Mortgage and Portfolio Loan Guide

Cash Out Refinance with Bad Credit

Tapping into your home’s equity to do a cash out refinance with bad credit may be a great option if you’re looking to consolidate high interest debt or make improvements to your home.

Here you’ll find everything you need to know about how to get approved for such a loan and what to expect when refinancing your home with a cash out or debt consolidation mortgage.

What is a cash out refinance?

When you own a home, typical market conditions provide natural appreciation of your property. This means over time the value of your home increases. As the value increases, you gain more equity in your home.

With a cash out refinance, you can tap into that equity to accomplish your financial or home improvement goals. When you refinance you pay off the existing mortgage loan and get extra cash out to cover other debt you’d like to pay off or make home improvements.

Why would a homeowner do a cash out refinance?

A cash out refinance is done for many reasons. Here are some of the most common scenarios:

  • Consolidate high interest credit card debt
  • Make improvements to the home
  • Pay for children’s college
  • Pay off medical bills or other collections
  • Increase cash reserves for unexpected emergency

Cash out refinancing is available for perfect, good, fair, and bad credit. The main factors that are considered are equity (amount borrowed vs. home value) and income (ability to repay).

A cash out refinance can be done on a primary residence, second home (vacation home), and investment property. The max loan to value ratio will depend on property type, occupancy, and credit score.

Example: if you have perfect credit, and it’s a 2 unit investment property, you may be limited to 70% loan to value. If it’s a primary residence and you have 620 credit score you may be limited to 85% loan to value.

Cash out refinance loans are available for credit as low as 520. Must meet equity and income requirements.

What are the benefits of doing a cash out refinance on your home?

When you consolidate your high interest credit card debt with a cash out refinance there are several incredible things that happen. Paying down your credit cards typically results in higher credit scores.

The credit bureaus (experian, equifax, transunion) score you based on the amount available in comparison to how much you have used. The lower amount you have used compared to the amount of credit available to you will only help your scores in a positive way.debt consolidation mortgage

The interest rates on credit card debt are typically much higher than mortgage rates. AND the interest on credit card debt is NOT tax deductible. The interest you pay on your mortgage IS tax-deductible. Many home owners’ largest tax deduction is their mortgage interest.

By rolling your credit card debt into your mortgage you not only decrease you overall monthly payments, but you also set yourself up for success in terms of tax deductions in many cases.

Take a look at your most recent credit card statement. How much of your payment went toward principal? Not much right?

The tricky thing about credit cards is the minimum payment is manageable, but the minimum payment never gets you anywhere in terms of paying down the principal balance.

By consolidating it into the mortgage, you create a manageable plan to pay off your debt.

If you’re doing a cash out refinance to complete home improvements there are several benefits.

Using the equity in your home to improve your home will likely increase the fair market value of your home. Keep in mind, it’s not a dollar for dollar trade-off. Just because you put $20K into new floors and appliances, that doesn’t necessarily increase the value of your home by $20K.refinance mortgage bad credit

Every market is different and some upgrades provide more value increase than others.

The biggest benefit of using your home’s equity to make improvements is it allows you to do the things that you have always intended on doing, but have been unable to save for because life gets in the way.

Improvements like:

  • A new deck/porch
  • Replacing carpet
  • New appliances
  • Roof
  • Improved landscaping
  • and more

What if I have bad credit, can I still do a cash out refinance?

There are several different mortgage options available when looking at getting approved for a cash out refinance. For good credit a conventional loan will probably be the best route to take. For fair to poor credit, an FHA loan will probably be your best route.

If you are a veteran of the US armed forces, and eligible for VA financing, you may be able to do a cash out refinance up to 90% of your home value even if you have credit below 580.

If you do not meet FHA or VA guidelines because you have had a more recent bankruptcy, foreclosure, or short-sale; a portfolio loan will likely be your best option.

Portfolio loans are for scenarios that are more unique and require a “common sense” approval approach. Portfolio loans are less strict than traditional financing, and are intended to be a short-term fix for short-term circumstances. Once you meet traditional lending guidelines you’ll want to refinance out of the portfolio loan.

More on portfolio loans here.

  • Low Credit scores okay
  • Primary residence, vacation home, and investment property
  • Single family home, 2-4 unit, condominium, manufactured homes allowed
  • Recent bankruptcy, foreclosure, short-sale considered

In Summary

There are many benefits to doing a cash out refinance. If you are not sure if you qualify for a cash out refinance whether you have good or bad credit please feel free to reach out.

I’ve been able to help many homeowner’s who have been told by other lenders that they don’t qualify.

I invite you to reach out. 

 

Get your questions answered.

If I cannot help, I should be able to point you in the right direction at the very least.

 

 

self employed home loans

Adam Lesner | NMLS 198818

Michigan, Massachusetts, and Florida. Also offering financing in most states across the US including (but not limited to) Georgia, North Carolina, South Carolina, Alabama, Arizona,

California, Colorado, Delaware, Washington DC, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Minnesota, Missouri, Ohio, Oklahoma, Oregon, Tennessee, Virginia, Wisconsin.

Do I qualify for a home loan?

Here are all the answers to the question “Do I qualify for a home loan?” The answer to that question is really a four part question regarding you income, credit, assets, and property.

The real questions to be asking are:

  • Does my income qualify me for a mortgage?
  • Does my credit meet mortgage requirements?
  • Are my assets enough to cover the required down payment, closing costs, escrows, and reserves?
  • Does the property I am looking to buy meet lender guidelines and requirements?

In this post I will cover the answers to all of those questions and more. You’ll know exactly what you’re up against when seeking mortgage approval.

Does my income qualify for a home loan?

When applying for a mortgage you have to think like an underwriter.

Regarding income, here is how an underwriter thinks: “does this potential borrower show consistency and stability with their income and employment history?”

In the mortgage world consistency is best demonstrated by providing proof of income for the most recent two year history. If your income is the same or more this year than it was last year, and the year before – that means your income is consistently increasing.

If your income is less last year than it was the year before, that means your income is “declining”. Declining income demonstrates instability, and could potentially cause an issue with approval unless there is a legitimate reason for the declining income.

If showing declining income it helps to show that you’re back on your feet by showing your year to date income is back on track to earn what you did in previous years.

If you are W-2 employee of a company your income will be based on the gross amount on your pay stub. If you are a salary employee it’s very simple.do I qualify for a home loan income

If you are an hourly employee your income is: your wage X average hours per week X 52 / 12.

If you recently received a raise, your income will be based on your most recent raise.

For incentive pay like commission, bonus, overtime – you will need a 2 year history of receiving that income in order to be able to demonstrate consistency/stability.

What if you are self-employed? See full article on how your income is considered.

The way the lender decides if you’re eligible for a loan is by calculating your income and measuring that against your monthly liabilities (including all items shown on credit, alimony/child support, and all real estate obligations). The underwriter divides your debt into your income (or debt to income ratio).

So if your debt is 4,000/month and your income is 8,000/month, you have a 50% debt-to-income (DTI) ratio.

Most lenders to not like to see debt-to-income ratio above 45%, but in some cases 50% DTI is accepted with strong compensating factors (high asset reserves, low loan to value ratio, etc.).

Does my credit meet mortgage requirements?

Credit = credibility of previous payment history.

You have 1 score from each bureau:

  • Transunion
  • Equifax
  • Experian

For a standard conventional loan, 620 middle credit score is needed. [For other loan types, there are cases where you can go as low as 500 credit score. Just ask.

So if you have scores of 650, 675, 690 – the 675 score is what is used.

Important Note: The scores that the credit bureaus report to mortgage lenders are different than what is reported to consumers who pull consumer reports. The scores that lenders see are almost always lower than what you might pull on CreditKarma.com.

CreditKarma.com is still a great site, and gives you something to start with when trying to get an idea of where you stand.

Aside from actual credit score, here are the things lenders look for on your credit report:

  • On time payment history (or lack thereof – aka late payments)
  • Length of credit established
  • Derogatory marks like collections, charge-offs, judgments, tax liens
  • Major credit events like bankruptcy, foreclosure, short sale

Payment History

It’s crucial to be able to show minimal late payments in the most recent 24 months, especially on housing payment history. Most traditional loans only allow one 30 day late payment in the last 12 months.

But there are alternative loan options for unique credit circumstances.

Length of Established Credit

In many cases there will be a need to show at least 12 months of established credit. However, there are exceptions.

If you have 10-20% down payment, >2 years on the job, and can prove rent history, it may be possible to get approved with less than 12 months credit history.

No Credit Score | No credit Historydo i qualify for a home loan credit

Some people just like to pay cash. Plain and simple. I get it.

For those who have no credit established, and no credit score, you may still qualify for a mortgage by using non-traditional credit approach.

A non-traditional credit report would consist of 3 accounts you pay toward that do NOT show on your traditional credit report.

Examples of non-traditional credit:

  • Rental payments
  • Utility payments (gas, electric, water, landline, home phone, cable)
  • Netflix/HULU
  • Child care
  • School tuition
  • Proof of 12 months savings
  • Gym membership
  • And more

If you have a legitimate (and consistent) 12 month payment history on an account there is a chance it may be considered by the lender in the overall decision to lend.

Derogatory Marks

For minor collections, there are cases where they do not need to be paid off prior to closing on your home loan. Medical collections are given some flexibility as well.

But if you have more than $1,000 in outstanding collections, they will most likely need to be paid prior to closing.

Judgments and tax liens must be paid prior to closing. The lender does not want to have to deal with those obligations potentially becoming a lien on the property/collateral.

These derogatory marks do not necessarily need to be removed from the credit report. Most of the time, the lender just wants legitimate proof or paper trail to confirm the obligation has been paid/satisfied/settled.

Disputed Accounts

When you dispute an account on your credit report because you disagree with the way it is being reported, the credit bureaus immediately disregard that account when calculating your scores.

The result of disputing an account is the credit scores go up. This is because the negative account that is being disputed is not being included in the overall scoring calculation.

For that reason, lenders will typically not allow a loan to proceed until the dispute has been removed, and new credit has been pulled. The logic is: if there is a disputed account, the credit scores are artificially high.

Major Credit Events

On most mortgage loans there is a waiting period between when a person has gone through a major credit event, and when they are eligible for new home financing. Below is a basic summary of what to typically expect as far as waiting periods are concerned. [there are portfolio loans where no waiting period is required]

  • Bankruptcy – Chapter 7
    • FHA – 2 year waiting period
    • Conventional – 4 year waiting period
    • VA – 2 year waiting period
    • USDA – 3 year waiting period
    • Portfolio Loan – No waiting period with 20% down payment if home was included in foreclosure.
  • Bankruptcy – Chapter 13
    • FHA – Must have 12 months on time payments and permission from trustee to enter new mortgage. Must be manually underwritten if less than 2 years.
    • Conventional – 2 year waiting period
    • VA – 1 year waiting period
    • USDA – 1 year waiting period
    • Portfolio Loan – No waiting period with 20% down payment
  • Foreclosure
    • FHA – 3 year waiting period
    • Conventional – 7 year waiting period (Unless property that foreclosed was included in bankruptcy. If home was included in BK, waiting period is based on bankruptcy discharge date)
    • VA – 3 year waiting period
    • USDA – 3 year waiting period
    • Portfolio Loan – No waiting period with 20% down payment
  • Short Sale or Deed-in-lieu
    • FHA – 3 year waiting period
    • Conventional – 4 year waiting period
    • VA – 3 year waiting period
    • USDA – 3 year waiting period
    • Portfolio Loan – No waiting period with 20% down payment

Keep in mind, guidelines change constantly. It would appear a portfolio loan is a good option if you’re back on your feet and don’t yet meet traditional waiting period requirements. More on portfolio loans here.

Do my assets meet home loan requirements?

When evaluating assets the underwriter is reviewing available funds for:

  • Down payment – The amount that you’re coming out of pocket to secure the home.
  • Closing costs – The fees associated with acquiring the home (appraisal, origination, title, closing, recording, etc.)
  • Escrows/prepaids (for taxes and insurance) – The amount set aside to account for taxes and insurance on the property
  • Reserves – The amount of left over available funds

The funds used to qualify must be “seasoned” in your account for 60 days to be eligible funds. Any large deposits that are not seasoned must be explained and sourced. Cash deposits are unacceptable because the source cannot be verified/confirmed.

If you have a property that you are simultaneously selling during the process of buying the new home, the proceeds of the sale of that previous home do not need to be seasoned. You will need to provide proof of sale of the home (purchase and sale agreement) as well as the closing statement prior to closing on the new home.

Reservesdo i qualify for a home loan assets

The logic of reviewing reserves is: if the borrower should unexpectedly fall on hard times, there is enough set aside to cover the mortgage payment for X number of months.

Showing adequate reserves helps strengthen the overall file.

Reserves can be from your traditional bank account, brokerage account, retirement account, etc. You cannot use a non-borrower’s account to show reserves.

Gift Funds 

For most loan types gift funds from family are acceptable. There are scenarios where a non-family member can gift the funds, but every lender is going to have a different interpretation of who is acceptable. For best results, just ask.

Non-Liquid Assets

Cars, RV’s, heavy equipment, beanie babies… are not liquid assets.

Vehicles and other items that can be easily valued, can be considered if sold and properly documented.

If you sell a car in order to qualify for a mortgage be sure to have kelly blue book value on hand, bill of sale, and copy of the check you received when you sold the vehicle. Having a full paper trail helps tremendously.

 

Does the property being financed meet lending guidelines?

There are an infinite number of reasons the property might not meet lender requirements.

I am going to cover some of the most common reasons the property can be the cause of denial with the lender.

Non-Warrantable Condo

When buying a condominium, not only does the borrower’s finances get evaluated, but the homeowners association is also closely reviewed.

The lender will order a “condo questionnaire” in order to evaluate the health of the association.

They’ll look for things like: completion status, investor concentration, pending litigation, and so much more.

More on non-warrantable condos here.

Repairs Neededdo i qualify for a home loan house

If the property is in disrepair, the lender will require completion of repairs prior to closing in most cases. Repairs needed will be determined based on appraiser’s comments in the appraisal report.

The repairs need to be completed by the seller, and a final inspection will be needed prior to closing to confirm completion.

If the repairs are fairly minor, there are many landers that will allow a “repair escrow”.

A repair escrow is where funds are set aside at closing to cover the cost of the repairs needed. Then the loan closes, and repairs are done after closing. A final inspection is completed when ready.

Typically this only allowed when repairs are no more than $5,000. With a repair escrow, 150% of the estimated repair costs are collected in case of unexpected cost overages.

Example: if the repairs needed are estimated to be $3,000, the actual amount collected for the repair escrow will be $4,500.

If the excess funds aren’t used, the difference will be refunded to the borrower or applied toward the principal balance.

For properties in need of major repair. There are renovation mortgages available on both FHA and conventional.

Unique Property Type

One of the most crucial parts of the appraisal report has to do with the appraiser being able to find recently sold homes that are comparable in size/condition/use that have sold within a reasonable distance.

If there are unique features to the property, the appraiser may have a challenge that cannot be resolved due to market conditions.

Even if there are comparables, some lenders simply do not allow unique property types.

Unique features that could be a challenge:

  • Berm homes
  • Properties that are not suitable for year round occupancy regardless of location
  • Agricultural zoned property
  • Condo hotels
  • More than 20 acres
  • Hobby farms
  • Leaseholds
  • Rustic log cabins
  • Working farms, ranches, or orchards

For unique property type financing, a portfolio loan may be a solution.

In Summary

There are four major pieces of the scenario to consider when asking the question “do I qualify for a home loan”?

Those pieces are: income, credit, assets, and property.

If any of your questions were left unanswered I strongly encourage you to reach out to me below and ask.

If I cannot help, I should be able to point you in the right direction at the very least.

self employed home loans

 

 

Tax Returns and Mortgage Approval

What impact do your tax returns have on buying a house?

It is no secret that the income piece of the mortgage approval process is a major factor. Your ability to repay the mortgage is arguably to MOST important factor that is considered when applying for a home loan.

But how is that income calculated?

What if you are self-employed?

What if you have multiple sources of income?

In this post I am going to cover some of the most important things to consider when it comes to buying a house, and how your income plays such a major role.

How is my income calculated on my mortgage application?

There are many different forms of income, I am going to cover the most common that I run into, and give you general basics on how that income is considered in connection with mortgage appproval.

No matter the scenario, an underwriter is going to want to see consistency, and stability. Proving your ability to repay is the name of the game. If you can demonstrate consistency over most recent 24 months, and stability (same line of work), you are on the right track.

Salary employee (W-2)tax returns mortgage approval

Your annual gross salary divided by 12.

Example: 120,000 annual salary / 12 = 10,000 monthly income

For salaried employees it’s pretty straight forward as long as you have been in the same industry for 2 years. If you used to be an electrical engineer at 100K/year, but now you teach physical education at the elementary school, the underwriter may ask questions regarding stability, and may need to you to be on the job for 6-12 months before reconsidering.

It has to make sense.

Hourly Employee

Base wage is calculated by average number of hours reflected on most recent 30 days pay stubs.

Example: $15/hour X 40 hours per week X 52 / 12 = 2,600/month

If number of hours fluctuate, you’ll need a written verification of income ordered by your lender to be filled out by your boss or human resources department in order to get a better feel for your average number of hours worked

Commission – Bonus – Incentive – Overtime Income

Any fluctuating income is going to require a 24 month history in order to calculate consistency. If the incentive income is declining the underwriter will likely only use the most recent 12 months or year to date amount for the commission/bonus/overtime income in order to be safe.

1099 – Private Contractor Income

When you are a 1099 employee, the company paying you does not deduct things like federal/state income tax from your gross income. For that reason, what you claim on your federal tax returns as your actual income is up in the air until you actually file your tax returns.

There may be deductions that you’re eligible for that will reduce the amount of income you claim on your tax returns.

That reduction in earnings claimed will have an impact on your debt to income ratio when applying for a mortgage.

There is almost always a lack of consistency when considering 1099 income because of the nature of those types of earnings.

Again, in this case the underwriter is going to want to see proof of 24 months of receiving that type of income in order to determine what you actually claim as income after tax write-offs.

Self-Employed Income – Business Owners

Self-employed income is evaluated similar to the way 1099 employee income is reviewed.bank statement loan program

Always best to be able to show two full years of tax returns so that the underwriter can reasonably calculate your income, and get a feel for the health of the business.

For simplicity purposes: your income is the number that is shown on the Adjusted Gross Income line on page 1 of the 1040’s.

Yes there are some deductions that can be added back into the bottom line, but for starters – just find the adjusted gross income to understand basic ballpark.

In addition it is common to have to require a year to date profit and loss statement. This is used to evaluate how the company is doing in comparison to the previous year. It is NOT used to increase your income if you happen to be having a very strong year.

If your business is anything OTHER than LLC or sole proprietorship, you’ll also need to provide two years of business/corporate tax returns along with K-1 if applicable.

Multiple Sources of Income

When seeking approval with 2 jobs, you need to be on job jobs for two full years. Otherwise there is no way to determine the likelihood of you being able to maintain that type of demanding work load.

If the second source of income is NOT from an employer, requirements will vary depending on source of income (disability, social security, pension, rental income, etc.).

Keep in mind – the name of the game is the ability to prove consistency and stability.

What if I filed an extension on my tax returns?

Many business owners take advantage of the opportunity to NOT file their taxes in April like the rest of the country, and instead file an “extension”. The extension allows them to not officially file their taxes until October.

This presents challenges when applying for a mortgage for 2 major reasons:

  1. The income for the year that the extension is filed for is basically disregarded by the underwriter. They will only consider it to confirm the income is in line with previous years. Cannot use it to increase the averages.
  2. When the extension is filed, there is an estimated amount owed for that year’s taxes. When an underwriter sees that estimated amount owed on the extension, they will typically require that amount to be paid prior to closing.

This goes for personal and business tax returns alike.

What if I show low income on my tax returns and I am a business owner?

It is very common for business owners to take full advantage of the legal tax write-offs that are available to them.

The problem with using those write-offs is they often offset the bottom line income claimed significantly.

For business owners in this scenario, who actually have strong income that they can prove – a bank statement loan may be the best solution.

A bank statement loan is a type of portfolio loan that allows business owners to qualify based on the income shown on their bank statements over a 12-24 month period.

This gives the lender the opportunity to evaluate a self-employed borrower’s income with more of a common sense approach.

On a bank statement loan you must be self-employed with the same business for at least two years.

[more on Bank Statement Loans and Portfolio Loans here]

What if I have been self-employed for less than two years?

If you have have been self-employed less than 2 years you may need to look into getting a portfolio loan.

It’s an underwriter call, but without having 2 full years tax returns as self-employed most underwriters find it difficult to agree that stability has been established.

With a portfolio loan you may be able to get around that requirement if:

  • You have been self-employed for at least 1 full year on tax returns
  • You have at least two years of documented previous successful employment in the line of work in which you are self-employed in, or in a related occupation or
  • You have one year of employment and formal education or training in the same line of work

If you’re in business less than one year, that income is not going to be considered as effective.

What if I want to only use my most recent year tax return to qualify?

When having a strong rebounding year after a slow year, it is often asked if a business owner can ONLY use the most recent year tax return to qualify. The logic is to be able to exclude the need to average the low year with the most recent strong year.

There is a conventional product that will allow you to use only the most recent year’s tax returns to qualify.

To be eligible for this product, you must have been in business for at least 5 years, and meet all other credit and asset guidelines. Contact me for questions on this.

In Summary

Tax returns play an extremely important role in the home buying process.

When you file, how you file, and how much income you claim will determine what type of loan will suit you best.

Get your questions answered.

 

I encourage you to reach out.

We can’t help everyone, but we do make every effort to take a common sense approach to get our borrowers approved if it makes sense.

 

 

 

self employed home loans

Jumbo Loan After Foreclosure

How to Get a Jumbo Loan After Foreclosure

Getting a jumbo loan (or any mortgage for that matter) after foreclosure requires a close and careful evaluation depending on how much you can put down. Whether you’re getting a jumbo loan, traditional mortgage, or a portfolio loan; there are some things that you can do to prepare yourself to buy a home again.

We’ll look at some specific requirements below and hopefully give you the confidence you need to prepare yourself to buy again after having a foreclosure.

Buying a house with bad credit or damaged credit can be challenging, but it shouldn’t be impossible.

When you know what you’re up against, the task of getting ready and getting approved becomes much more attainable.jumbo loan after foreclosure

With so many folks regaining stability after the great recession, many find themselves to be in a housing circumstance where they are ready to upgrade to a better position, but don’t quite meet traditional lending guidelines. Whether it’s getting a larger home, or moving to a more favorable neighborhood many are ready to start a new chapter.

The light at the end of the tunnel is within reach for more people now than in the most recent number of years.

The problem that arises is the required waiting period after foreclosure or any major credit event like bankruptcy or short sale.

Traditional guidelines on a jumbo loan say you need to wait 7 years after foreclosure, but not if you’re getting a portfolio loan.

What is a portfolio loan?

Portfolio loans are non-traditional mortgage loans that are designed to meet the home financing goals of a borrower with unique circumstances. They are done by small banks, lenders, and credit unions. And these types of loans do not go by Fannie Mae, Freddie Mac, or FHA guidelines.

Whether it’s damaged credit, unique income, or property issues; portfolio loans are designed to be a solution for the tough scenarios.

The main factor when lenders evaluate potential portfolio loan candidates are: equity, reserves, and ability to repay.

More on Portfolio Loans here

What is the waiting period after foreclosure on a Jumbo Loan?

Typically what you’re going to find when seeking a jumbo loan after foreclosure is that 7 years is the waiting period with most lenders, but not with portfolio loans.

With a portfolio loan there are options where no waiting period after foreclosure or short sale is required.buying a house with bad credit

How do you suppose that is possible?

Obviously there are going to be strict guidelines if you’re looking to get around a major hurdle like a recent foreclosure. And the interest rates and costs are going to be higher than standard loans. These loans are considered higher risk. For that reason the lender has to mitigate that risk through pricing adjustments.

If you’re looking to get approved for a jumbo loan, and you’ve had a recent foreclosure, here are some basic things you should keep in mind…

No waiting period after foreclosure or short sale:

  • Minimum credit score is 580
  • 20% down payment
  • Must have 3 tradelines reporting on credit report for at least 12 months
  • Max loan amount is $1MM
  • 6 months reserves minimum (9 months for loans >750,000)

For better rates, and 2 years after foreclosure or short sale:

  • Minimum credit score is 620
  • 25% down payment (or as low as 10% down if credit score is 680+)
  • Must have 3 tradelines reporting on credit report for at least 12 months
  • Max loan amount is $1.25MM
  • 6 months reserves

For even better rates, and 3 years after foreclosure or short sale (ideal scenario):

  • Minimum credit score is 680
  • 30% down payment
  • Must have 3 tradelines reporting on credit report for at least 12 months
  • Lax loan amount is $1.25MM
  • 9 months reserves

Not all products are available in all states, and guidelines can change. But I at least wanted to communicate what can typically be expected. Reach out to me for your specific questions and scenario.

Although 30 year fixed options are available, it typically makes more sense to do these on a 5 year or 7 year ARM because of the rate difference. The goal is to refinance into something more suitable when the waiting period from foreclosure meets traditional guidelines.

Keep in mind, for primary residence, in many cases there are no pre-payment penalties on these loans.

Portfolio loans like these are a temporary fix for temporary circumstances. In most cases, it still makes more sense than renting because you’re building equity in the home you want, in the area you desire.

Portfolio loans are also available for business owners, and investors.

How long does it take to close?

Typically these loans take longer to close than the typical mortgage because of the risk involved and the special attention required.mortgage after short sale

The first step is to get pre-approved.

Although some close within 45 days, some can take 60 days.

The most important thing you can do to reduce the amount of time it takes to close your loan is to provide everything that is requested as soon as you can. Typically, if the communication is sound, and what is requested is provided, the process is much more smooth.

For portfolio loans especially, having a thought out letter of explanation can go a long way. The reason I stress that is because these loans are treated with more common sense logic than most loans you’ll find. The lender truly tries to find a way to say “yes”. But if the story doesn’t make sense, and the explanation is shaky, things could become more difficult than they need to be.

Trying to get by with the bare-minimum documentation often results in frustration and delays.

Be honest, and be transparent. Don’t wait for the lender to find an issue that you know exists. Be open about it so that a solution can be discussed.

portfolio mortgage lendersIf you have had a recent bankruptcy, foreclosure, or short-sale and you’re back on your feet, I invite you to reach out to me. I can’t help in every scenario, but many times I am able to make it work even if other lenders have said the loan cannot be done.

When you reach out, you won’t be connected with an assistant or someone overseas, you’ll be connected with me directly. About me

I hope you found this to be helpful, and I look forward to helping you accomplish your home ownership goals.

real estate investment loans

Adam Lesner | NMLS 198818 | Troy, Michigan

Peoples Bank & Trust Co | Michigan, Massachusetts, and Florida. Also offering financing in most states across the US including (but not limited to) Georgia, North Carolina, South Carolina, Alabama, Arizona, California, Colorado, Delaware, Washington DC, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Minnesota, Missouri, Ohio, Oklahoma, Oregon, Tennessee, Virginia, Wisconsin.

What is a Blanket Loan?

A blanket loan gives the opportunity for a growing real estate investor to bulk finance their portfolio. These investment property loans can be done on the purchase of new rentals, and refinance of existing property.

Great, but why would an investor want to have all or some of their rental properties wrapped up into one mortgage?

What is the advantage?

In case you have been living under a rock since the crash in 2007, I’ll fill you in a bit on what’s it’s like to finance a rental property the old fashion way. (Don’t get me wrong, I love what I do, but the government regulation involved can be a bit daunting sometimes.)

When looking at getting investment property loans in the mainstream mortgage market, here are some challenges that are often faced:

  • Personal income issues
  • Personal credit issues
  • Number of financed properties
  • Property type restrictions
  • Property condition issues
  • The list goes on

What it boils down to is that the mortgage world is extremely regulated. From having to re-disclose a loan package within a certain number of days every time a loan officer sneezes, to having to get a letter of explanation for nearly every life event in the most previous two years. Okay, that might be a bit of an exaggeration. But the point is, getting a regular mortgage is not as simple as it once was.

So imagine getting 5, 10, 15 loans individually within a 3-6 month period. That means your entire portfolio is re-reviewed each time, possibly by a different underwriter.

Yeah, no thanks.

For bulk scenarios like this, a blanket loan is probably the best option in terms of sanity and simplicity.

Sanity; because it’s all done in one approval process.

Simplicity; because the approval is based on property cash flow and equity, NOT personal income and credit (although good credit is always helpful when being considered).

This is a commercial loan, so the property performance is evaluated more heavily than the investor’s personal situation.investment property loans

Typical requirements on a blanket loan.

  • At least 5 properties included in the loan.
  • Minimum loan amount is usually 300K.
  • Rental income must cover payment as well as other expenses like taxes, insurance, association dues, etc. Up to 20% vacancy factor may be applied.
  • Units must be 90% occupied.
  • No vacation rentals. Minimum leases need to be at least 6 months in length.
  • Close in an LLC.
  • Must have at least 2 years property management experience.

Of course, there are more guidelines in order to qualify. Every deal is evaluated individually, this is meant to give a brief snapshot of what to expect.

Typical structure of a blanket mortgage.

  • Maximum 75% loan-to-value.
  • Can be done on purchase, rate and term refinance, and cash-out refinance.
  • Typically done on 5 or 10 year balloon (amortized over 30 years).
  • 30 year fixed available in some cases.

How to apply for a blanket loan?

You can start by filling out this rent roll. By completing it in full you’re really able to provide a full picture for the potential deal to be evaluated and priced out. Depending on the complexity of the scenario it can take 48 hours to a week to get a response on if it can be done and what the terms might look like.

At that point, you can review the blanket structure and decide if this type of loan meets your needs.

What are some alternatives to bulk financing?

  1. Full doc loan. This is where your income/credit/assets are evaluated in full. This can be done on a case-by-case basis up to 10 properties financed (down payment and pricing varies after 4 properties are financed). The concern with going this route is that the properties you are potentially buying or refinancing might recently bought/renovated/flipped. When dealing with flips, it can be tricky to get an acceptable value (example: it was bought 3 months ago for 20K, renovated, and now is being sold for 110K). That’s an extreme example, but the point is that it can be a challenge to have acceptable value on collateral if the price isn’t justified in detail. Yes, that can be a challenge in any scenario, but when you’re doing a full doc loan it can be even more of a hurdle.When looking at these opportunities, be sure to get info on when the properties were purchased. If they were originally purchased at heavy discount within the last 12 months then it would be good to know exactly what renovations were made so that value can be justified.
  2. Individual Investor Cash Flow Loan. These loans are designed to cater to investors who would prefer a more simplified approach when it comes to approval. Credit is pulled, we do verify assets, but we do not get docs on your personal income (no tax returns, no paystubs, etc). The deal is evaluated on the cash flow of the property and equity. We can go up to 80% LTV on these (on a 15 year fixed), or up to 75% LTV (on a 7/1 ARM or 5/1 ARM). The 15 year fixed is a nice option, but it can have an impact on the cash flow, so it doesn’t always work out when structuring it on a 15 year.With this type of loan there is no max number of financed properties.For cash flow we take into consideration the current lease on the property (if applicable), and we get a 1007 rent schedule completed by the appraiser to tell us what the fair market rent is. From there we factor in mortgage payment, taxes, insurance, and homeowners association dues (if applicable). If the fair market rent covers those items and other annual expenses when applicable, we’re good (minus 20% vacancy factor). [more on this here]Keep in mind that there are typically reserve requirements in most cases. “Reserves” as in liquid assets left available after down payment, costs, escrows are paid at closing. Typically you’ll need 6-12 months reserves for the subject property. Example: the payment on the subject property is 950/month, you’ll likely need 11,400 in reserves. In some cases, in addition to the reserve requirement on the subject property, you’ll need an additional 2 months reserves for all other financed properties. I think it’s imperative to communicate this because the reserve piece is often ignored by many investors. You obviously don’t want to overextend yourself when making a purchase, and disregard the need for reserves. When that happens, things tend to fall apart.
  3. Pay cash. Liquidate your assets and run the show. Even well healed investors don’t typically pay cash unless they have to because, as they say, cash is king. When you use up a substantial percentage of your funds to acquire a property, the pressure tends to be more stressful.
  4. Hard Money Loan. These are great options if the property is in serious disrepair or if you need access to capital quickly. The luxury of speed typically comes with an aggressive price up front and monthly.

There are a number of ways to acquire more real estate and grow your portfolio. A blanket loan is just another tool in the box to help accomplish your goals.

They aren’t for everyone, but a blanket mortgage does prove to be a valuable resource for many growing real estate investors.

I invite you to reach out.

portfolio mortgage lendersIf you’re an investor, or you work with real estate investors, feel free to reach out to me directly to get your questions answered.

If I’m unable to help, I can most likely point you in the right direction at the very least. All the best!

 

investment property loans


Best Investment Property Loans

Let me be clear. When I say that these investment property loans (portfolio loans) are ridiculous, I don’t mean that in a negative way. I say it from a ridiculously awesome standpoint.

Simply put, the residential mortgage guidelines have made things a bit difficult for real estate investors to grow their portfolio. But it doesn’t have to be that way anymore…

The Problemmortgage for rental property

When real estate investors are looking for a mortgage for rental property, and they already have several mortgages on investment properties, conventional guidelines say they cannot finance more homes for investment purposes.

Some lenders will allow up to 10 financed properties.

Some lenders will allow up to 20 financed properties (rare).

Most of the time, that’s only allowed if the home that you’re looking to buy is going to be your primary residence. So most investors with a portfolio of financed real estate are kind of stuck if they want to acquire more property.

The Solution

Real Estate Investment Loans, also commonly known as a portfolio loan.

These loans are designed to cater to the real estate investor who would rather not liquidate their reserves to purchase more real estate. This is specifically, a perfect mortgage for rental property.

5 Reasons the new Investment Property Loans are a Life Changer

  1. No income is reported on the loan application. The borrower is not qualified based on their employment. Think about it, if you’re buying a rental property, would you be making the payments on that loan from earned income? Heck no. The tenant will be making the payment for you. That’s why you got into the real estate investing business to begin with. To get into an appreciating asset that pays for itself. It makes sense to approve an investment property loan based on the cash flow of the property. (see below for how the expected property cash flow is determined)
  2. No maximum number of financed properties. This one is huge. Why? Because so many real estate investors tend to hit a road block when they hit 10 financed properties. Most think that at that point, their only option is to get a hard money loan (super high rate, very short term, paying several points). The good news is that Investment Property Loans (portfolio loans) are available, and common sense approvals exist.
  3. Not nearly as many insane government guidelines. These rental property mortgages are not treated like normal residential mortgages which are (what some would call) over-regulated. Why? Because these homes are being purchased for business purposes, and are treated more like how commercial loans are treated (approving the scenario based on potential cash flow and equity instead of borrower employment status). Why does this matter? Well, if you are reading this, I’m going to go ahead and assume you’re aware of the extremely strict guidelines in place that prevent many good people from buying a home because of a simple technicality. Bottom line, government regulation involving home ownership has gotten tough, with investment property loans it’s not quite as bad.
  4. Not necessary to put half down. This is another reason its a great time to get a mortgage for rental property if you have a high number of investment properties already financed. You DON’T have to put 40-50% down to make it work. In many cases 25% down is acceptable. Obviously credit score and loan size will have an impact on required amount down. [Just ask me, I’ll let you know]
  5. Not necessary to have perfect credit. Let’s face it, life happens. Unforeseen tragedies happen that result in painful credit repercussions. You shouldn’t have to wait 7 years in order to be able to get back into the real estate investing world. In many cases these are doable if at least 2 years have passed since a major credit issue (bankruptcy, foreclosure, short-sale). It wouldn’t be a bad idea to be at least 660 credit before applying. If you’re not at 660 credit score yet, here is a great free tool to help yourself out when it comes to improving your credit score.

 


A loan app without income? Is this the wild west?

Circling back to the comment above about no income being disclosed on the loan application.

No. We’re not getting back to the old days when anyone with a pulse is approved for a mortgage. These loans are fully underwritten and evaluated for ability to repay the loan.

But the ability for the loan to be paid lies within the monthly liability (mortgage payment/taxes/insurance/association dues) in relation to the fair market rent.

So how is fair market rent evaluated?

Pretty simple really. If you’re purchasing an investment property, the appraiser will do a standard 1007 rent schedule (or something similar) to calculate fair market rent for the lender. The lender will then take a percentage off of that amount (to account for possible vacancies).

If you already own the property, and are refinancing, the current lease will be evaluated as well as a 1007 rent schedule to be completed by appraiser.

A Huge Win for Non-Warrantable Condos

Investors who have been looking to buy non-warrantable condos have been having a tough time. They usually have to buy the property cash, or get a hard money loan. With investment property loans that’s probably not going to be necessary if the association is established and the phase is complete.investment property loans

A big problem with investing in condos right now is that the complex can be deemed “non-warrantable” due to a number of circumstances. [more about non-warrantable condos here]

Most of the time condos are labeled non-warrantable because the percentage of units owned for rental purposes is higher than what’s usually acceptable. This is when getting a mortgage for rental property is a great tool to have. The complex will be evaluated and a common sense decision will be made.

The complexes aren’t always approved, but it’s a great opportunity to explore if you’re and investor running into the non-warrantable condo issue.

Experience is Requiredrefinance rental property

As I mentioned previously, these real estate investment loans are designed for folks who have been investing for a number of years.

Perfect for investors who are running into issues with hitting maximum number of financed properties.

Be prepared to provide legitimate evidence that you have been a real estate investor for at least 2 years. The ability to repay the loan is tied to your ability to manage the property effectively.

If you are fairly new to real estate investing, it will probably be best to get a normal conventional loan.

I invite you to reach out.

portfolio mortgage lendersIf you are looking for a solution to your investment property loan challenges I encourage you to reach out to me to see I might have the right fit for you.

You will not be redirected to some intern in a call center. You will connect with me directly. [who I am]

If for some reason I am unable to assist, I will most likely be able to point you in the right direction at the very least.

real estate investment loans



What is a Non-Warrantable Condo?

Finding out that the condo you’re looking to buy is considered to be a non-warrantable condo can be heartbreaking.

When a condo is identified as a non-warrantable that means it does not meet conventional guidelines (meaning Fannie Mae and Freddie Mac won’t buy the loan).

This is kind of a big deal because Fannie Mae and Freddie Mac pretty much buy all conventional loans. If they won’t give the thumbs up on the condo, you and the seller are in a bit of a tough position.

The first thought that comes to mind for most people is “okay, well what about FHA, VA, or Rural Development? Why don’t we just do a government loan?”

Great question.portfolio mortgage lenders

For the condo to be eligible for FHA financing, it has to be on the FHA approved condo list. If it’s not already on the list, it’s probably best you move onto something else because getting a condo on the FHA approved condo list isn’t exactly a walk in the park.

Same thing goes for getting a condo with a VA loan.

The department of Veteran Affairs actually has their own list of approved condos. Again, not the easiest thing in the world to get on that list.

For a Rural Development loan, the condo just needs to meet the conventional condo guidelines to be eligible for financing. There is no USDA Rural Development condo approved list.

Chances are, if the condo doesn’t meet conventional guidelines, it probably doesn’t meet government guidelines either.

What makes a condo non-warrantable?

Some companies will have their own overlays as to what is considered acceptable, but we’ll look at some of the most common reasons for a condo to get flagged as non-warrantable:

  • Projects where a single entity owns more than 10% of the total units (for projects with 21 or more units).
  • Project has inadequate insurance coverage.
  • Condo project has similar characteristics and is managed as a hotel (condotel)
  • Project (HOA, sponsor, developer) is in litigation that relates to safety, structural soundness, functional use or habitability of the project.
  • New construction condos.
  • Established condos that have additional phases in need of completion.
  • High percentage of non-owner occupied units.
  • High number of units being delinquent on association dues for more than 60 days.
  • Project budget is not appropriately structured.
  • And many more.

The most frustrating thing about buying a non-warrantable condo…

Many lenders wait until the last-minute before ordering a condo questionnaire (which tells them if the condo is warrantable orportfolio loans not).

Why?

Well, your guess is as good as mine. Maybe it’s their “policy” to get the condo questionnaire at the final stages of the loan approval process. Maybe the loan officer didn’t realize how detrimental a non-warrantable condo can be to the process.

It would seem that the most logical thing to do would be to get the condo questionnaire completed before even ordering the appraisal! Think about it, a condo questionnaire costs about $150 (sometimes free), and an appraisal costs $400 – $500. Wouldn’t it make sense to order the questionnaire first, to see if the home can even be financed to begin with?

But many times the opposite happens. Borrowers get under contract on a home, get appraisal done, get fully approved though underwriting, take selfie’s of themselves in front of their new home a week before closing, and then get a call an hour later from their loan officer who say’s “hey man, I just heard from Freddie Mac, they said your condo is non-warrantable”.

Really?

The loan officer is going to place the blame on Freddie Mac?

I know it seems insane. I agree. But there is hope…

How to buy a Non-Warrantable Condo

There are 3 ways to buy a condo that is not warrantable:

  1. Buy the condo with cash. Yeah, because so many people have hundreds of thousands of dollars lying around.
  2. Buy the condo on land contract. This is where the seller acts as the lender. This is a good option, but the problem is that there aren’t a ton of sellers willing to do this. Buying on land contract really limits you to what you can buy. Also, land contract holders usually want to be paid in full within 5 years.
  3. Buy the condo with a portfolio loan. You can find portfolio loans with small banks or credit unions. These are what some would call “common sense” loans. Portfolio loans provide the opportunity  for borrowers (and condo projects) to get looked at from a common sense standpoint.

Often times portfolio loans are a breath of fresh air for folks who have been denied for traditional financing. It gives them an opportunity to own the home they want if the big picture makes sense.non-warrantable condo

Portfolio loans are not “no-documentation” loans.

All income has to be verified. All assets have to be verified. An appraisal has to be done. All components of the approval process have to be legitimate. The main difference between the portfolio loan approval process and the traditional loan approval process is the chance to get the whole story looked at.

Portfolio lenders do not take a check-in-the-box type of approach unlike the traditional lending process. They/we truly look at all of the circumstances when making a decision.

These loans are kept on the lender’s portfolio, and are not sold on the secondary market like most loans.

The pricing on portfolio loans vary based on risk. And every portfolio lender has their own take on what each type of risk costs.

You’ll typically find that rates on portfolio loans are reasonable when considering the alternative (renting).

If you have been told you’re stuck because of a non-warrantable condo…

portfolio mortgage lendersI invite you to reach out to me.

You won’t be talking with some new loan officer, or a customer service rep, you’ll be connecting with me directly.

I get calls and emails almost every day from people around the US that are in need of financing for unique scenarios. If I am unable to assist, I should be able to point you in the right direction at the very least.

pre approved home loan


Adam Lesner | NMLS 198818 | Troy, Michigan

Peoples Bank & Trust Co | Michigan, Massachusetts, and Florida. Also offering financing in most states across the US including (but not limited to) Georgia, North Carolina, South Carolina, Alabama, Arizona, California, Colorado, Delaware, Washington DC, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Minnesota, Missouri, Ohio, Oklahoma, Oregon, Tennessee, Virginia, Wisconsin.