Question About Financing On Investment Property
We have several investment properties.
On a recent purchase we decided to get a mortgage but the mortgage company claims that we are overextended. This is despite a credit score of 720.
They said the income was not enough when I pressed them but I cannot see how our regular income relates to a rental.
The property is rented and brings in $1200 per month. Rigth now insurance and taxes are $288 per month and we set aside $150 for contingencies. That leaves $762 per month. The mortgage payment would have been $599.55. so the rent is more than enough to cover the property.
Is there some way to make sure that the banks look at the investment properties without considering my regular income?
If you’re buying properties that are 1-4 units, it’s going to be a residential loan. And in that case YES, your income and DTI ratio are crucial.
As has been indicated, a lender will typically count 75% of your rental income in your income total. But if your ratios get too high, they won’t make the loan.
One option is to just find a different lender that has more liberal ratio criteria.
We do not have any PMI on any of the properties. All the properties are owned free and clear - 6 properties with equity of at least $600K. We decided to take out mortgages on 2 of them and use the money to fund a complex we want to do.
Right now the debt we have is $75K from a equity loan on a primary residence. And our income from a "regular" job is $3000 per month with loan payment being $814. Tax and insurance on our private home is around $400 per month. So that is $1214. I think the $1800 left is more than enough. From the rental we get around $7k per month.
I looked at my credit report and am not sure where they get the overextension from as the only debt listed on the credit report is the $75K. None of our CCs have a balance so they all show 0 owed. Hence my confusion about overextension.
I think given what you say that you should have no problem getting a loan. I agree that looking for another lender is the solution. With a net income of $8800 a month, $600k in equity, and a good credit score, very few will turn you down!
Chris
[ Edited by ypochris on Date 12/01/2006 ]
Quote:
On 2006-11-29 23:16, linlin wrote:
They said the income was not enough
The property is rented and brings in $1200 per month. Rigth now insurance and taxes are $288 per month and we set aside $150 for contingencies. That leaves $762 per month. The mortgage payment would have been $599.55. so the rent is more than enough to cover the property.
You have to consider that the lender will only give you credit for 75% of your rental income -- or $900 per month. The 25% difference between what you get and what you are allowed is supposed to take care of the contingencies.
When you subtract your proposed PITI from $900, you have only $12 in monthly income left over. Not quite a negative cash flow, but hardly large enough to excite the lender. I can see why they said the income was not enough.
You did not mention HOA fees. If there are HOA fees as well, then this property is a negative income property as far as the lender is concerned.
Plenty of people invest in properties with negative cash flow, hoping for appreciation or an increase in rents. And plenty of lenders are loaning to those people. I would think that with a net income of $8800 a month, $600k in equity, and a good credit score, you would be able to get a loan even for a negative cash flow property, which this is not.
I forgot to note where you are located, but if you are in Illinois or Michigan I can put you in contact with a mortgage broker or six that I know will give you a loan with those stats, no matter how little cash flow the property brings in.
Chris
I am mortgage broker and an investor. I ran into the same issue years ago. You need to find a broker who has lenders that have guidelines that allow you to keep getting mortgages for investments without these types of caps and limitations. The key here is your broker. If you cant find one locally go online and search. Tell them your scenario and see if they fit your niche. It is all a matter of a broker who has relationships and/or has that type of lender in their broker network. There are lenders out there who will do any type of loan. You seem to be a very good cleint for most lenders based on what you stated, so I think you will have no problem if you shop around.
I agree with Eric in working with a broker to widen your options. However, you should also go directly to a few of the large lenders to compare with the options your broker gives you. Often the brokers are working with B lenders and A lenders may offer more flexibility. A lenders being banks such as Wells and Citibank. I have funded several of my properties through Wells Fargo and have had great success with them. They allow me to use the rent as an asset right away where B Lenders (i.e., Greenpoint, Nationwide) I have talked to will use it as a liability until I have owned it for 2 years.
Get your walking shoes on and go shopping.
Thanks for the info.
I will be looking at working with mortgage brokers. Using the info from you guys I tried to get the broker at the bank to explain he also was confused by the claimed overextension. He requested the file and seems someone read $75K mortgage as $750K. Of course now that that is cleared up they are willing to lend although we no longer need them. We decided to go with a construction loan since we already own the land. The bank we went to had no problem with that.