Author Topic: are my financing hopes unrealistic?  (Read 398 times)

wheninroma

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are my financing hopes unrealistic?
« on: September 15, 2020, 12:18:44 PM »
I'm currently renting, but I want to buy and owner-occupy a 2-4 unit in Chicago (city proper) when my lease expires. The kinds of properties I'm looking at are usually around $1M, and while I could afford a 20% down payment, I don't want to tie up so much of my assets in that kind of purchase. Given that, I'm hoping to something closer to a 10% down payment and just take a hit in the property's cash flow from the bigger payment/interest rate.

I should also say that I really would like to avoid paying PMI, and I know that this isn't a total pipe dream since at least one company offers that for 10% mortgages for employees of the company I work for (more on this below).

However, while I haven't gone through the preapproval process yet, I don't see this kind of deal advertised anywhere, and I've been searching for a bit (albeit only on the internet). I'd love to hear thoughts on whether what I'm looking for is realistic, or whether I should just go through a preapproval process with a few lenders to get a better sense of what I'm likely going to be able to afford.

Things going in my favor:
1. the properties I'm looking at are in good neighborhoods (probably A neighborhoods) and have decent cash flow, so lower chance of vacancy/catastrophe
2. I have good income from a big tech company ($~200K, though about a third of that is bonuses and equity). The big tech company part is relevant since they already have relationships and perks with some lenders, and this might help my application stand out more
3. About $500K in assets (some of it 401k but a decent amount more liquid than that)
4. As noted above, I'm a first-time homeowner and would occupy one of the units in the residence, so it's not purely an investment property
5. 800+ credit rating

Things working against me:
1. It seems to be unusual to ask for 10% down on a loan value of $~1M, maybe more, for a property that isn't a single-family home
2. A bunch of the compensation mentioned above is bonus and equity, but has been constant for about 2 years

Curious for any/all reactions, happy to answer questions.

Lucky Recardito

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Re: are my financing hopes unrealistic?
« Reply #1 on: September 15, 2020, 12:25:37 PM »
My husband and I own a 2-flat in Chicago, in an A-neighborhood. Things we learned when buying that may impact how you think about this:

* There was no such thing as a 10% down option for a multi-family building. Needed 20%, period. (YMMV, but we found no 10% down options. Different rules than for SFH.)
* We were not able to include expected rental income for mortgage underwriting purposes. I believe they would have counted it if we had 2+ years of landlording under our belts, or somesuch. But we had to qualify for the loan on our salaries alone.
* For a multi-family building, it helps to work with a Chicago-centric mortgage lender. They're familiar with these properties since they're so common here. You're welcome to PM me if you'd like the name of the folks we worked with.

Good luck -- we've loved the 2-flat life. It makes it possible for us to live in a neighborhood we wouldn't otherwise comfortably afford, with amenities (yard, garage) that would also otherwise be out of reach without moving way farther north or west.

waltworks

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Re: are my financing hopes unrealistic?
« Reply #2 on: September 15, 2020, 12:40:39 PM »
If your monthly take-home is around $15k, and you're going to finance $900k, you're in the ballpark of $4k in P&I. T&I I'm guessing will be at least another $2k, though that's just a guess. So you're going to be on the bleeding edge of being able to qualify for the mortgage here - I think most lenders (who don't care about your assets beyond that you can pay a year of the payments) will require you to put down more both because of the type of building (multifamily) and because you need to get those payments down some (as already pointed out, they won't let you use hypothetical rental income to qualify) so that they can sell the loan to Fanny/Freddie.

Get in touch with your company's mortgage folks, or any good mortgage broker, and explain the situation. They'll be able to guide you on how to set yourself up to swing the deal.

-W

affordablehousing

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Re: are my financing hopes unrealistic?
« Reply #3 on: September 15, 2020, 01:08:25 PM »
totally doable. We got a 0 interest 10% second loan from spouse's employer. We do have to pay taxes on the forgiven interest value (counted on the W2 as an imputed income), and need to repay the principal in a bullet repayment after 10 years. Your company probably has something similar, or hopefully better. It might take a bunch of calls, but just knock away at it and you'll find the right lenders.

wheninroma

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Re: are my financing hopes unrealistic?
« Reply #4 on: September 15, 2020, 01:27:15 PM »
Thanks all of the quick and informative responses! I'm now feeling more optimistic that I'll be able to find something by talking to the right people and getting a bit creative. I'm not planning to buy until the spring, so I should have plenty of time to look into it. Sounds like I may have over-invested in self-service online mortgage calculators :)

@Lucky Recardito - would love to get some info on the Chicago-based lenders. I'll dm you.