Investing in ...Real estate: how to get a loan

[al77]

So I saved for the downpayment and fix ups, mortgage payments and closing costs. Found a partner who is a handyman and have a decent credit score. Went to a bank to figure out if we can get a home loan.
For a modest house of $150, payments will be about $1200 per month (PITI, i.e. taxes, insurance included).
Now, they told us this payment should be only 41% of less of monthly income minus your rent or mortgage or payments.

If you do the math, you will see that you cannot even start thinking about REI if you don't make $43-45k per year.
I don't make that kind of money but my partner does. The problem is he has to pay $1200 monthly as the mortgage for his own house, make two car payments and pay educational loan.
So he cannot not get qualified for that modest loan.

How do you guys actually get a loan if you don't make more than $45k?

 

[MetalFortress]

Uhm, is it just me, or does 1200 a month seem friggin' ridiculous for a 150,000 dollar house?

 

[Docs]

Over 10 years, yes. (and still short)

 

[al77]

Clarification: $1200 payment includes everything: principal, interest, taxes, insurance. I.e. it is the amount of cash you need to pay each month for this 30 years loan.

 

[Docs]

Talk about rape. :\
Why don't you wait a bit (invest in secure loans) until you amass some funds to offset this absurb payment?

 

[al77]

Originally posted by Docs
Talk about rape. :\
Why don't you wait a bit (invest in secure loans) until you amass some funds to offset this absurb payment?

I try to decompose the payment they suggested:

The rate was 7%.

Pricipal and interest: About $880
PMI: about $100
Taxes: about $200
Homeowner Insurance: about $60

Are you saying their interest (7%) was too high?
I don't think it si possible to avoid taxes\insurance\PMI (our downpayment's just 10%).

 

[Francisco d'Anconia]

You need to find a good mortgage broker because if anyone is still telling you that you have to pay PMI and pay 7% interest is just taking you to the bank. Learn about financing yourself before asking for a loan so that you can play on a level playing field and have half of a chance.

 

[al77]

Originally posted by Francisco d'Anconia
You need to find a good mortgage broker because if anyone is still telling you that you have to pay PMI and pay 7% interest is just taking you to the bank. Learn about financing yourself before asking for a loan so that you can play on a level playing field and have half of a chance.

Could you clarify it a little bit?
7% is high, ok. What is a decent, good interest these days?

 

[Bible_Belt]

Try looking for cheaper properties, especially a duplex or triplex. Many investors own a lot of ghetto or quasi-ghetto properties. It does not have to be nice to be profitable. The problem with costly units is that the rent they bring in is too low as a proportion of the mortgage payment. Obviously, there is a limit to how cheap of a place you should buy, but most first-time investors buy too nice of a rental. They are swayed by their pride in wanting to be the landlord of a nice house.

 

[Francisco d'Anconia]

Originally posted by al77
Could you clarify it a little bit?
7% is high, ok. What is a decent, good interest these days?

I can still find interest rates below 5% however they aren't conventional 30 year mortgages; those are terrible especially for investors. Also that is without having to pay PMI nor having to pay anything down. Yes that's right, 100% financed and no, this isn't one of those Carleton Sheets/no money down/creative owner financing type deals.

 

[STR8UP]

Originally posted by Francisco d'Anconia
You need to find a good mortgage broker because if anyone is still telling you that you have to pay PMI and pay 7% interest is just taking you to the bank. Learn about financing yourself before asking for a loan so that you can play on a level playing field and have half of a chance.

I know what you are saying but this isn't necessarily true for all situations.

I have to pay PMI and 7%+ on most of my properties that I have recently purchased because I usually go in with 5-10% down on an investor no-doc loan. It isn't a question of me paying too much, it's a question of how much I make after all is said and done.

If I make a profit and the only way to have done it was to pay a little more in interest, fees, or whatever then so be it. With one or two properties it might not be a big deal to qualify for a GOOD loan, but when you get to where you own multiple properties you have to take what you can get. Sad thing is, I see people walk away from wealth all the time simply because they think they are getting jacked on the loan.

Okay everyone, repeat after me and write this on the chalkboard 100 times......

"IT DOESN'T MATTER HOW MUCH YOU PAY AS LONG AS THE END JUSTIFIES THE MEANS!"

 

[STR8UP]

Originally posted by Docs
Talk about rape. :\
Why don't you wait a bit (invest in secure loans) until you amass some funds to offset this absurb payment?

Yea, that makes a lot of sense.

While you are saving and investing in your secure loans the price of real estate will have gone up and you lost out on the appreciation.

You need to factor in EVERYTHING before you decide that something isn't worth paying X amount of dollars for.

 

[Shiftkey]

Now, they told us this payment should be only 41% of less of monthly income minus your rent or mortgage or payments.

If you do the math, you will see that you cannot even start thinking about REI if you don't make $43-45k per year.

This only matters if you plan on living there.

The idea is that you won't be paying that mortgage, etc for more than a few months, if that. If you can increase the appriciation by fixing it up to to a value greater than the amount you pay for the mortgage, the loan, and down payment, it's all moot when you sell it. You'll make all that money back and then some.

Did they turn you down for the loan or did you turn it down?

 

[al77]

Originally posted by Shiftkey
This only matters if you plan on living there.

The idea is that you won't be paying that mortgage, etc for more than a few months, if that. If you can increase the appriciation by fixing it up to to a value greater than the amount you pay for the mortgage, the loan, and down payment, it's all moot when you sell it. You'll make all that money back and then some.

Did they turn you down for the loan or did you turn it down?

I cannot see how it is connected to "plan on living there".
You just have to have that income, otherwise you are not qualified to get a loan.
Look, they are saying here is the number ($1200) you will have to pay per month. In order just to get a loan, they want this payment be less then 41% of your monthly income minus your other liabilities. Simply put: if you don't make at least $42k, forget about loans.

They did due to this income requirements.

I am very surprised: so many dudes here are talking about real estate and how they are going to get into it. But it will require a lot of time to get to that $45k first.

 

[al77]

Originally posted by Francisco d'Anconia
I can still find interest rates below 5% however they aren't conventional 30 year mortgages; those are terrible especially for investors. Also that is without having to pay PMI nor having to pay anything down. Yes that's right, 100% financed and no, this isn't one of those Carleton Sheets/no money down/creative owner financing type deals.

Oh...below 5% and without PMI?
Could you hint where I shoudl look for such loans?

 

[STR8UP]

!~

Originally posted by al77
Simply put: if you don't make at least $42k, forget about loans.

So basically what you are saying is that since I have recently purchased a couple of million dollars worth of real estate that I must be making an income of $50k per month? Hogwash. Fact is, I haven't had an income per se for close to a year and I STILL managed to buy all of this property. Where there's a will, there's a way.

How many lenders did you talk to? One?

That's your problem. There are umpteen bajillion different loan products out there today. There are even loan programs for people who are just out of bankruptcy! Don't give me the "I don't make enough money" routine. Get out there and LEARN what is available and what you can do to qualify for a loan that works for whatever deal you are trying to do.

Loser throw up their hands and say "Can't, can't, can't" while winner constantly ask themselves "how CAN I?" That's pretty much all you need to remember to be successful.

I make my living off of doing things other people don't realize are possible. NO EXCUSES!

 

[al77]

Re: !~

Originally posted by STR8UP


How many lenders did you talk to? One?

That's your problem. There are umpteen bajillion different loan products out there today.

Don't give me the "I don't make enough money" routine. Get out there and LEARN what is available and what you can do to qualify for a loan that works for whatever deal you are trying to do.

You are right on both accounts. I talked to just one lender and I have seen lots of different loans they offer.
I just thought teh lenders are quite strict regarding requirement of teh ratio payment to income. I'll keep searching for a better option then.

 

[al77]

Re: !~

Originally posted by STR8UP

How many lenders did you talk to? One?

I have called 3 other lenders I found online. They sure offer somewhat better loans, but still they want your payments be 28%, 35% or 40% of your monthly income - liabilities.

Hm. What better numbers should I expect to hear from them?
Is it possible to find somebody who wants only 60% or 70%? Or who does not care at all about monthly income?

 

[Shiftkey]

I've read that local, non-chain banks are more inclined to give out loans. Have you tried any of them? Or just the Bank of Americas and Wells Fargos, etc?

STR8UP, would it be a good idea to explain to the lender what he plans to do with the property? Maybe they'd be more lenient if they knew he wasn't planning on keeping the property for the entire length of the loan (but then again, maybe they wouldn't like to hear this). I think I remember reading is Russ Whitney's book that Russ would prepare detailed investment packets to the lenders with pictures and figures/graphs.

 

[al77]

Originally posted by Shiftkey
I've read that local, non-chain banks are more inclined to give out loans. Have you tried any of them? Or just the Bank of Americas and Wells Fargos, etc?

I have talked to several lenders online. 4 more so far. All of them still want your payments be about %28-40 of your monthly income, this is the biggest disadvatange so far: we cannot come up with high enough income to get qualified for a loan.

I think you can creatively say "I am going to rent the property out" and a lender will add some of your future rent to your income, even if you are not going to rent it out.