I got emotional about it for about 10 minutes. I’m over it now. Mostly because I know there are many other banks that I can go to. One of them will give me what I need. Funny thing is, even during our conversation yesterday, he admitted that he’s been ridiculously busy. That defined the situation right there. I’m sure he’s got many other loans coming in that are probably “cookie cutter” loans. Those are easy. Mine is complicated. He doesn’t want to or have the time to complete mine.
O.K. I have a rental property that I want to do a HELOC on. I’m working with a bank that I currently use (I have another HELOC on another property). Should be a good fit, right? Well it’s been 7 weeks. This guy seems to be jerking us around. His latest issue: The property we’re trying to get an LOC on was under my LLC. He suggested we put it into our own names due to interest rates, etc. O.K. No problem. We did that. Now he’s telling us that the “loss” we took on the property the last two years is working against us because it doesn’t look like a profitable business. Well, we currently get $1200 positive cash flow/mo off of this property. The only thing we’ve done is itemized all of our expenses. Coupled with the depreciation, this shows a loss on our tax filings. This past year we received about 5k back and the year before we received about 7k back.
I don’t understand the problem? From a monthly basis, we’ve, obviously, got plenty of cash flow. From an equity standpoint, we’ve got about 60k (all we’re looking for is about 25k to 30k). My credit is O.K. (680). He’s been dragging this out for 7 WEEKS!! Either this thing is going to happen or it’s not. I’m calling him today and giving him until tomorrow to get this done. There’s too many other lending institutions that would’ve done this loc in a heartbeat.
Any thoughts as to what I should say to this guy other than “sh*t or get off the pot”!!
On residential loans, if you want to get the best rates you have to debt qualify for the loans. In the case that you are self employed, you will have to use the net income + depreciation + depletion on the last 2 years tax returns and divide that by 24 to get your monthly income. If it is a S or C corp, you will take your W2’d income and add in the profit or loss to that figure. If you are a parter in the S or C corp then you will take same % of profit/loss as you have a % ownership of the corp. This is the simple way to explain how residential lenders debt qualify self employed people. I didn’t throw in the K1s in the equation.
Sounds to me like this guy didn’t quiz you enough on your tax returns before they started quoting rates and terms.
Call the guy and ask him about stated income or light doc (6-24 months bank statements to show cash flow) programs. The problem with those programs are higher rates and lower loan to values. Just a fair warning.
Why not try to to do a Stated income loan, that way your negative cash flow that shows on your tax returns does not matter, this is one of popular reasons investors will use STATED.
I always have a loss on tax return because indirect expenses and depreciation that can be allocated to each rental. One thing you can do is show an operating income using direct costs and show repairs as improvements amortized and eliminate indirect costs and depreciation, to get a higher or BE operating income. Prepare this data for the bank before you prepare your tax return. How you account for tax purposes can and should be different from how you account to make business and operational and investment decisions.
Re: Mortgage broker is jerking me around!! - Posted by Jeff H. CT
Posted by Jeff H. CT on July 24, 2003 at 20:10:13:
Tim,
Call Russell Rhea at Litchfield Mortgage, in Washington, CT @ (860)-868-4400. These guys are great. They deal with about 200 different lenders, and really know what it takes to get a loan package accepted. These guys have worked wonders for us. This our newly constructed website to help sell our deals. www.shift4holdings.com (Litchfield County investments)
Good Luck
Jeff Hickcox
I don’t think he is jerking you around. I think he simply did not check all the facts at the beginning of the process and each step of the way brings something new as a result and puts you 7 weeks back.
Indeed, you can’t refinance as LLC so the advice of putting the property under your name was right.
Now, the question of losses… It does not matter what was added to what and subtracted from what to get the negative figure on your returns - loss is a loss is a loss.
He is looking at it from the standpoint of risk - if you report loss that means that you are not making money. As a result he will count the loss against you EVEN THOUGH you have a positive month-to-month income on this property.
However, with that I can also tell you that typically (not sure what state you are in) he should be able to add the depreciation back and hopefully show a profit instead of loss.
What state are you in? I am sure you can get a loan with someone else though. There are numbers of brokers that will do more creative financing… Good luck Tim.
You know, you nailed it right on the head. That’s exactly what he told me. He said even though my month-to-month cash flow is there, at the end of the year and after adding up all of the expenses, I showed a loss. But, how can he assume that just because I had a loss last year doesn’t mean I’ll have a loss this year. I had alot of expenses in repairs last year. So, hopefully, those repairs are over with. (I’m in CT btw). He tried to put the depreciation back in and said things were still too tight.
So, moving forward what should I do when I report my taxes? I’m thinking that I want to report everything up to the point of the company making $100 or so. This way I’m taking into consideration as much of the expense deductions as I can but, yet, still showing a profit made, albeit $100.
I’m going to check with others. Unfortunately, I thought this guy was going to “be” my banker of choice going forward. And, maybe he still will be. Maybe this is just my mis-understanding of what they look at.
It may work for an LOC, personally, I haven’t tried but, when it comes to stated income loans, which by the way are very popular primarily among investors, allows the investor to state what he/she makes and the lender verifies other documents instead.
Each lender is different.
One may say, they need a FICO of 720 and they will only ask for bank statements, appraisal on property, no w-2, no pay stubs.
Another may say only 700 and they will only ask for bank statements, appraisal on property, no w-2, no pay stubs.
Some may say 680 - paystubs, no w-2s, bank statements, appraisal, and that satisfies the requirements.
I have spoken with over 50 different lenders, they are all different. You get even more variety when dealing w/ brokers.
The problem is he isn’t keeping you posted. The loan is the product, doing what it takes to get the loan done is the service. Sounds like you aren’t getting prompt service. Try not to get emotional about it, but don’t just let it keep dragging on. Look at other options.