Mortgage AppAmounts-MultiFamily vs Coop/Condo

I"m with the bank on this one.

What you're essentially asking for is a business loan. What's your "business plan" for coming up with the income shortfall, other than the "hope" that you'll find renters?

If it "will rent", then bring the bank a signed lease from renters who "will rent" the space as proof of income. Otherwise, asking the bank to extend you a loan for a property you couldn't otherwise afford on your own would be like an unemployed applicant asking for a mortgage, arguing that given his education, work experience, and credentials, he WILL WORK again eventually.

pkny-not sure why they would lend 480k on a condo or coop and only 400k on the multifamily. Unless other costs such as taxes and insurance are much higher on the multifamily that it offsets your debt to income ratios. When purchasing 3 or 4 family homes you must pass the self sufficiency test. Varies for conventional loans and fha loans. But a certain percentage of your total rental must cover your monthly housing payments. And therefore you may need to put more money down on the 3 family because a higher loan amount would cause your payments to be too high. Rental income is typically used. But it depends on your situation. Is this your first time purchasing? Or are you going from one multi family to another? Sunny.hong@bankofamerica.com

I'm having a similar problem with another bank. I want to purchase a 3 family and live in one of the apartments, but the bank won't count rental income of the other two apartments as income.

the monthly payments on the 80K difference is negligible. (200 to 300 a month) I am sure you can rent the unit for that amount. Do not do the mortgage with Chase.

We do consider 75% of the rental income when qualifying the borrower if they are occupying one of the units. But the underwriter will first qualify without the rental income and then use it as a compensating factor if the debt to income ratios are too high.
philogrrrl - are the other 2 units currently rented?
sunny.hong@bankofamerica.com

Hey Shong,

Can you clarify your second sentance about debt to income ratio? Thanks for the input. This would be my first home purchase.

Patrick

Patrick,
Typically, your total monthly obligations (all monthly debt on credit and housing payments) should be less than 45% of your gross income. That is how debt to income ratios are calculated. First, we would try to see if your monthly payments exceed 45% of you gross income. If it does, we would consider any rental income to see if that helps qualify you for the loan. The underwriter will look into factors such as credit score, down payment, and post closing reserves. Hope that helps.

Shong- This is a Bank of America specific policy? Because again, Chase was very specific in making known that they would not consider what you seem to be staying here.

Perhaps the bank is nervous that you are essentially entering a business, for the first time, and don't know even the most basic concepts of this particular business--debt to income ratios. The banks got into trouble ignoring exactly these factors and loaning to people who had no concept of the structure of the loans. You need to do some homework --not just to get the loan but about risk, business plans, etc before you find yourself underwater and in foreclosure.

Shong,

In my case, the seller presently lives in one apartment and a couple rents the other two for their family. The place is going to be delivered vacant and needs some renovation before it's ready to rent out. Perhaps that is part of the problem. Also, the house is in Downtown Brooklyn/Vinegar Hill so maybe the banks are thinking that, with all the development, it will be hard to draw tenants to a small buiding. I just think that I can offer cheaper rents and a more warm environment for the tenants than those big developments. Plus, I doubt I'd need to rent both apartments in order to cover the costs of the building. But the ways of banks are mysterious to me...

pknyc-Im not sure of Chase's policies but we do consider rental income if you are occupying one of the units. We will go off the appraiser's evalution of the market rent and use 75% of that. If you say this is your first purchase and dont own any other investment properties then we do use the rental income.
philogrrrl-being delivered vacant is fine. But they must be in habitable condition.

And depending on whether or not youre looking for conventional financing or FHA, guidelines vary. For FHA, the 3-4 family home must pass the self sufficiency test. 85% of the total monthly rental income (including the one youre occupying must cover the monthly mortgage, taxes, and insurance payments)

You can feel free to email me and go over specifics. sunny.hong@bankofamerica.com