Real Estate Rental Property #4 Update (October 22, 2013)

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Rental Property #4 hasn’t closed yet… It was originally scheduled to close last Monday, October 14. This date got pushed out to Monday, October 21, and still nothing. With delay after delay, I started to get a little worried. As fate would have it, my intuition was right, and the file ran into some issues in underwriting.

Apparently, Fannie Mae has a guideline for the rate at which you can acquire rental properties. This would have been my third purchase this year, and fourth in two years. Only one rental property currently shows up on my income tax returns, so my debt to income ratio has started to become problematic. So, even though my monthly statements show that all my rentals are cash flow positive, it looks like they may choose to ignore this fact. In other words, I have the proof but they don’t care because their rules state that I must have rental properties show up on two year’s worth of tax returns in order for the rental income to count. This is needed to offset all the debt I’ve been rapidly accumulating. My W-2 income alone won’t suffice — the debt ratio is simply too high. What a stupid rule!

I haven’t had to deal with anything like this before, and a loan rejection would really throw a major monkey wrench in my plans. Actually, I was already lining up and getting ready to start closing on Rental Property #5…

Well, I guess the good news is that a final decision hasn’t been made. My loan officer is currently appealing, and thinks the odds of getting the loan approved are 50/50. If the loan is indeed denied, the only way I can complete the deal (without resorting to hard money) is to find a co-signer. Oh boy, I hope it doesn’t come down to that…

I’m still hoping for the best, but have to start preparing for the worst. Retire by 30? We’ll see…

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FI FighterPauline @RFIndependencePullingmyselfupLeighwriting2reality Recent comment authors
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writing2reality
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Wow… what a major buzz-kill and momentum swing. Certainly I hope things work out for the best. Perhaps on a positive note you should have plenty of incentive to crank out your tax return in a timely fashion! 🙂

If you were denied, how would you go about structuring the deal? Would you utilize a co-signer or would you use hard money until you could file your returns and improve your debt-to-income ratio and refinance with a traditional loan?

Leigh
Guest

Ugh, that sounds incredibly frustrating! The stress of closing is why I’d way rather use stock investments to retire than rental real estate. But it’s interesting watching your process since it’s so different.

What would you do for a co-signer? One of your parents?

Pullingmyselfup
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“two year’s worth of tax returns in order for the rental income to count.”
Yep I’ve ran into that problem myself.

Have you found a way to get around the 20%-25% downpaament requirement? Thats a stumbling block I keep running into.

Pauline @RFIndependence
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Fingers crossed! When I had a day job I racked up the maximum debt I could in the shortest amount of time because after that it would show on file and the debt to income ratio would be really high. So I was able to invest and buy real estate then they wouldn’t let me have a new credit card for a year or so lol. But if you are confident in your ability to repay, there is no better way to build wealth.

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