FAQ

Digital Mortgage FAQ

What Is a Digital Mortgage

Our true digital mortgage, borrowers begin the process by submitting their application online. Choose Our Live Rates from our wholesale partners, Fill out a digital application, after our system has performed tasks appropriate to the borrowers’ situation, quickly taking actions that move the mortgage as close as possible to closing. Closing takes place in a virtual signing room using an eNotary. Delivery of the loan file to investors, or back to the lender, takes place through the wonders of the Internet. Voila! A true digital mortgage is now complete and has moved electronically into its home in the servicing system where it will live out its life, hopefully peacefully.

Our Digital Mortgage allows borrowers to use our advanced mortgage technology coupled with a seasoned loan officer to close your loans faster while offering the lowest rate and best loan programs tailored to your financial goals.

Alternative Documentation Loans FAQ

What is a bank statement mortgage?

A bank statement program is a home loan program that uses bank statements to calculate a borrower’s income. This is an alternative documentation loan type instead of using tax returns and W-2s in the qualification process. These loans are for self-employed borrowers who typically have substantial tax write-offs that make it challenging to demonstrate the necessary income to prove their ability to repay the loan. The bank statement loan programs use either personal or business bank statements to qualify borrowers.

Can a self-employed person get a mortgage?

Yes, a self-employed borrower can get a mortgage loan using  industry leading non-QM mortgage programs. Each self-employed borrower will be assessed individually to determine if they qualify for a home loan. Credit scores, income / profits, and other factors will determine the appropriate loan type. Given a self-employed borrower’s unique financial situation, alternative documentation may be needed to calculate a borrower’s income. Areal Lending bank statement loan program is designed to help self-employed borrowers, small business owners, and entrepreneurs qualify for a mortgage.

Can I refinance with a bank statement loan program?

Yes, rate and term refinancing is available using OUR bank statement program. Contact an account executive for more information.

  • Can you get a mortgage with 1099 income?
  • Yes, 1099 earners can use 1099 earning statements or bank statements to qualify for a loan. This loan option helps those who cannot verify income based on tax returns. Typically, one to two years of the most recent statements are required and the borrower must be employed with a single employer for two years.
  • Is 1099 earned income considered self-employed income?
  • Yes, income reported on form 1099-MISC in box 7 is considered non-employee compensation or self-employment income. Contact an Our Mortgage Consultant for more details on qualifications.
  • How is income verified for a self-employed borrower?
  • Year to date earning are verified from 1099 earning statements, bank statements, and / or paystubs. An Our Mortgage Consultant can provide the details.
How can I pick a good financial planner?

Yes, utilizing our Investor Cash Flow product allows for cash flow on the property to be used to qualify for the loan. No tax returns or employment information required.

Is personal income required to qualify for an Investor Cash Flow loan?

No personal income is required to qualify. This saves you from submitting complicated income statements and tax returns.

Do real estate investment loans close faster than other mortgage loans?

Typically these loans do close quicker than others but this can vary. Contact our Loan Consultant to discuss your loan scenario.

What is an Asset Qualifier program?
  • This program allows a borrower to qualify for a larger loan using their liquid assets. Employment, income or debt to income is not required to justify the ability to repay their debt.
Can a retirement account be used to qualify for a mortgage?
  • Assets that can be counted include retirement accounts such as IRAs, 401k, annuities and lump sum retirement distributions. Contact an Area Lending  to verify if your account counts as an asset for a mortgage.
What assets are required?
  • We require at least $500,000 in post-closing assets, funds to close and six months reserves are a few of the requirements. An Area Lending mortgage specialist can confirm the required assets needed to qualify.

Jumbo Loans FAQ

What is a Jumbo Loan?

A Jumbo loan exceeds the limits set by the Federal Housing Finance Agency. A Jumbo loan cannot be purchased, guaranteed, or securitized by Fannie Mae or Freddie Mac. We offer a competitively priced Jumbo product

What is a Jumbo loan amount?

A Jumbo product is used for a loan amount that exceeds the conforming loan limit in your area. It varies across the country and you confirm the amount with Our Mortgage Consultant account executive. A jumbo loan (or jumbo mortgage) is a type of financing where the loan amount is higher than the conforming loan limits set by the Federal Housing Finance Agency (FHFA).

The 2021 loan limit on conforming loans is $548,250 in most areas and $822,375 in high-cost areas. For borrowers interested in purchasing more expensive properties, jumbo loans are a valuable alternative.

What is the difference between a Jumbo loan and a conventional loan?

A Jumbo loan allows you to borrow a larger sum of money for a property than with a conventional loan. A conforming loan meets Fannie Mae and Freddie Mac requirements regarding credit, debt and loan size

What is a time horizon?

Time horizon refers to the amount of time a person has to save for a particular event. For example, the time horizon for a college savings account might be 10 years for the parents of an eight-year old child, but 15 years for the parents of a three-year old. Likewise, the time horizon for a 30-year old saving for retirement might be 35 years, whereas it might be 15 years for a 60-year old who started saving late in life.

Government Loans FAQ

The Federal Housing Administration doesn’t actually lend you the money for a mortgage. The loan comes from an FHA-approved lender, and the FHA guarantees it. Borrower pays for the guarantee through mortgage insurance premium payments to the FHA. The lender takes on less risk because the FHA will pay a claim to the lender if you default on the mortgage. Due to this insurance, credit and income requirements for an FHA Loan are more lenient

With and FHA mortgage, you can buy a home with a low down payment. Additionally, FHA loan can provide flexible loan repayment options. Credit requirements and qualifications are less strict. You can use Instant Pre-Quall tool www.localalpemortgage.com/getcredit; Furthermore, other financial difficulties including bankruptcy may still qualify you for the loan.

In order to get the best financing option, you must shot around. A mortgage is a product. Therefore, it’s price and terms can be negotiable. You should compare all the costs involved in obtaining a mortgage. You can save thousands of dollars by shopping, comparing, and negotiating. We help you by shopping your loan with several lenders in order to find you the best deal!

Credit Problems?

You should not assume that minor credit problems or difficulties in your current circumstances will limit your loan choices to only high-cost lenders. Your credit report might have negative or inaccurate information. However, there might be an explanation such as illness or temporary loss of income, be sure to tell us. We can certainly help you provide that explanation to the bank to see if an exception can be made.

If your credit problems cannot be explained, you will probably have to pay more than borrowers who have good credit histories. Don’t assume that the only way to get credit is to pay a high price. You should ask how your past credit history affects the price of your loan and what you can do to improve. Our firm will negotiate the best deal for you. At Area Lending LLC  we have helped borrowers with challenging situations get approved, and we can help you too. By examining each consumer based on their individual needs, we are able to provide results. We have the relationship with lenders that work with challenging scenarios. Looking for FHA Loans in Pennsylvania,Florida? We can help! Get a free quote to see the monthly savings you qualify for. We will happily help you find out more. Let us help you navigate this maze.

FHA Loan Options:

In addition to traditional first mortgages, the FHA offers several other loan programs, including:

  • 203K improvement loan – Intended for borrowers that wish to include the cost of repairs and renovations into the loan amount. It is one loan that allows you to borrow money for both home purchase and home improvements. This option can make a big difference if you don’t have a lot of cash on hand after making a down payment.
  • Energy Efficient Mortgage program – Aimed at upgrades that can lower utility bills. Upgrades such as new insulation or the installation of new solar or wind energy systems can provide additional savings. The idea is that energy-efficient homes have lower operating costs, which lower bills and make more income available.
  • Section 245(a) loan – Designed for borrowers who expect their incomes to increase. Under the Section 245(a) program, the Graduated Payment Mortgage starts with lower initial monthly payments that gradually increase over time. You would have scheduled increases in monthly principal payments that result in shorter loan terms.
  • Home Equity Conversion Mortgage (HECM) – A reverse mortgage program intended on helping seniors aged 62 and older. They can convert the equity in their homes to cash while retaining title to the home. The borrower chooses how to withdraw the funds. They can either have a fixed monthly amount or a line of credit (or a combination of both).
FHA vs Conventional loans

Conventional loans are not insured by the government. They typically require a higher down payment. Whereas, FHA loans can have as little as 3.5% down. Funds must come only from approved sources, such as your savings account, money saved at home, investments you have cashed in, gift funds, etc. Additionally, Conventional mortgage also requires a higher credit score and solid income

Conventional loans usually require the borrower to carry Private Mortgage Insurance if borrowers don’t provide a minimum 20% down payment. FHA mortgages on the other hand, require the payment of an Up Front Mortgage Insurance Premium and an annual Mortgage Insurance Premium (MIP).

FHA guidelines have been established to require borrowers and/or their spouse to qualify according to set debt-to-income ratios. The ratios are used to calculate whether or not the potential borrower is in a financial position that would allow them to owning a home.

The FHA loans are a good option for first-time home buyers who may not have saved enough for a large down payment. Borrowers who have suffered from bankruptcy or foreclosures may also qualify for an FHA-backed mortgage. Above all, Innovative Mortgage Brokers we help you figure out which option fits your needs. We assist our borrowers in finding the loan options for their specific situation. Our team understands that one loan does not fit all. We would like to understand your problems and take a closer look at your options. We want to provide you with the most cost effective solution

FAQ Credit Report

Free Credit Report for Consumers Reading time: 3 minutes

One of the provisions of FACTA, passed in 2003 as an amendment to the Fair Credit Reporting Act (FCRA), was a requirement that each of the three credit reporting agencies provide, upon request, a free credit report every twelve months to every consumer. The goal was to allow consumers a way to ensure their credit information is correct and to guard against identity theft.

AnnualCreditReport.com requires users to register with the site and provide their basic identification information, such as name, address, and Social Security number. The user is then sent to the website of the individual credit reporting agency they select, where they are asked additional security questions to confirm their identity before getting their report.. A consumer can request reports from all three agencies at the same time or stagger the requests throughout the twelve-month period as a way to self-monitor their credit data. In order to obtain a free credit report, users are not required to give a credit card number but establishing an account is required by some of the agencies. Any inaccuracies or signs of identity theft may be dealt with using the mechanisms provided for under the FCRA and FACTA.

Credit scores are not included in free credit reports obtained from

AnnualCreditReport.com. For a fee, each of the credit bureaus offer credit scores as an add-on feature of the report.

Hard Pulls VS Soft Pulls

When a lender or creditor asks a credit bureau to look at your credit report, that inquiry may get noted as part of your credit history. There are two types of inquiries—hard and soft.

  • A hard inquiry occurs when a lender with whom you’ve applied for credit reviews your credit report as part of their decision-making process. This type of inquiry appears on your credit report and can influence your credit scores.
  • A soft inquiry occurs in cases where you check your own credit or when a lender or credit card company checks your credit to preapprove you for an offer. Soft inquiries do not impact your credit scores.

SoftPull instant credit check is a soft inquiry technology that allows mortgage lenders to give a customer an instant credit pre-qualification as a soft inquiry or ‘soft pull’ right on their mobile phone or on the originator’s website. 

SoftPull a low commitment way for customers to engage with a lender early in the process, prior to an application or point of sale solution.  

The SoftPull technology is a consumer-initiated soft credit pull so it does not affect the consumer’s credit score like a hard credit pull.  The consumer instantly can see which of the lender’s products they meet credit criteria for and the lender receives a credit report for the consumer so that they can engage and get started on the application process. 

Get your free True FICO 5 score in minutes!

No credit card needed – ever.  Soft pull will not affect your credit score .Secure process from Equifax®

Click here to access the Equifax Mortgage Pre-Qual tool

How to compare FICO vs VantageScores?

The first thing to know is how the scores compare. According to Credit.com, the scores roughly correlate as follows:

FICO Score Vantage Score
750-850 901-990, “A”
700-749 801-990, “B”
650-699 701-800, “C”
600-649 601-700, “D”
350-599 501-600, “F”

The VantageScore system has some other differences as well. The credit bureaus say it does a better job of assessing risk for consumers who don’t use credit frequently, claiming that someone who doesn’t use an account for six months risks having that record dropped from their FICO rating. The VantageScore system covers a 24-month range, which they say provides a fuller picture.

The two also differ in the factors they weigh in producing a credit score, with VantageScore placing greater emphasis on a borrower’s debt-to-credit ratio and recent credit inquiries and new accounts. FICO places greater emphasis on types of credit used and puts slightly more importance on payment history and total debt.

Are FICO® Scores and VantageScore® Different?

Reading time: 3 minutes

Highlights:

  • FICO and VantageScore are two different companies
  • Both companies create credit scoring models
  • Their models give different levels of importance to different information in your credit reports

Did you know you don’t have only one credit score? There are many different credit scoring companies and credit scoring models, or differing methods of calculating credit scores. Credit scores are calculated based on the information in your credit reports.

Depending on which model, or even which credit bureau furnishes the information used in calculations, your credit scores may vary. Lenders and creditors may use your credit scores to help determine whether to approve your application for credit. Before approving you, they want to know: What’s the likelihood you’ll pay your bills on time? Lenders generally also have their own lending criteria, which may include other factors, such as your income.

Two of the biggest companies when it comes to credit scoring models are Fair Isaac Corporation, or FICO, and VantageScore. VantageScore is the result of a collaboration between the three nationwide credit bureaus – Equifax, Experian and TransUnion.

Both FICO and VantageScore assign higher credit scores to consumers deemed as lower-risk borrowers, and both currently range from 300 to 850.

FICO scores are generally calculated using five categories of information contained in your credit reports, with varying weight given to each:

  • Your payment history (35%)
  • The amounts you owe, or credit utilization (30%)
  • The length of your credit history (15%)
  • The mix of your credit accounts (10%)
  • Your new credit accounts (10%)

VantageScore is calculated with six categories of information contained in your credit reports. It doesn’t assign percentages to how much weight the categories are given, but instead describes their level of influence:

  • Your payment history (extremely influential)
  • Your credit utilization, or the percentage of your credit limits you’re using (highly influential)
  • The length of your credit history and your mix of credit accounts (highly influential)
  • The amounts you owe (moderately influential)
  • Your recent credit behavior (less influential)
  • Your available credit (less influential)

However, there are some differences between the two to highlight:

Length of credit history – To have a FICO score, consumers must have one or more credit accounts that have been open for at least six months and has been reported to the three nationwide credit bureaus within six months. VantageScore credit scores can be calculated if consumers have one or more credit accounts that have been open for at least one month and one account reported within the past two years.

What does this mean for you? If you’re new to credit or haven’t used your credit accounts in a while, you may not have a FICO credit score, but you may have a VantageScore credit score.

impact on credit scores. The time period, however, generally differs. FICO uses a 45-day span, while VantageScore uses 14 days.  And while FICO only includes mortgages, vehicle loans and student loan inquiries, VantageScore will do the same for hard inquiries dealing with other types of credit, including credit cards.

One note: All mortgage loan inquiries within about 45 days count as one inquiry, according to the Consumer Financial Protection Bureau.

Collection accounts – If your past-due account is sent to a collection agency, it may impact your credit scores from either company. But FICO generally ignores smaller collection amounts, when the original balance is below $100. VantageScore, meanwhile, doesn’t factor in paid collections, but includes all unpaid collections regardless of amount.

If you are applying for credit, you might consider asking which credit score the lender will use to evaluate your request. There is no one credit score used by all lenders and creditors, since there are so many credit scoring

General FAQ

– Borrower only has a Work Permit / Employment Authorization. Would we be able to lend to this borrower under the CDL products? If so, what documentation is required?

Yes..

Q – Borrower is a Non-US Citizen / Non-Permanent Resident but does not have a Work Permit or Employment Authorization. Rather, they are in the country legally with a VISA. Is this borrower considered a Foreign National? Would we be able to lend to this borrower under the CDL products? If so, what documentation is required?

Yes.

Q – Are there any restrictions to the number of properties a borrower may own?

No

Q - How do we handle loans in forbearance?

A – We follow the same rules that apply Fannie Mae. Please note this applies to ALL mortgages with the Borrower, not just the subject property

Q – Borrower is retired. What documentation is required to verify Social Security or Pension income?

A – Borrower to provide Award Letter evidencing the social security and pension income. For qualifying purposes, Social security and pension income cannot be grossed up by 25%; income will be taken at face value. Please note this will only apply to Lite Doc loans (CDL-OO and CDL-INV).

Q – Borrower has been self-employed for 1.5 years. Prior to this he was working for a company in the same line of work. Is this acceptable?

A – Yes; guidelines state the borrower must be self-employed OR in the business at least 2 years. If the current and prior jobs are in the same line of work, the employment history would be acceptable. However, borrower must be self-employed at last 1 year in order to provide a complete 12-month Profit and Loss statement.

Q – Can we do Owner-Occupied No Ratio (CDL-OO-ND) loans for retired or unemployed borrowers?

A – Since employment information is no longer asked or verified, this question is moot.

Q – Borrower has a second job, but we do not require income from that job to qualify. Does it need to be on the application?

A – Yes. Even though we may not require the income from the second job to qualify, all employments must be listed on the application. If the secondary employment is as a wage-earner (i.e. not self-employed), no verification of employment or income will be required (since working this type of job would not be something that could be considered a potential income-loss). If the secondary job is self-employment, then we will require a CPA/ accountant’s letter verifying borrower’s self-employment, ownership percentage, and date of inception of the business/Corp/LLC(s)*. In addition, with self-employed borrowers, there IS a potential for income-loss. Therefore, if borrower owns any other businesses, but we do not require income from these companies to qualify (i.e., no P&L to be obtained), we will require signed letter verifying the businesses have not been operating at a loss for the past 12 months*.

* NOTE: there are cases where the accountant’s letter and letter confirming no losses for the last 12 months can be waived. Example: borrower’s second job is as an Uber Driver. Borrower would be considered an independent contractor and works as often as he/she wish. We can verify their employment as a driver with their TLC license, so there is really no need to request an accountant’s letter, especially since we’re not using income to qualify. And since the borrower would only continue to drive for Uber to make money and not lose money, the potential for income-loss is minimal. Therefore, the letter confirming no losses for the past 12 months would not be required.

Q – Borrower owns real estate under an entity. Does this entity need to be listed in the Employment section of the 1003? How are we qualifying the property?

1) If borrower owns real estate under an entity, AND the mortgage on said property is evidenced on borrower’s credit report, the property must still be listed on the Schedule of Real Estate Owned. All sections of the Schedule of Real Estate Owned on the 1003 are completed, namely:

  • Present Market Value
  • Amount of Mortgages & Liens
  • Gross Rental Income (note: will use 75% to qualify loan)
  • Mortgage Payments
  • Other Expenses not escrowed in mortgage payment (taxes, insurance, HOA, etc.)

No supporting documentation will be required (i.e., mortgage statements, real estate taxes, hazard/flood insurance, HOA bills); the information stated on the signed 1003 will serve as verification of the income and expenses of the property(ies). Verification of properties owned free-and-clear is required, and can be accomplished via either:

  • public records (ex: ACRIS)
  • fraud report (through encompass)
  • insurance binder evidencing no mortgagee, or
  • lien search

2) If borrower owns real estate that is in the name of an entity (Corp/Inc/LLC) where either: A) there is no mortgage on the property, or B) the mortgage is under the entity (i.e., does NOT appear on borrower’s personal credit report), and requires the rental income form this property to qualify, then following the guidelines under #1 above.

3) If borrower owns real estate that is in the name of an entity (Corp/Inc/LLC) where either: A) there is no mortgage on the property, or B) the mortgage is under the entity (i.e., does NOT appear on borrower’s personal credit report), and DOES NOT require the rental income form this property to qualify, then property does NOT need to be disclosed.

Q – Are 1031-exchanges acceptable?

A – Yes, 1031-exchanges are acceptable for Investment loans ONLY; the purpose of the 1031-exchange is to use the proceeds of the sale of one investment property to purchase another investment property in order to save the borrower on capital gains taxes. 1031-exchanges cannot be applied for the purpose of purchasing a primary residence, unless the dwelling is mostly non-owner occupant (ex: purchasing a 3-family primary where 1 unit is owner-occupied and the other 2 are tenant-occupied). The documentation required for 1031-Exchanges is as follows:

  • Provide fully executed Assignment of Replacement Property Purchase Agreement identifying the relinquished property and subject property being purchased for the 1031-Exchange
  • Provide copy of HUD1/Settlement statement evidencing the sale of the relinquished property for the 1031-exchange, along with the checks/wires evidencing the transfer of sales proceeds to 1031-exchange Intermediary
  • Provide copy of Intermediary 1031 Exchange Account Statement evidencing all transactions details and sufficient funds for closing subject property.
Q – Can we do a loan under an entity (LLC/Corp/Inc.)?

A – Yes. However, only Investment properties can be held under an entity name (Corp/Inc/LLC). The loan will be opened with the entity as the Borrower and the individual owning the entity as the Guarantor. All individuals with 25% or more ownership in the entity must guarantee the loan and provide an application. The Certification of Beneficial Owners of Legal Entities form must be signed and completed prior to closing. Owner-occupied and second home properties cannot be done in an LLC.

Q – What documentation is necessary for Corp/LLC loans?

A – The following documentation is required for Corp/LLC loans:

  • IRS Letter evidencing EIN
  • Filing Receipt
  • Articles of Organization (on LLC’s only)
  • Operating Agreement (on LLC’s only)
  • Articles of Incorporation (on Corp/Inc’s only)
  • Bylaws (on Corp/Inc’s only)
  • If Operating Agreement or Bylaws do not provide an ownership breakdown, a CPA/Accountant/Attorney letter confirming all members of the entity, their social security numbers, and each owners’ percentage of ownership will be required.
Q – Borrower currently owns the subject property with another individual. The purpose of the loan is to buy-out the other individual and own property solely. Is the loan treated as a cash-out or rate/term? What documentation is required?

A – If the borrower has owned the property at least 12 months from the subject disbursement date, and borrower will not be paying off anything other than the current outstanding mortgage and other individual’s equity portion of the property, then the transaction may be deemed as a rate/term. Borrower may not receive any proceeds from the refinance. Exception to the 12-month ownership requirement exist if the property was legally awarded to or inherited by the borrower. In all other scenarios, the loan will be treated as a cash-out.

We require a signed document / buy-out agreement from all parties confirming the removed individuals’ compensation for their equity portion of the subject. Any compensation paid-out to a party must be listed on the application as a liability and marked as ‘paid-off’ at time of closing. The settlement agent will issue the funds to the appropriate parties directly from loan proceeds at closing. Copy of the new proposed deed must be provided prior to closing for underwriting review. The new deed will be executed and recorded at closing.

Q – Borrower currently owns his primary residence under a Corp/LLC. Can we refinance the loan as a primary residence?

A – Yes. However, the loan must be done under the borrower’s personal name, and a deed change will be required at closing transferring ownership in the property from the Corp/LLC to the borrower’s personal name. Borrower must provide the appropriate LLC/Corp documents (see above) to verify their ownership in the entity. In order to do a cash-out refinance using the appraised value, the entity must have owned the property at least 6 months, AND borrower must have been an owner of the entity at least 6 months. Copy of the new proposed deed must be provided prior to closing. If there are currently other members/owners of the LLC that are NOT evidenced on the new proposed deed, we require a signed document / buy-out agreement from all parties confirming the removed individuals’ compensation for their equity portion of the subject (since the asset held under the LLC/Corp will now be removed). Any compensation paid-out to a party must be listed on the application as a liability and marked as ‘paid-off’ at time of closing. The settlement agent will issue the funds to the appropriate parties directly from loan proceeds at closing.

Q – Borrower bought a property using a purchase-money mortgage about 5 years ago. About 2 years ago, borrower got a HELOC / 2nd Mortgage on the property. Borrower is applying for a refinance and just wishes to pay off the 2 loans on the property (no cash to borrower at closing, not paying anything else off). Would this be considered a Rate/Term or Cash-Out refinance?

A – Rate/Term refinance. Per guidelines, if the purpose of the subject loan is to solely pay off and satisfy the existing loan(s) on the subject property, then we treat it as a rate/term refinance. Borrower cannot receive cash-back more than $2,000 or 2% of the loan amount at closing, and cannot pay off any other debts through the loan proceeds for it to be deemed a rate/term refinance. Cash to borrower at closing that exceeds $2,000 or 2% of the loan amount will be considered a Cash-Out refinance. If borrower wishes or is required to pay off other debts through the loan (including but not limited to: other loans, liens, backed real estate taxes, credit cards, judgements, collections, etc.), the transaction will be considered a Cash-Out Refinance.

Q – The subject property is currently owned in the name of Mr. Smith. There is an existing mortgage on the property, also in the name of Mr. Smith. Can we do a refinance loan under just Mrs. Smith’s name only and add her title at closing?

A – It depends on the type of refinance;

  • If the application is for a Rate/Term refinance, then YES; per the guidelines, there is no seasoning for rate/term refinances. Therefore, she can solely apply for a rate/term refinance, paying off the existing loan(s) on the property (even if they are not in her name), with her being added to title at closing. Copy of the new proposed deed must be provided prior to closing. All current owners must also be evidenced as owners on the new deed at closing. If any current owners are being removed, the transaction is ineligible as a rate/term refinance
  • If the application is for a Cash-Out refinance, then NO; per guidelines, borrower must have owned the property at least 6 months to apply for a cash-out refinance.
Q – Can we do owner-occupied properties in the name of a Trust?

A – Yes. However, the property must be held in an Inter Vivos (Living) Revocable Trust. Irrevocable trusts are not permitted. We follow FNMA’s guidance in regard to this topic. At least one of the Settlors/Trustors who established the trust must be on the Loan/Note and used to qualify. Trustee(s) may also credit qualify for the loan, so long as they have the power to mortgage the security property for the purpose of securing a loan. All individual borrower(s) must sign the Note itself. The Title/Mortgage will be in the name of the Trust.

Q – How are Interest-Only Loans qualified?

A – Interest-Only ARM loans are qualified using the greater of the Note Rate or the Fully-Indexed Rate (Index + Margin). Interest-Only Fixed loans are qualified using the Note Rate.

Q – Is Subordinate Financing Allowed?

A – Subordinate financing is allowed, as long as CLTV and HCLTV are within guideline limits (LTV and HCLTV limits are identical). Loans will be priced at the loan’s HCLTV. Please note, however, the subordinate lender may require a full doc submission and may not accept the documents required for CDL loans.

Investment Property FAQ

Investor Cash Flow mortgage program allows your clients to qualify based on rental analysis to determine property cash flow. No Employment or No personal income required to qualify. This saves you from submitting complicated income statements and tax returns.

  • Loans up to $1.5 million, Minimum loan of $75,000
  • Qualification based on property cash flow − Minimum DSCR 1.0
  • No DSCR needed with minimum 700 FICO and max 70% LTV
  • No personal income / no employment needed
  • Properties can be in LLC’s name
  • No limit on total number of properties
  • Purchase and cash-out or rate-term refinance
  • Non-warrantable condos OK
  • 40 year fixed interest only available

Debt Service Coverage Ratio is a calculation that compares your rental income on an investment property to the expenses of the investment. Obviously, the real estate loan (both principal and interest) you pay on the property is a big part of this calculation. But you also need to consider other standard, recurring expenses, notably:

  • Taxes
  • Insurance
  • Association fees

Please create Calculate DSCR formula TWO Entry Boxes Divided by each other

            Rental income $1,000 / PITIA $1,200 = DSCR of 0.83.

Many investors use the acronym PITIA (property, interest, taxes, insurance, association) to represent these recurring expenses. Your monthly PITIA becomes the denominator in a fraction where the rental income is the numerator. So rental income divided by PITIA equals DSCR.

Here are some sample numbers: You own a property that brings in $1,000 in rental income a month. Your loan (property + interest) is $550/month. Insurance is $100/month, taxes are $100/month, and association fees are $50/month. Add those numbers up to determine that your PITIA Is $800 per month.

This means your DSCR is $1,000/$800, or 1.25.

What should my minimum DSCR be?

If your rental income is less than the cost of PITIA, then you’re losing money on a monthly basis on your investment property. Your DSCR in this case will be less than 1.

Example: Rental income $1,000 / PITIA $1,200 = DSCR of 0.83.

This kind of ratio signals it’s time to raise rental rates, refinance the rental property, or a combination of both, because your real estate investment is underwater on a monthly basis.

If your DSCR equals 1, then your rental income exactly covers your recurring expenses.

Example: Rental income $1,000 / PITIA $1,000 = DSCR of 1.00.

This ratio does not mean you break even, because PITIA does not include all expenses on a property—just the recurring ones. So a DSCR of 1.00 means you will get no profit on your investment and have no way to handle unexpected expenses without losing money. Again, this kind of ratio indicates that you need to take action to have a viable real estate investment strategy.

However, merely increasing your DSCR above 1 isn’t enough to ensure a profit. That’s because non-recurring expenses for a rental property aren’t included in PITIA. These include things like:

  • Standard repairs (repainting, etc.)
  • Capital expenses (a new water heater or roof, for example)
  • Property upgrades (such as kitchen countertops)
  • Vacancy (months without rent)

These expenses aren’t recurring, but real estate investors should plan for them to happen. The way you do this is by increasing your DSCR to 1.3 or more. This difference will give you capital so you can deal with expenses if they come. If they don’t, then you have more profit, which is a plus.

Example: Rental income $1,000 / PITIA $750 = DSCR of 1.33.

One note here: The more properties you have, the lower DSCR you need. If you run a SFR (single-family rental) portfolio, then you may choose a minimum DSCR closer to 1.2. The reason is simple—the volume of properties means you have more actual cash on hand for repairs, lowering your risk.

Example: Rental income $5,000 / PITIA of $4,000 = DSCR of 1.25.

In this case, you would amass a total of $12,000 annually to cover rental vacancies, repairs, etc. Because you have piled up more total cash from having more properties, you can still turn a profit despite the lower DSCR.

What should my maximum DSCR be?

We’ve talked about the minimum DSCR numbers you should look at. How high should your DSCR go?

The answer to that question goes back to your investment strategy. Here are two examples of solid investment strategies with dramatically different DSCR targets.

You’re a retiree who uses rental property income to supplement your lifestyle. You own a property free and clear. Your PITIA will be quite low because you pay nothing for loan principle or interest. In this example, Rental income of $1,000 / PITIA $250 = DSCR of 4.00. You’ll have a low-risk investment generating a nice return, which fits your needs because you’re depending on the income.

You’re an aggressive real estate investor who wants to leverage equity in properties to purchase more rentals. You do a cash-out refinance for rental property to make your equity liquid. In this example, you’d likely aim for a new loan that resulted in something like this formula: Rental income $1,000 / PITIA of $725 = DSCR of 1.38. You don’t generate as much margin monthly, but higher DSCR would mean that you’re leaving equity on the table in your cash-out refinance, which limits other investment opportunities.

Takeaway

Calculating your DSCR is a vital step for any real estate investor, but it’s just as important to know what your target DSCR is. When you match the guidelines here to your personal real estate strategy, you will be able to choose a DSCR range that fits you best. Then you’re ready to find and finance deals to build your rental portfolio.

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