Mortgage and Portfolio Loan Guide

Rental Property Financing

Getting approved for rental property financing can be done several ways with different loan product types. In today’s post we’ll go through each option available in today’s mortgage market.

3 Ways to Get Approved for Rental Property Financing

Starting with the most popular (and least talked about) rental property financing type – the cash flow mortgage.

rental property financing 4

Cash Flow Mortgage

A cash flow mortgage allows investors to get approved for funding based on the cash flow of the property, NOT personal income.

This is the perfect option for any real estate investor who shows low-income on tax returns due to write-offs. The reason its perfect is because on the cash flow mortgage, tax returns are not reviewed. In fact no personal income is review.

Because again, the lender will review your ability to repay the loan based on the property cash flow, not your personal income.

This since it’s based on property (or collateral) performance, this is treated more like a business loan than a residential loan.

With that said, you’ll still need to meet credit and asset requirements. It is still a fully underwritten loan, the only difference is the way the income is approved.

When the appraisal is ordered the lender will also order a 1007 rent schedule to get an opinion of what fair market rent is. If the property pays for itself after factoring in mortgage, taxes, insurance, and HOA dues – then you should be in good shape from an income approval standpoint.

The other huge benefit to this rental property financing product is that there is no limit to how many properties you currently have financed. That is a big deal because with the “traditional” mortgage type, the max number of financed properties is 10. The cash flow mortgage is a big win for real estate investors looking to grow their portfolio.

Things to keep in mind with the cash flow mortgage:

  • Approval is based on property cash flow, NOT personal income
  • Minimum credit score is 600
  • Available on purchase, refinance, and cash out refinance
  • Up to 80% loan to value ratio
  • Minimum loan amount is 75K
  • Max loan amount is 2.5M

More on cash flow mortgage here.

rental property financing 7

Bank Statement Mortgage

A bank statement loan is another alternative rental property financing type which allows business owners to get approved without tax returns.

With a bank statement mortgage the income is approved based on deposits on bank statements.

This is a great option for self-employed borrowers who make sufficient income in reality, but show low-income on tax returns due to deductions.

This is for business owners (or private contractors) only – not for W-2 employees.

The lender will review 12 months bank statements in order to get a feel for what your deposits and expenses are.

Must have been in business for at least 2 years.

Personal Account

If you pay yourself from a business account to a personal account, all of the deposits into the personal account should be usable when calculating income.

You do not need to be 100% owner of the business if using personal bank statement to qualify.

However, if you use the personal account solely to operate your business, then an expense factor will need to be included when calculating income in order to account for overhead and expenses.

For simplicity purposes, 50% expense factor would typically be used. But if your CPA can confirm the actual expense factor, then that should be applied accordingly.

Example: if your 12 months bank statements show 200K in deposits, and your CPA confirms your expense factor should be 35%, then your usable income would be 130K.

Any large or unusual deposits must be verified. If you typically get 10K in deposits per month, but then have a 50K deposit, there will need to be a paper trail to get confirmation that it was business related in order to have that considered in income calculation.

Business Account

If you are looking to use a business account to qualify, you must be 100% owner of the business.

The same principles apply regarding expense factor. 50% deduction to account for expenses, or CPA to confirm what actual expense factor is.

A CPA or tax preparer would produce a written statement specifying the actual expense ratio of the business (including cost of good sold and all other business expenses) based on the most recent year’s filed tax returns.

***Side note to keep in mind – Lenders will not use bank statement loan product for real estate investors who do not have a business established. If your business is solely real estate investment property income – you need to have a business established. Owning real estate itself will not be sufficient evidence of being in business for 2 years.

More on bank statement mortgages here.

Profit and Loss Statement

For well qualified borrowers (high credit, strong equity), getting approved with a profit and loss statement may be an option.

If you have a self-prepared year to date profit and loss statement to go along with 2 months bank statements, the income may be calculated accordingly.

The lender will evaluate your 2 months bank statement and compare that with the P&L. They’ll use the lower of the 2 in order to calculate income.

If the P&L is prepared by your CPA, the bank statements are needed to calculate income.

This product is not common, and not available in all states. Feel free to contact me to see if you qualify.

rental property financing 9

Full Doc – Traditional

In the traditional mortgage lending world, you would be best to do a full documentation loan. This is because the rate/costs are most competitive.

The down side, is that there are more restrictions on income and number of properties financed when seeking rental property financing on a traditional mortgage.

With a conventional loan, the max number of properties you can have financed is 10. So if you are an investor looking to grow your portfolio, you will be limited.

In addition if you own multiple properties, you’ll need to provide tax returns to show detailed description of write-offs. This creates friction with many real estate investors and self-employed borrowers. For that reason, the products listed above are great alternatives.

In Summary

There are several ways to get approved for rental property financing:

  • Cash Flow Mortgage – approval based on property cash flow
  • Bank Statement Mortgage – approval based on bank deposits
  • Full doc/traditional Mortgage – Conventional approval based on traditional lending guidelines

If you’re looking for simplicity, the cash flow mortgage will typically be your best bet, but every scenario is unique.

portfolio loans

I invite you to reach out.

 

Get your questions answered.

 

We have been able to help many real estate investors with unique needs when other lenders said it couldn’t be done. If we cannot help, I should be able to point you in the right direction at the very least.

self employed home loans

Mortgage Without Tax Returns

Contrary to popular belief, getting a mortgage without tax returns is possible for self-employed borrowers and non-business owners alike. In this post I cover everything you need to know about getting a mortgage without providing tax returns.

Can you get a mortgage without tax returns?

Yes. There are many instances and different loan products that do NOT call for tax returns. This can be done whether or not your are self-employed.

mortgage without tax returns

Business Owners – Mortgage Without Tax Returns

If you are self-employed and show significant tax write-offs, you may have been told you don’t qualify for a mortgage.

It is extremely common for business owners to take advantage of the write-offs available to them. The only problem is: when it’s time to get a traditional mortgage, their debt-to-income ratio “on paper” looks too high.

The solution would be to get a bank statement mortgage. These require at least 600 credit score.

A bank statement loan is a mortgage approval process that allows self-employed borrowers to have income calculated based on bank deposits. With this type of loan, tax returns are excluded from the equation.

Personal Bank Statements

When using personal bank statements to qualify, you do not have to be 100% owner of the business.

You must be in business for at least 2 years. Income will be calculated based on 12 months deposits, minus any non-business related deposits.

In addition, you’ll need to provide up to 3 months business bank statements to show that the deposits are coming from a business account into your personal account.

Business Bank Statements

If looking to use business bank statements to qualify, you must be 100% owner of the business.

You can either:

  1. Use an average of 12 months deposits, minus 50% expense factor, or
  2. Use an average of 12 months deposits, minus an expense factor that a CPA confirms is acceptable.

Using option 2 allows you to not have to get a full 50% hit off of deposits. Because it may be that your actual expense factor is only 30%. If that is the case, it would be more appropriate to get the CPA letter to confirm, so that more of your income deposits are usable on your mortgage application.

P&L Only Mortgage

For well qualified borrowers, a Profit and Loss Only Mortgage is available.

Income approval is done based on a CPA prepared profit and loss statement.

In addition to the P&L, CPA needs to provide a letter stating borrower business name, percentage of ownership, how borrower files tax returns (sole proprietorship, partnership, etc.), and how long the CPA has been filing their returns.

Bank statement mortgage and P&L only mortgages are a type of a “portfolio loan”. Portfolio loans are outside-the-box mortgages that have non-traditional mortgage underwriting guidelines. More on portfolio loans here.

wage earner mortgage without tax returns

Wage Earners – Mortgage Without Tax Returns

If you are a wage earner (hourly or salary employee) you should not be required to provide tax returns on mortgage approval in most cases.

Standard requirements allow wage earners to only provide W-2s (as well as most recent 30 day pay stubs) to prove earnings.

The lender will also likely order W-2 transcripts from the IRS to confirm the IRS records match what you provided.

In addition, your lender will order a verification of employment to confirm you still are employed prior to closing.

If you receive incentive pay (bonus, overtime, etc.) your lender will order a full written verification of employment from your employer to verify amount of incentive pay average over the last 24 months.

If you qualify for the mortgage without the incentive pay, the written verification of employment shouldn’t be needed.

When 25% or more of your income is commission, you’ll likely be required to provide tax returns. This is due to some write-offs that commission paid employees are eligible for.

real estate investors mortgage without tax returns

Real Estate Investors – Mortgage Without Tax Returns

If you are a real estate investor, it is likely you take advantage of many write-offs that are available to you.

Those can cause your adjusted gross income to be very low (on paper) compared to what your actual income is.

For real estate investors, a Cash Flow Mortgage may be the best option for you.

With a Cash Flow Mortgage, your income approval is based on the cash flow of the property, NOT your personal income.

In this case, the tax returns are not provided.

The appraiser will do an analysis of fair market rent to confirm the property pays for itself.

If there is a negative cash flow scenario, there still may be an option depending on down payment (or existing equity if it’s a refinance).

This cash flow mortgage is a breath of fresh air for many investors because it also doesn’t have a restriction on how many properties you currently have financed.

More on cash flow mortgage here.

In summary, there are 5 ways to get approved without tax returns that I have covered in detail above…

  1. Personal Bank Statement Loan
  2. Business Bank Statement Loan
  3. Profit and Loss Only Mortgage
  4. Wage Earner (traditional)
  5. Cash Flow Mortgage

For all options listed (except #4), these are a type of portfolio loan which are designed to meet the needs of unique mortgage scenarios. More on portfolio loans here.

If you have been told you do not qualify due to the way your income is shown, I invite you to reach out.

I have been able to help many borrowers who were told by other lenders that they don’t qualify. If I cannot help, I will point you in the right direction at the very least.

portfolio loans

I invite you to reach out.

Get your questions answered.

 

We have gotten many borrowers all over the country approved for a mortgage even when several of lenders said it couldn’t be done.

If we cannot help, I should be able to give you the guidance needed to get approved in the near future.

self employed home loans

Buying a House After Bankruptcy

When buying a house after bankruptcy, there are several mortgage options including portfolio loans, conventional, FHA, and VA loans. They key is to know which mortgage option would apply to you best.

In today’s blog post I will cover everything you need to know about buying a house after bankruptcy including time frame you’ll need to wait for each type of loan available.

Can you buy a house after bankruptcy?

The short answer is: yes, it is absolutely possible get approved when buying a house after bankruptcy.

The long answer is: it depends on your income, credit, down payment (assets), and waiting period circumstances.

  • Income – You need to have an established/stable income and/or employment situation. If your income is unstable or inconsistent, it is going to create more of a challenge when looking to get approved for a mortgage.
  • Credit – It’s important to show that you have made an effort to re-establish your credit since having a major recent credit event like a bankruptcy. On time payment history, and no new collections would be the goal. Credit score requirements vary, and will be laid out below.
  • Assets – If you’re looking to buy a home immediately after bankruptcy discharge, you’ll likely need at least 15-20% down payment, plus 6 months of reserves. If you can wait, the down payment requirements are less aggressive. If you are at least 2 years out from bankruptcy, and have at least 580 credit, 3.5% down payment may be possible on FHA (10% down if below 580).
  • Waiting period – see below for waiting period on different bankruptcy types and loan types.

How long after bankruptcy can I buy a house?

The waiting period depends on what type of bankruptcy you went through, and what type of loan you’re applying for.

how long after bankruptcy can I buy a house

Chapter 7 Bankruptcy

  • Portfolio Loan – 1 day after bankruptcy was discharged. With portfolio loans your bankruptcy just has to be discharged. There is no lengthy waiting period you have to go through until you can buy a home. Expect higher rates and costs with portfolio loan. Portfolio loans are a short term solution for short term circumstances. Once you meet normal lending guidelines, you’d refinance out of the portfolio loan into convention or FHA
  • FHA and VA Loan – 2 year waiting period. When applying for an FHA loan, you’ll need to wait until the bankruptcy has been discharged before expecting to be approved. The discharge date will show on your credit report, and you can also provide your proof of bankruptcy discharge to your lender so they can further verify the discharge date.
  • Conventional Loan – 4 year waiting period. The lender will need to see 4 years have passed since the bankruptcy discharge date before the approval will be considered.

Chapter 13 Bankruptcy

  • Portfolio Loan – 2 years from original filing date. Must be discharged prior to application. The lender will likely want to see on time payment history on the chapter 13 bankruptcy.
  • FHA and VA Loan – 1 year from original filing date. Need to be able to show on time bankruptcy payments. If still in bankruptcy the court’s trustee will need to approve your request to obtain mortgage financing as well.
  • Conventional Loan – 2 years from discharge date or 4 years from dismissal date.

What if I had a home/mortgage included in bankruptcy?

Portfolio Loan – If mortgage was included in bankruptcy, you may be okay to purchase a new home once the bankruptcy is discharged.

Conventional Loan – If mortgage was included in bankruptcy and the home was surrendered (you left the home) a conventional loan is an option once the bankruptcy has been discharged for 4 years. This applies even if it took several years for the bank to foreclose on the property. Waiting period is still based on the bankruptcy discharge date, not the foreclosure date. This is a fannie mae guideline found here. Also, the snippet from the guideline is listed below.

Foreclosure and Bankruptcy on the Same Mortgage

If a mortgage debt was discharged through a bankruptcy, the bankruptcy waiting periods may be applied if the lender obtains the appropriate documentation to verify that the mortgage obligation was discharged in the bankruptcy. Otherwise, the greater of the applicable bankruptcy or foreclosure waiting periods must be applied.

 

FHA Loan – The waiting period will be based on the foreclosure date (which is 3 years) unfortunately.

Mortgage Included in Bankruptcy | When/How to Buy a house after your home was surrendered

Getting a Mortgage Post-Bankruptcy

It is extremely important that you prepare yourself to present your situation to your lender with complete clarity when getting a mortgage post-bankruptcy.

The story matters, especially if your bankruptcy has been discharged for less than 2 years. The lender is going to want to understand what circumstances led to the bankruptcy, and what has taken place to prevent that from happening again.

As you can see, as stated above, if you do not meet “traditional” lending guidelines, a portfolio loan may be the best solution when buying a house after bankruptcy and it was just recently discharged. A portfolio loan is an alternative type of mortgage that allows borrowers to get approved for a home loan based on more of a common sense approach. [more on portfolio loans here]

how long after bankruptcy can I buy a house

 

  • Low credit scores okay
  • Primary residence, vacation home, and investment property okay
  • Single family home, 2-4 unit, and condominium property type okay

The most important part about buying a house after bankruptcy

Working with a lender who is highly experienced with this type of scenario is perhaps the most important thing to keep in mind when buying a house after bankruptcy.

It is very common for a loan officer to see a bankruptcy on a credit report, and automatically state the borrower doesn’t qualify for “X” number of years without really digging deep into the situation.

Be sure to work with a lender who has a portfolio loan option in case the traditional mortgage route is out of the question.

If you are not sure if you qualify, please feel free to reach out.

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

portfolio loans

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

Jumbo Loans for Bad Credit

When seeking home financing with bad credit, your options may be limited. When seeking Jumbo Loans for bad credit, your options might even be more limited, but options are available.

Whether the low credit is due to recent foreclosure/bankruptcy/short sale or just recent collections, this post will tell you everything you need to know about how to get jumbo loans when you have bad credit.

What to Expect When Seeking Jumbo Loans for Bad Credit

In many cases, these loans can be done with as low as 500 credit score. These loans are typically referred to as “portfolio loans“.

When credit score is low, the lender is going to want to see strong compensating factors in order to give careful consideration on whether or not the loan can be funded.

Compensating factors that are helpful for approval if you do have bad credit:

  • Strong equity (or down payment). Although portfolio loans will allow 10% down payment (or 10% equity), typically that is if you have at least 660 credit and at least 2 years since major credit event like bankruptcy/foreclosure/short sale. The lower the credit, the higher the down payment. Example, if you have 500, it is likely you’ll need at least 25-30% down payment.
  • Strong liquid reserves. Lenders love to see that you have plenty of cash reserves or liquid reserves (401K, IRA, etc.) after it’s all said and done. It makes them feel comfortable knowing that if you were to fall on hard times, you have the means to still cover your mortgage and living expenses. Typically showing 6 months worth of reserves is a good sign.
  • Strong history with employer. Stability and consistency of income/employment is important. If you have been with your employer for 3 years, that factor will strengthen the overall profile. That doesn’t mean you’ll be declined if you don’t have 3 years on the job, but it does help if you do.jumbo loan with low credit
  • Low debt-to-income ratio. If you have bad credit, but a low debt to income ratio, it’s much more simple to demonstrate your ability to repay the mortgage. When calculating debt to income ratio, the lender will factor in your new mortgage payment (including taxes/insurance/HOA dues), and all other liabilities that are shown on your credit report. In addition, they will want to include any other real estate owned and taxes/insurance/HOA dues tied to those properties. The lender will take your monthly debt, divided by your monthly income, and that equals your debt-to-income ratio. Example, if your monthly debt is $5,000 and your monthly income is $15,000, your debt-to-income ratio is 33%. Some lenders will go as high as 55% (with strong compensating factors), but typically they are looking to see 45% or lower.
  • Low payment shock. Your current housing expense will be carefully considered when factoring in your new potential housing expense. It helps to show housing payment history, and not much of an increase when comparing present housing expense with new potential housing expense (unless it is a cash out refinance, and other monthly obligations are being paid off).

Be ready to give a thoughtful explanation as to why your credit is bad.

Portfolio loans are considered case by case, and it helps if you can clearly tell the story of what happened. [more on portfolio loans here]

4 Things You’ll Need To Do When Getting Jumbo Loans For Bad Credit

  1. Be prepared to tell your story. When getting a portfolio loan, the story matters. Take the time to have your facts straight and put it in writing. Help the lender understand exactly what the circumstances were which led to the credit challenge. Explain why these circumstances are isolated, and won’t happen again.
  2. Have all of your documents in order. Just like any other mortgage, when getting a jumbo loan with bad credit, you’ll need to document everything (income/credit/assets). Do not try to cut corners, or ask for exceptions on having all necessary docs. The lender is already taking a risk with lending on low credit. The goal is to minimize the layers of risk involved.
  3. Expect higher rates. When getting a portfolio loan you’re dealing with a different mortgage market than the conventional home financing world. These portfolio loans are designed to be a short term fix for short term circumstances. Once your credit meets normal lending guidelines, you’ll be refinancing into a traditional loan.
  4. Be patient. The underwriting process may take longer than traditional financing in some cases. People are surprised by this because they figure “outside-the-box” lending = quick-and-easy. That’s just not the case. Portfolio loans are carefully underwritten, and fully documented.

Alternative Documentation | Business Owners | Self-Employed

If you are a business owner who shows low net income on tax returns, a bank statement loan may be the best option for you to show your ability to repay the mortgage.

These loans allow self-employed individuals to use their personal or business bank statements to calculate income, and can be done with some low credit scenarios.

When using personal bank statements to qualify you’ll provide 12 months bank statements. Deposits will be averaged over that time frame, and unusual/unverifiable deposits will be excluded from income average.

When using business bank statements to qualify you’ll provide 24 months bank statements. You can only use business bank statements if you are 100% owner of the business. The deposits will be reviewed/averaged, and a “expense factor” will be applied. Typically, the minimum expense factor is 35%. So if you show 100K income, the usable amount is 65K. Your CPA will need to confirm what your expense factor should be.

[more on bank statement loans here]

Keep In Mind

  • Minimum down payment is 10%. The lower the credit, the higher the down payment.
  • Minimum credit score 500
  • Recent bankruptcy, foreclosure, short sale is okay
  • Typically need to show at least 6 months reserves
  • Having strong compensating factors help your likelihood of approval
  • Available on home purchase and refinance
  • Cash out refinance also available on jumbo loans for bad credit

In Summary

Having bad credit does not mean that you have to rent a home while you wait on getting your credit up to normal lending standards. A portfolio loan may be your perfect solution when seeking  jumbo loans for bad credit.

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

Mortgage Included in Bankruptcy | Eligibility Answers

There is an interesting guideline with a conventional Fannie Mae mortgage, where the waiting period to obtain new home financing is based on the bankruptcy discharge date, NOT the foreclosure date when mortgage is included in bankruptcy.

This post is for anyone who has ever had a home included in their bankruptcy, and are looking for answers on when they can buy a new home.

Waiting Period – Mortgage Included in Bankruptcy

Let me paint a picture for you to make sure we are on the same page on when this guideline is used.

You filed bankruptcy and listed your home and mortgage(s) tied to the home as included in the bankruptcy.

The bankruptcy was discharged in 2014, but the home that was included in the bankruptcy was not foreclosed until 2017.

Most lenders will tell you that you have to wait 7 years from the foreclosure date before you will be eligible for conventional financing. This is either because the loan officer is unaware or because their company has an overlay that doesn’t allow this guideline. mortgage included in bankruptcy 7 13

But wait a minute, you surrendered that property in the bankruptcy 4 years ago. The guideline states that when including a mortgage/home in a bankruptcy, the waiting period is based on bankruptcy discharge date, NOT the foreclosure date.

This is ONLY on conventional Fannie Mae loan. This guideline does NOT apply on FHA loans.

Who should pay attention

This guideline is for borrowers who vacated the property at the time the bankruptcy was discharged, or around that time. Remember, your intent was to surrender the home as part of the bankruptcy. If you stayed in the home, and were mortgage/rent free for several years, and then expect to buy a house buy using this guideline, there is a good chance the loan will be declined.

The guideline is not designed to help if you did not truly surrender the home when the bankruptcy was discharged.

If you did vacate the property, and got into a rental, paid your rent on time as promised – this guideline is perfect for you.

It is extremely common for lenders to not complete foreclosure proceedings for several years after the home was surrendered in bankruptcy. But this guideline is what saves the day.

Here is the guideline straight from Fannie Mae:

If a mortgage debt was discharged through a bankruptcy, the bankruptcy waiting periods may be applied if the lender obtains the appropriate documentation to verify that the mortgage obligation was discharged in the bankruptcy. Otherwise, the greater of the applicable bankruptcy or foreclosure waiting periods must be applied.

On conventional mortgage loans the waiting period is 4 years from chapter 7 bankruptcy discharge date. Chapter 13 bankruptcy requires 2 years from discharge date or 4 years from the dismissal date.

But if chapter 13 was dismissed, that means the bankruptcy wasn’t completed. This means the debt wasn’t settled per the agreement. So if you foreclose in that scenario, the waiting period will be 7 years.

Where to Look

The guideline above states that the lender must obtain appropriate docs to prove that the mortgage was included in the bankruptcy. What does that mean?

It’s pretty simple actually (if you retained copies of all your bankruptcy docs, not just the discharge).

When filing bankruptcy, there are many schedules (different sections) that are drawn up that identify assets and liabilities that are included and excluded in/from the bankruptcy.

What you are looking for:

  • Schedule A (Real Property – Real estate that is owned by the person filing bankruptcy)
  • Schedule C (Property claimed as exempt from the bankruptcy) – If your property is listed on the schedule C that means you do NOT intend to surrender the home in the bankruptcy
  • Schedule D (Creditors Holding Secured Claims) – This is where you will find the mortgages or other debts that are included in the bankruptcy

Chapter 7 Bankruptcy

With chapter 7 bankruptcy, it is pretty straight forward. If you mortgage was not reaffirmed, your mortgage was surrendered in the bankruptcy along with all of the other debt you listed.

Once the bankruptcy is discharged, your obligations are gone essentially.

Chapter 13 Bankruptcy

With chapter 13 bankruptcy it gets a little tricky. Traditionally, chapter 13 bankruptcy is considered to be a “reorganization of debt”, enabling individuals with regular income to develop a plan to repay all or part of their debts. You and your creditors agree to new terms on your debt per the bankruptcy terms, and you retain the assets associated with that debt. You make your payments per the bankruptcy and once all of your payments have been made, the debt or delinquency is settled.

Some people use chapter 13 bankruptcy as an instrument to actually save their homes from foreclosure. In those cases, typically the mortgage debt that is included in the bankruptcy is any arrearage (past due payments). So the bankruptcy in this case, would act as a tool to help you keep the house while getting caught up on what you owe. In this case, the home would be listed on the Schedule C in the bankruptcy (property claimed as exempt from the bankruptcy).

However, there are many cases where the home and entire mortgage is included in the chapter 13 bankruptcy. If that is the case, the home will NOT be listed on the Schedule C (property claimed as exempt from the bankruptcy), and the home is considered to be surrendered.

Special Note for Chapter 13

When the home is surrendered in chapter 13 bankruptcy, you may need more than the schedule C to convince the underwriter that the home was in fact surrendered in the BK. This (again) is because traditionally chapter 13 is considered reorganization of debt.

Showing additional proof – Each state is different, but if you’re looking to show further evidence of home being surrendered in the bankruptcy, look for a form stating: Chapter 13 Plan and Motions. This will once again declare what is to happen with the real estate, and the debt tied to that real estate upon successful completion of the chapter 13 bankruptcy.

If the home was surrendered, the chapter 13 plan and motions will state it accordingly.

Alternative

If it turns out you do not meet traditional lending standards and guidelines, a portfolio loan may be the alternative solution for you.

A portfolio loan is a mortgage designed for borrowers who don’t qualify for traditional home financing.

Whether the issue is credit related or otherwise, a portfolio loan may be the solution to get you into the home you’re looking to buy while you wait on appropriate time to pass before being eligible for traditional financing.

More on portfolio loans here.

The Most Important Thing

Keep records of all bankruptcy documents.

I cannot tell you how many times I request bankruptcy documents, and all that is provided is proof of discharge.

In order to document everything properly (and make an appropriate lending decision), lenders need all documents associated with the filing. This also includes any schedules, amendments, and discharge of the bankruptcy in question.

If you have had a mortgage included in bankruptcy, and have been told you need to wait to buy a new home based on foreclosure waiting period:

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

 

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.

Cash out refinance to complete home improvements

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.

W-2 employee of a company your income will be based on the gross amount on your pay stub. When 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 your repairs are fairly minor, there are many lenders 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