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Jumbo mortgage investment property - Can I refinance with 20% equity?

We built our dream home in 2006 and financed it with an option ARM 2nd home mortgage that we would never be able to qualify for today. But at that time, anyone with good credit could barrow any amount it seemed. Now our lovely home is a successful vacation rental with a gross income over 80k, but mortgage lenders I have spoken with will not count my gross rental income toward qualifying for a refinance because I show a loss on my taxes after business expenses that INCLUDE the mortgage, taxes, operating expenses, etc. By only counting net rental income toward qualifying us for a refinance they are forcing us to cover the mortgage twice, which is unfair and impossible. We are benefitting now from low variable interest rates (3.625%) on a $700k mortgage ($3105/mo payment), but have NO SECURITY against rising interest rates. Our mortgage is not part of Fannie or Freddie, so we don't qualify for HARP or even as a 2nd home mortgage since our home is a full time rental property now. It is also a unique property in a remote location with very few comps for an appraisal, which makes it difficult to know how much equity we can count on. Based on our original appraisal and knowledge of the area, I believe we have at least 20% equity, but not 35-40% usually required to qualify financing for a rental property. HELP. We are covering all expenses currently, but very worried about rising interest rates in the next few years. Can anyone give me advice on possible creative re-financing or a strategy on how to qualify for a more secure refinance that is worth giving up my current low variable interest rate? We have good credit, but high credit card debt. Our gross family income is about 94K plus 80K gross rental income. Our primary mortgage is $760/mo. by info505 from Waxhaw, North Carolina. Oct 1st 2014 Reply


Nevin Williams (NevinWilliams)
#42 ranked lender in North Carolina - 108 contributions

Info 505, I'm truly sorry that you are in this situation. If you make 94K a year but show a loss from the rental it means your expenses are greater than the rent received. You can add back depreciation and depletion to help reduce the loss. The loss is deducted from the 94K you make from working which means they are qualifying you on less than 94K.. From what you have described you will need to seek financing from a "portfolio lender". The only one I know of that is very flexible in North Carolina is State Employees Credit Union. However they too only have Adjustable rate loans. If you want me to look at everything and see if I can find another alternative (I might have another portfolio lender) please reach out to me and I'll see what I can do.

Oct 2nd 2014
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Barb Lanis (BarbLanis)
#70 ranked lender in Illinois - 662 contributions

There is a very specific method of calculating rental income for qualifying and you shouldn't be hit twice for the property expenses. Have you seen the spreadsheet as to how they are calculating it? However, you have multiple issues going on, the first being the amount of equity in the property since it's now consider investment. Generally, options open up if you have 30%+ equity in the property. Secondly, it seems that even if the DTI ratios can be resolved, they may be too high for Jumbo lenders who typically like to see them no higher than 43%

Oct 2nd 2014
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Brian Allen (ballen)
#43 ranked lender in Maryland - 190 contributions

Lets look at this glass half full! you have a great rate have you been paying only the interest on the loan? Hard to imagine you have that many expenses eating up 80K? I'm assuming you wish to retain the property I would suggest you take that income and begin to pay the principal on this loan, pay it down so in the event rates rise it may very well be on a lower balance. Creative way of dealing with the principal reduction calculate the balance with a fixed rate of 7% pay that amount as a principal reduction payment. If you can do more you should if not you can always sell it.Good Luck.

Oct 2nd 2014
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Dave Metsker (DaveMetsker)
#38 ranked lender in Oregon - 2,317 contributions

There are investment items called SWAPS, which can be used a hedge against rising interest rates. These are sold by investment brokers. They are in effect an insurance policy to protect you, by paying you a premium if interest rates rise. If there is not a major increase in interest rates, you just "wasted" your investment.I do not recommend this tool, as you can raise rental income when and if inflation increases.

Oct 2nd 2014
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William J Acres (William_Acres)
#1 ranked lender in Arizona - 8,055 contributions

HARP refi's only apply to conforming loan limits ($417K), so even if Fannie or Freddie owned your loan, you still wouldn't be able to refinance using HARP. First let me say that you will not be able to refinance a jumbo investment unless you have a minimum of 30% equity, and your adjusted gross income must support all your debt and leave you within the allowable debt to income ratio defined by the lender (typically 43%).. if you cannot meet these eligibility requirements, then you wont obtain financing.. There are certain lenders who will allow regular deductions from a large cash asset account to be considered for income, but it must have the ability to continue for at least 3 years. Example:.. you have a professionally managed brokerage account with $360,000 in it.. you set up a regular withdrawal of $10,000 per month. Since this would continue for at least 36 months, then the lender can add $10,000 to your monthly income for debt purposes.. not every lender allows this type of asset depletion income, so you would need to shop around. If you don't have the necessary funds, and you don't have enough AGI to qualify, then your pretty much stuck in your loan. If rates go up substantially and the property is no longer affordable, you might want to consider selling it. But understand that the economy is still stalled, and long term outlook for interest rates are stable.. you should be ok for the next few years.. I'm a Broker here in Scottsdale AZ and I only lend in Arizona. If you or someone you know is looking for financing options, feel free to contact me or pass along my information. William J. Acres, Lender411's number ONE lender in Arizona. 480-287-5714 WilliamAcres.com

Oct 2nd 2014
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