Author Topic: Underwriters ding against an investment property on MLS, why?  (Read 2235 times)

InvestandChill

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Underwriters ding against an investment property on MLS, why?
« on: November 14, 2015, 10:54:26 PM »
Hi,

Does anyone have an investment property listed on MLS while at the same time seeking a loan for a primary home?

I understand that a listing with 30+ days being on MLS may look bad because it shows:
A. Something wrong with the property
B. Price is not competitive/aligned with comps in the area

But if neither of those applies, how does having your investment property on MLS look bad while trying to get a new loan for a primary residence? If anything, it should be seen as favorable since your DTI is set to decrease! and your cash reserves can only increase.

Thanks Everyone.


undercover

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Re: Underwriters ding against an investment property on MLS, why?
« Reply #1 on: November 14, 2015, 11:41:48 PM »
I wouldn't think it would make a difference at all. 30+ days is not uncommon in most areas unless it's a super hot area either.

InvestandChill

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Re: Underwriters ding against an investment property on MLS, why?
« Reply #2 on: November 15, 2015, 09:10:12 AM »
30+ would be very strange for my current HCOL area, there isn't enough inventory here to meet demand

Better Explanation of What I'm Trying to Do
Home #1 Current primary residence -> convert to investment property, also listed on MLS this past week
Home #2 Will be new primary residence

We using a 2-prong approach: Both listing Home #1 on MLS and checking out our options for keeping it as an investment property. 

Any underwriters, or people that work with underwriters have an insight as to why this would be seen negatively?

undercover

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Re: Underwriters ding against an investment property on MLS, why?
« Reply #3 on: November 15, 2015, 09:33:44 AM »
Based on your other thread, you're listing your house at around $2M, which is twice the median house price in San Jose. Hot market or not, you're still very limited in your pool of buyers, and 30+ days is not uncommon judging from a quick Zillow search in that price range. Regardless, the bank doesn't care if it's listed for sale or not. Until it's sold, they're going to look at your finances and you still have the mortgage on it.

Even if you can find a temporary place to live and get your primary residence rented out (I wouldn't advise this nor did anyone else in your other thread), the bank won't use that income for another 2 years.

You're either going to have to A) sell the house first, B) find somewhere to live while renting your home out and then prove 2 years of rental income to the bank, C) make much more money, D) call the bank and have them tell you the same thing. They can do that without doing a credit report.
« Last Edit: November 15, 2015, 09:41:53 AM by undercover »

InvestandChill

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Re: Underwriters ding against an investment property on MLS, why?
« Reply #4 on: November 15, 2015, 11:46:38 PM »
Hi Undercover,

I was speaking with a bank we had the following convo-

If my DTI ratio works out to 40% while carrying both houses and after adding in 75% of a conservative rent number into income.
and
If cash reserves can also be demonstrated.
 
Then the only thing that would count negatively against us is that our primary residence is listed in MLS. I think this should have no bearing, but if it has a bearing, then it should be a positive one. This is where I am confused.

undercover

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Re: Underwriters ding against an investment property on MLS, why?
« Reply #5 on: November 16, 2015, 05:06:49 AM »
Again, it doesn't matter whether it's listed or not (it's not going to make a difference unless it sells), but if your intent is to sell, how are you going to rent it?

The bank will count 75% of the rental income towards your DTI, but you still have to have a track record. You can't just get it rented for 2 months and have them count that - as I said, the average bank expects 2 years of tax returns with rental income if you plan on using it. I'm assuming the convo you had with the bank didn't imply that this rent would start sometime in the future.

Let's just get wild and say you get $8k/mo rent for your current home. Even if you get that, that's only an extra $6k in income that the bank will allow. With your now $26.5k gross (using $20.5k based on your other thread), and $17200 in mortgage payments, that still leaves you at 65% DTI. They may calculate it a different way - by taking $6k and subtracting the mortgage of $8.6k, making your new monthly debt $11.2k. So $11.2k/$20.5k = 54% DTI. Still a far cry from 40%. So not only do I not know why you want to do this, I have no idea how you're going to do this. If you just simply have to move, you're better off renting the house you truly want and waiting until your current house sells.

The bigger question here is why are you even considering $2M homes on your income? Is this house a recent purchase? You do realize you're spending 83% (based on your estimates in the your other thread) of your take home on housing?
« Last Edit: November 16, 2015, 06:59:27 AM by undercover »

Another Reader

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Re: Underwriters ding against an investment property on MLS, why?
« Reply #6 on: November 16, 2015, 06:03:02 AM »
If you are applying for a non-conforming jumbo loan, the rules are made by the lender.  These loans are not sold to Fannie/Freddie, so their rules don't apply.

The bank cannot underwrite your loan, because it has no idea what information to use.  If the house is listed for sale, the assumption is you intend to sell.  Therefore, income from that property cannot be used to support the new mortgage.  It also cannot use the proceeds from the sale as an asset or money for the down payment, because the house has not sold, may not sell, and you could change your mind.  Your equity in the house does not exist for underwriting purposes at this point.  Rock and a hard place...

Lots of higher priced properties have 30 plus DOM in San Jose now.  The one that's listed for just under $2MM in my neighborhood has funky additions and still looks like a 1989 build.  If it sells, it might fetch $1.5MM. 


InvestandChill

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Re: Underwriters ding against an investment property on MLS, why?
« Reply #7 on: November 16, 2015, 10:27:02 PM »
Another reader -That makes sense! Looks like we are already on one side of that fence due to our MLS listing. By that logic, banks should be willing to move forward on the assumption that we plan to sell. I found one bank that said if we have a signed listing contract with an agent they can do our DTI without considering the mortgage debt of the house about to be sold. Now, I'll need to shop this strategy around to other banks to compare apples to apples.

You are right on the other point, this would be a non-confirming loan. So now we will see what sort of interest rate they can offer us.

Undercover- We want to do this for the same reason Michael Dell wants to take over EMC:
1. We will be getting the asset under market value.

Unfortunately, we are also facing another set of similarities:
1. We don't have all the needed cash, so borrowing is necessary at this time.
2. We need to rely on investors seeing our value prop to help finance
3. Luckily, we will be part of our own investors....? This *might* be a con ;)
www.msdcapital.com/approach.htm

I do appreciate that you've been adamantly against this deal, we are against carrying both houses as well! We were simply looking for a backup plan.

undercover

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Re: Underwriters ding against an investment property on MLS, why?
« Reply #8 on: November 17, 2015, 07:56:19 AM »
I'm about 99% sure that you can't compare the Dell/EMC merger to what you're trying to do - but good luck is all I can say at this point.