Posted by Bruce Lawson on April 26, 2001 at 18:56:41:
John,
The best thing for you to do is free up some of the D/I, if your score is good now with that much open debt wait till you start clearing some of it off your reports. Depending on the type of debt you rob your credit score with many open accounts. Loans with places like Beneficial will drop your score,credit card debt will eat you alive. It is not a good idea to totally clear your reports of your open accounts either, you need to work on the accounts with big balances a high credit limit will not affect you, but high balances will.
You probably would qualify for a debt consolidation loan to payoff those large balances and free up some space so a lender will look at you. You can always pay the loan off once you do a few properties,flipping properties can generate quick cash.
Hard Money lenders do not worry about a persons credit but they do look at the persons ability to repay the loan,this might be a way for you to get started.
Hopefully some of the more experienced finance people on rhis site can help out with more information.
Severe debt ratio & Carleton Sheets program - Posted by John Swope
Posted by John Swope on April 26, 2001 at 16:37:00:
I welcome any recommendations from Ed and others regarding my situation:
Though my credit is good (i.e. I am current on all payments, and have never missed any payments), my level of debt is high - probably in excess of 60% of my gross income. Considering the reactions I get from various lenders, I assume that I am considered an extremely bad risk.
At this point, it seems that obtaining any level of financing is virtually impossible. I’m involved in the Carleton Sheets program, and I’m excited at the opportunity I have “discovered.” And even though the program is based on “No Down Payment” scenarios, cash is always king.
Other than the obvious, such as paying down the debt and not incurring more debt, what are some constructive ways to proceed with real estate investing in this situation?
John, I purchase and renovate small multifamily buildings (typically 4-12 units). With these deals, there is usually some significant equity created and some room in the completed “loan to value” to consolidate some other debt. I always include a “current DTI” as well as a “proposed DTI” in the loan proposal to show how I can pay down some credit and improve my standing. I have a relationship with several community banks which helps and usually work with a construction loan which rolls over into a permanent loan after renovation is complete. Good luck.
It is true that a high Debt to Income, DTI, will prevent you from getting traditional loans for investment property-or anything else for that matter. BUT conforming, full doc loans are not the only way to go. Ed is fond of Washington Mutual, they are huge. (Recently bought one of my favorite lenders, Long Beach Mortgage-Ate them like a guppy!) I like companies like Benchmark and Standard Mortgage, but whoever you choose to go with don’t let them get hung up on DTI problems. What you are looking for is a No Income No Asset program, NINA. (If your originator doesn’t know what a NINA program is, find somebody who has actually got experience.) This is different from a Stated income program, one word off but a big difference.
A no income program means that you make no representations about what your income is, that part of your application is blank. The DTI is not a concern because they don’t use your income for the purpose of credit evaluation. This is my personal favorite because it doesn’t require you to lie on your application. The stated income programs are different in that they have you “state” what you make and they just don’t verify the number you give them. (In theory, you could be flipping burgers and ?state? that you make 100k/year!) Both of these programs are common and would allow you to overcome the DTI problems you are running into.
These programs are convenient, easy to use, and fast to close, and more expensive than a standard conforming loan. The interest rate for 90% NINA today with Benchmark was 9.375-30 year fixed. To qualify you would need a 660 middle score. Other lenders have programs like this requiring as low as a 620 score. (Rate is somewhat higher, 9.875 today. LTV is lower as well, 80% on this program I know of.)
You can also look into using the money of private investors through note sales. This is typically faster to close and easier money to access. Like NINA and Stated programs, these are expensive deals to make, but if the deal works and the ease of financing allows you to turn extra deals instead of nit-picking the financing of any one deal, how expensive is it in the long run? Fortunately for you, there is an excellent source of information regarding note sales on this very site! Check out the ?paper and notes? forum with Jon Richards and David Butler.