what your true cost is, whether it's out of pocket or rolled into the loan, then you can decide if the benefits outweigh the cost.