Qualifying for loan on 4-unit apartment bldg - Posted by Robert

Real Estate Investing Office
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Posted by Mark Williams on December 19, 2003 at 06:27:11:

Rich:

You have the response (plus a little more) in your email.

I think that if you’ll search my posts over the past year or so, you’ll find that I try to add a lot of info to the site in response to a lot of topics…I don’t just ‘farm’ the board.

I like sharing, and if you will read the email I sent to you, I hope you’ll come to understand that sharing and teaching are an integral part of how I see myself as a mortgage broker…

I have, however, been contacted twice in the past week or so by board management and told ‘not to solicit’ on the board…and then ‘not to include my email in my posts’ because even that gives the appearance of soliciting.

I have pretty much guided myself in the past by the thought that if I spent the time to do an explanatory post that there wasn’t any harm in also letting it be known that I can BE the one who can make the things I post about become a reality…yes, that’s seeking business, but it’s not without the cost of time and effort to respond…seemed fair to me…and nobody was obliged to pursue my address if they didn’t want to.

So, I tried THIS approach this morning…I answered Robert in an email and I backed the response up with this note on the board…if others want to know what my response might have been (such as yourself), then they too can contact me via the email link at the top of my post. If I didn’t put the backup post on the board, no one would know that I had info to share.

I’ll have to observe and see if this approach causes others to be upset…that’s CERTAINLY not my intent.

Best of Good Fortune, Rich…

Mark

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Qualifying for loan on 4-unit apartment bldg - Posted by Robert

Posted by Robert on December 18, 2003 at 23:43:56:

I’m investigating purchasing a quadriplex as an investment. However,I was told by a lender that there is little difference between qualifying for a loan on a 4-unit rental property and getting a loan for a primary residence. He said the bank doesn’t consider such things as rental income and expense history or income projections. You have to qualify for the loan based on the amount you can put down and your income–basically, you’d have to qualify to cover the entire payment out of your own pocket, as though you never intended to get any income out of the property.

Is this correct? Our income is very good & our credit excellent, however you couldn’t buy a quadriplex with the loan amount we would qualify for. I really don’t want to take out a loan on our home or use it as collateral to make this purchase–which is what the lender suggested.

Thanks. Robert

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4 Unit - Need Options Too - Posted by Caterina

Posted by Caterina on December 20, 2003 at 13:12:48:

Hello all! I am a Mortgage Broker (owner) and I am having a hard time finding lenders/programs for 2-4 unit residential properties. I have learned too - that this type of loan borders on residential/commercial. I have a solid lender base but the residential programs offered for 2-4 units aren’t very impressive. I have found some commercial lenders - and they split up into 2 groups - loans up to $1Million and $1Million and higher. What do you all think is the best option? My clients all have the same objective - smallest down payment possible. They don’t really care about the rate - just don’t want to tie up all their cash. I have relationships with local banks, but they don’t want to touch these at all. Please advise! Thanks!

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Re: Qualifying for loan on 4-unit apartment bldg - Posted by E.Eka

Posted by E.Eka on December 19, 2003 at 09:16:31:

Lenders are plentiful. Go find another one, looks like he/she just lost your business.

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Re: Qualifying for loan on 4-unit apartment bldg - Posted by Wes

Posted by Wes on December 19, 2003 at 07:59:39:

Sounds like you have gotten your answer but since some other people seemed to be interested in your question, I will throw this out.

Sounds like either you or the lender was somewhat confused here due to several things you posted. Not sure if you thought you had to get a commercial loan.But, Purchasing a 1-4 unit property can be done by a residential lender using basically the same underwriting guidelines used for purchasing a primary residence. Once you get to a 5+ unit you now have to get a commercial loan and that is a different animal.

If you have current leases signed on any of the 4 units, the lender should accept about 75% of the rental amount as income to you for the purpose of qualification. You do not have to worry about supplying the lender with expenses or income projections for this type loan. What figures the lender needs should be included in the appraisal.

The statement that you would have to qualify as if you will never get anything out of the property in regard to income seems wrong. Unless the lender made this statement in regard to a specific type of loan or loan program… It is not the case for most Non Owner Occupied loans.

With Good income and excellent credit, you need to talk to another lender. Many people have mixed opinions about whether a bank or broker is the best way to go. I beleive they are both good in certain situations. In the evert you do not know exactly what type loan and terms you want or can get, most banks can only offer you the products they have available. A broker has access to virtually every product available from every lender. So in this case I think you should talk to a good broker in your area…

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Re: Qualifying for loan on 4-unit apartment bldg - Posted by Mark Williams

Posted by Mark Williams on December 19, 2003 at 03:56:35:

Robert:

I sent you an email reply to your questions…give me a call to discuss?

Mark

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Re: Qualifying for loan on 4-unit apartment bldg - Posted by Traci

Posted by Traci on December 19, 2003 at 07:40:40:

Mark,
I’m in the same situation except that I want to buy an office/professional building. My salary and credit is very good, but not good enough to get a loan on a commercial/investment building. How do most banks figure out how much we can borrow for the investment property?

Thanks for your help.

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You don’t think others would be interested? - Posted by Rich Hyams

Posted by Rich Hyams on December 19, 2003 at 05:48:12:

Why wouldn’t you post an answer here? Are you just scouting for business? Do you know the op personally?

I was very interested in reading answers to this question.

Thanks

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Re: Qualifying for loan on 4-unit apartment bldg - Posted by Mark Williams

Posted by Mark Williams on December 19, 2003 at 10:37:01:

Traci:

How is it that you think your income and credit '…are not good enough to get a commercial loan…" ?

Have you spoken with a mortgage broker and been told no? Did he/she give you the SPECIFIC reason that you couldn’t get a (commercial) loan?

If, perchance, you’ve disqualified yourself in your own mind, or if someone who isn’t commercial-loan-experienced has told you that C’s are such a hugely different beast that you’ll never be able to get one, then I suggest you speak with an experienced commercial broker…

Commercial loans ARE a very different beast, but they’re not ANY more fearsome than a residential loan if you’ve got a broker to walk you through it.

You won’t get 100% financing for a commercial loan…at least I haven’t found any… Most C lenders want to lend about 70LTV, some will allow seller carrybacks up to 90 CLTV, but they want you into the deal for at least 10%.

Commercial loans definitely require that you be able to repay as evidenced to some degree by your credit score and your income but the real ‘telling’ factor in a commercial decision is the performance of the property…

Commercial lenders typically look at a property from the standpoint of whether it can pay for itself (thus you can see why your credit and income are not the driving factors, here)…They want an apartment building to have a DSCR of about 1.2; I think you’ll find that they want more like a 1.3 for an office building.

DSCR = Debt Service Coverage Ratio. Calculated by dividing your NOI by your debt service payment…thus your net income after (actual expenses and budgets for contingencies like vacancy, maintenance, etc) will be 1.2 to 1.3 times higher than your mortgage payment(s)…and thus you have some ‘cushion’ for making the entire mortgage payment FROM THE PROPERTY ITSELF…

Hope that helps?
I’ll send this to you in email, as well?feel free to contact me.

Mark

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Re: Qualifying for loan on 4-unit apartment bldg - Posted by Wes

Posted by Wes on December 19, 2003 at 08:05:33:

You are not in the same situation because you do need a commercial loan and the other situation did not.

There is an easy type small commercial loan for someone in your position, stated income/stated asset up to $1,000,000.

If this Office is in that price range I can help you if you would like.