- This topic has 11 replies, 7 voices, and was last updated 12 years, 5 months ago by
Josh.
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October 31, 2011 at 1:59 PM #19248October 31, 2011 at 2:18 PM #731759
an
ParticipantObviously, you should talk to a mortgage professional. My personal experience is banks are very strict these days. They will look at your bank statement and ask where you get a $200 deposit from. So, if you have a $75k deposit, they’ll definitely ask. They won’t like it if you tell them you borrowed it. They would require a letter from your MIL saying that it’s a gift and not a loan. I think, they only ask for the last 2-3 bank statements, so if you let the money seasoned for >3 months, they might not know and might not ask.
October 31, 2011 at 2:18 PM #731760Participantdelete
October 31, 2011 at 4:04 PM #731783EconProf
ParticipantThis is exactly the kind of loan banks ought to be making. Here is a high income couple with great credit, ready to put over 25% down on a SFH to rent out. The banks are apparently so traumatized by the regulators and bank examiners that they won’t likely go for it even though the interest rate on an investment property may be 2 percentage points over the going rate for an owner-occupier. The prejudice against investor-owners is keeping the market from recovering.
October 31, 2011 at 4:46 PM #731790all
ParticipantFew banks want to hold fixed 30y loan @ 4% and they don’t want to be forced by Fannie Mae to buy back the loan because a paper is missing.
October 31, 2011 at 4:58 PM #731792markmax33
Guest[quote=EconProf]This is exactly the kind of loan banks ought to be making. Here is a high income couple with great credit, ready to put over 25% down on a SFH to rent out. The banks are apparently so traumatized by the regulators and bank examiners that they won’t likely go for it even though the interest rate on an investment property may be 2 percentage points over the going rate for an owner-occupier. The prejudice against investor-owners is keeping the market from recovering.[/quote]
It’s not prejudice, the market was fixed and skewed by the Federal Reserve and Fannie Mae and Freddie Mac. If these homeowners see the price drop 30% and they are 5% upside down, they should walk away too. It’s a rigged system. The banks hold SOOOOO MANY foreclosures right now it is sickening and I wouldn’t loan to anybody either! Let the market completely fail, wash out the bad loans and start over.
October 31, 2011 at 6:21 PM #731795Diego Mamani
Participant[quote=Josh]I bought a house ealier this year. My wife and I are comfortable with the $2k monthly payment (…) Currently we have zero debt (…) My mother-in-law wants to let us borrow $75k for in investment property as she overheard us telling other people that we have no downpayment for a second property. [/quote]
I guess you meant to say “zero debt” not including your mortgage? Going back to your question, it all depends on what your DTI (debt-to-income) ratio would be if you finance the investment property, and also your FICO scores.Your current rental income needs to be documented showing a signed lease and also copies of checks, etc. Your MIL’s 75K could be a gift, but it could also be a loan: again, documentation is needed listing the principal amount, interest rate, and repayment schedule.
As for personal experience, 10 months ago I was truly debt free (no mortgage, no car payments, no credit card balances, no student loan, etc.). I purchased three investmenmt properties out of state, and the banks gave me a hard time asking for documentation for every little deposit they saw in my bank account. But the loans were approved. Then 5-6 months later I bought a house here in So Cal, and was able to finance that too with 20% down because my DTI was still within their guidelines.
Good luck.
October 31, 2011 at 6:45 PM #731798ParticipantDM: Please share with us what interest rates you are paying on your three investment properties, and a bit about the properties. I suspect more and more people with liquidity will do this as they give up on ever getting more than 1% interest on their savings, don’t trust the stock market, and find that rental properties finally pencil out.
October 31, 2011 at 8:44 PM #731803ParticipantProf, the rates I got for the rental properties are in the 5.0%-5.5% range; all 30-yr fixed, and closed about 10 months ago. The rentals are in the southeast, which works out for me b/c I have family there who have also bought investment properties.
October 31, 2011 at 9:52 PM #731813SD Realtor
ParticipantAN had the best answer, talk to a mortgage professional. We have been procurring rental properties over the past year. Here is the criteria we have had to satisfy for our lender in order to get the loan.
– The downpayment has to come from seasoned funds in your account. If you want to get a loan from a relative then you will need to let that money sit in your bank account for at least 60 days, some lenders may require a longer amount of time.
– If you want you can put your relative on the loan application, then you will not need to worry about the seasoning.
– You will also need to show reserves. In our case we have had to show 6 months reserves for each property we have including our owner occupied home. That is we have had to show cash reserves for 6 months of payments for all of our rentals and our home which is absolutely absurd. (note our case may be out of the ordinary because we have several rentals, if this is your first it may not be as stringent with regards to reserves)
– You will have to make sure that your debt to income ratios are okay. This will be determined by the lender.
If you are looking for cash flow you better make darn sure you are doing your calculations properly. I am curious why you think you need to make a purchase in the 300k range to cash flow? Why not start with a small condo and you don’t need such a big nut to cash flow? Have you owned a rental property before? I am not trying to scare you out of it, I have seen plenty of posts on here that make rental property ownership seem like hell. For some maybe that has been the case, for me it has not been. Conversely it is not easy money and I vet out my tenants carefully and even with that I have had my issues before though they all have been resolved without courts or large losses on my part.
Personally I would feel very uncomfortable borrowing 75k from someone as a downpayment for a rental property. That is very nice of them. However I don’t like the way the numbers run. You have only 10k in cash? You guys make 145k which is awesome but why do you only have 10k in cash? Something is not adding up unless you have large investments somewhere else which is great if you do. Anyways, before I started making more property investments I would build up my cashpile for that rainy day in case something happened to that 145k/yr income flow. Then when I have 6 months to a years worth of savings socked away then perhaps invest. That is just me though and I am very risk averse. If you do wanna make a purchase maybe start small… you can always buy more!! Talk to a lender…
October 31, 2011 at 11:15 PM #731820Participant[quote=SD Realtor]Personally I would feel very uncomfortable borrowing 75k from someone as a downpayment for a rental property. That is very nice of them. However I don’t like the way the numbers run. You have only 10k in cash? You guys make 145k which is awesome but why do you only have 10k in cash? Something is not adding up unless you have large investments somewhere else which is great if you do. Anyways, before I started making more property investments I would build up my cashpile for that rainy day in case something happened to that 145k/yr income flow. Then when I have 6 months to a years worth of savings socked away then perhaps invest. That is just me though and I am very risk averse. If you do wanna make a purchase maybe start small… you can always buy more!! Talk to a lender…[/quote]
I totally agree with this. I didn’t address this point earlier because it would go into too much detail about his personal finances. $10k is a little low to start thinking about investment property. I wouldn’t want to borrow the down payment either. If the money is a gift, then it’s a different story, but I wouldn’t do it with a loan. I would wait till I get enough down payment by myself. Keep that “line of credit” open as a emergency fund if things get tough for a lil while vs depleting it for a down payment. I would start out smaller as well. Maybe $100k-200k, or even sub-$100k.November 1, 2011 at 7:04 AM #731835Josh
ParticipantWe had over $100k in cash last year but after buying the house and spending about $20k on appliances and upgrades we were down to 0 savings. Because we are so low in cash, that is why I am having some concerns. We also have close to $200k in 401k but I don’t want to touch that.
Perhaps I could wait another year and save an additional $25k before investing. Hope real estate price remains low. I need to invest somewhere because I am really tired of stocks. We started our 401k 8 years ago and basically we are about minus 5% with our stocks which is a huge disappointment. I think stock investment is a scam for people like us because the CEOs and management raking in huge bonuses and creating new shares to give to themselves which didutes the value of the shares you and I buy.
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