Financing in Logan Square>Question Details

Zachary A, Other/Just Looking in 60622

Jumbo loan for a 3-4 flat investment property on Chicago's north side.

Asked by Zachary A, 60622 Tue Oct 23, 2007

I have 60K in savings. Is it better to use this for a down payment or are there ways to purchase in the 400-600K range without a down payment so I could use the 60K for future incidentals. I have heard that lending organizations will not consider you unless you have 20% down payment. How much do the rent roll, prior year actuals and your projected operating income come in to play?

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Hi Zachary:

For multi-units, a lender will take into account up to 75% of your projected income to as qualifying income, and the remaining 25% of the projected income will be set aside to account for operating expenses, vacancies, repairs, maintenance, etc.

Though it is very difficult to qualify for 100% loans now, they are still available (My last 2 closings were 100% financing clients). However, with jumbo loans, it gets a bit trickier. You may have to consider putting at least 10% down. To avoid a jumbo loan altogether, you might be able to use a conventional loan to borrow the first $415,000, and then borrow the rest through a smaller second loan.

Keep in mind, though, that whether the building will be owner-occupied or not will also affect the type of loan and interest rates you are able to get. A non-owner occupied building will bring you higher interest rates, and with a jumbo loan, expect to pay up to 1.5% higher. This should all be taken into account when analyzing your operating expenses.

Finally, speaking of operating expenses, this is a very useful resource for multi-unit buyers. Take a look at the Property Analysis worksheet on this link, and do your numbers. You can do them as owner-occupied and non-owner occupied. This will give you a much clearer picture on where you will stand financially.…

Disclaimer: I am a Keller Williams agent, but am not affiliated in any way with the KW agent who put this site together. I think it is such a valuable resource for 2-4 flat investors, that you should take a look.

Good luck.
1 vote Thank Flag Link Tue Oct 23, 2007
Hello Zachary,

If you are planning on occupying the property 95% financing is not a problem. Assuming that your credit is excellent. As for the other units in the building, 75% of the rental income can be used to qualify for the loan.

Here are the loan limits to keep in mind.

First mortgages
One-family loans: $417,000
Two-family loans: $533,850
Three-family loans: $645,300
Four-family loans: $801,950

Depending on where the property is located the city of Chicago offers a 4% grant towards closing costs or down payment.

Here are some more details...

Hope this helps!
2 votes Thank Flag Link Wed Oct 31, 2007
Christopher did an excellent job with your question but I believe he is suggesting FHA programs which require documented income& owner occupancy. If you require stated income you will likely to need put more down than 5% however as you intend to occupy the property this will benefit you on both rate and down payment amount.

In regards to you follow up question it's a gray area kinda like quit claim deeds. Most lenders will not complain to changes in your situation after close providing you make timely payments and you do infact live there (honor the terms) immediately after closing. Should you move out and fall behind you will call attention to yourself giving them an opportunity to foreclose if you breach the loan terms. Never living there and applying for owner occupancy rates is likely to be considered mortgage fraud and not worth the risk.
1 vote Thank Flag Link Sat Nov 3, 2007
Hi Zachary,

Typically the terms of the loan will not change as long as you show that you were not deceitful with your intentions when you applied for the loan. Many times a condition will be that you must occupy the subject residence for minimum of 6 months before renting it out.

However, it is always best to check carefully the terms of the loan in the case the loan does specify that in order to continue qualify for the stated interest rate the property must always remain your primary residence (not highly likey, but better safe than sorry!).

Also remember that if you do live it in the propery for 2 years and then move out, should you re-sell, in order to avoid paying capital gains tax, you will have had to have occupied the premises for 24 out of the last 60 months. When that time comes, as an investor you can also do a 1031 exchange, but it's good to keep that IRS rule in mind when shifting from owner-occupied to investment property.
1 vote Thank Flag Link Tue Oct 23, 2007
Usually you are required to pay 20% down on an investment property. You need to establish what rate of return you will be happy with, and how much risk versus return are your willing to weigh.
Rent roll, etc come into play to help somewhat depending on the lender.

Do not think you are going to buy a property based on rent roll alone, or use "late night tv" techniques to buy a property. No bank is going to take you seriously...underwriters are very cautious about people who are not capitalized nor have the investment property experience using their money. They will look at the investment as, "what if you lost all the renters today, could this loaner afford to pay the mortgage?"
Web Reference:
0 votes Thank Flag Link Wed Oct 24, 2007
I plan to occupy one of the units. This brings up another question: if I want to move out of the property after two years (but continue to own it), could the interest rate go up or could the bank call the loan?
0 votes Thank Flag Link Tue Oct 23, 2007
A couple of months ago no money down would be an option. With the most savy mortgage lender you might get away with 95% if you intend to occupy one of the units. I have seen on other ocassions where the lender would let you go owner occupied if you could prove you where living on over 50% of the property. I dont think underwriters at the bank are willing to make this excpetion anymore. Your best bet save for the down payment of atleast 10% and have reserves of atleast 3-6 months for payments and expenses. The lender will take into account some rental income, but if it a residential loan it is alot tougher to state rents.

Good Luck.
0 votes Thank Flag Link Tue Oct 23, 2007
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