% of your income needed to cover a mortgage payment?

JDiety,

There seems to be a lot of topics being discussed here and also a lot of confusion with the answers.

Let's first address your concerns:

You want to move to an area where there will be many opportunities for real estate investing. However, you are concerned about employment and income in the new location and how it will affect qulifying.

You have 2 great points that have already been addressed by Kenmorr23 and DFW. They are both actually correct but I think were addressing 2 types of loan programs.

1. I believe DFW is referencing to the underwriting qualifications for most conventional mortgages that follow Fannie Mae and Freddie Mac guidelines. These loans will have the best terms but will be less flexible when it comes to high ltv financing and reduced documentation loans such as stated, no ratio, and do doc. To recap, conventional loans should be able to use your new employers income from day 1, even if it is in a different field. This will most likely need to be a w2 position and not self employed, contract, 1099, or commissionable.

2. Kenmorr23 was probably referencing the Alt-A or portfolio programs offered by those same lenders that do the loans above. These loans are for those with good credit, low down payments, and/or a need for reduced documentation. Most real estate investors fall into this loan type. I reviewed over several of the lender's guidelines that I use and all of them stated a 2 year history in the same field is required for those that receive w2 income. So in your case - you are a manager of a retail store. If you became a manager of a restaraunt then it would probably be looked at closely but could work if strong assets and credit. On the other hand, if you decided to become a waiter at that restaraunt, or a real estate agent, or employee at a real estate office; you probably wouldn't get approved under this loan type. That's why they have No Income (no employment with verifiable assets) and No Doc (no employment, income, or assets) loans.

3. Do you have to move in order to invest in other states? I have several clients that live outside of the states they invest in. Food for thought.

Just two points to address for the discussion about how to use stated income. It's the broker's responsibility to ask the client what their gross monthly income is. The client cannot be coached into putting a specific dollar amount. If the amount listed by the client is not enough to qualify then another loan program, such as No Ratio, No Income, or No Doc may be needed. The income can't be increased later or over inflated initially to make the deal work. Not all lenders require a 4506 to be signed, this includes some Fannie Mae products offered by conventional wholesale lenders.

Aak5454 made a valid point about some lenders asking questions about job changes. If this document shows up, it's usually at closing. So do be careful if you intend to qualify and close under current employment positions with intent to change soon.

I wouldn't worry about prepayment penalties. With your scores there are plenty of lenders with prepay free programs.

You asked Yrush to clarfiy about getting a real estate license and how that pertains to employment parameters. You would still need a 2 year history of being an agent to use that income. Same thing for using income based upon self employment or real estate investments. Being a real estate investor is not the same as being a licensed real estate agent.

There are several lenders that will do 100% financing. As mentioned, they split this up into a first and 2nd combo. Rates on the 2nd are usually in the double digits. Also, there are only a handful that will do 100% with one loan; most of those are full doc and have a prepay. And no, they do not require the collateral of other property for qualifying.

Hard money loans were mentioned in this thread also. As noted, these are a great source of funds for rehabbers. Most banks and conventional lenders will require 10-20% down on rehabs. For those that do not have this or require no verification of income/assets - hard money is the quickest and easiest way. YRush noted that the hard money lenders he sees base the loan off of lower of the appraised value or purchase price. In addition, 70% was not common. In all of my dealings with hard money rehab loans the deal is based on the after repaired value. 70% is typicall. So on a home that would be worth $200K fixed up, the max loan would be $140K. The lender will deduct out costs upfront and sometimes payments. Funds for rehab work are put into escrow. Many HML will not release these funds upfront, the money is there for reimbursement of work completed and inspected. Most of my clients who get a hard money loan are closed within 2.5 weeks. I've seen then done in a week if title, appraisal, and everything else is properly in hand.

With your scores you should be fine with a no doc loan up to about 95%. A no doc may only be needed if you dont have liquid assets. Remember that these are going to have much higher rates and sometimes costs.

There's a couple things you should also know too about how a mortgage consultant (loan officer,broker, etc..) gets paid. The length of time you plan to keep a loan directly ties into the fact of what the interest rate and closing costs are. Mortgage professionals receive part of their compensation from the lender based upon the rate a client is locked in at. For example, If the rate was 7.75% the lender may pay the broker a premium of $500; but if the rate was sold at 8.75% the lender would pay a higher premium of mayber $1,500. In addition, a broker also receives compensation through the origination charged at closing. It's up to them to balance how much they need to make from the rate and how much they will make in origination.

Here's where fix/flip short term loans can run into a problem with conventional lenders. Lendes are in business for brokers to sign up clients that are keeping that loan. The servicing and interest is how they intend to be profitable. So the lenders that we do business with usually have a "recapture" policy. This means that any compensation paid to us for signing up a loan will be requested back if that loan does not have at least 4-6 payments made on it. Now if the broker knows upfront going into the loan that the client will be selling the property quickly, he would need to adjust the compensation to make sure that nothing was being paid via the lender based upon the rate. Thus, all of the brokers compensation would be paid in the form of origination, maybe a little higher than the client intended but the only real security for the mortgage professional to make sure he's in compliance with the lender. Some lenders take it as far as cutting off a broker from doing business with them if too many loans payoff within the first 6 months, regardless if a premium for the rate was paid or not. And of course, you'll always find brokers who will tell you they dont care about the "recapture" policy and will take the chance that the lender wont ask for money back or cut them off if your loans keep closing too soon. I only know of a couple lenders that dont care about recapture but not every client may fit into their parameters.
(Just thought I'd throw this part in there since it seems to come up a lot with clients who want conventional loans for less than 6 months)

Hope this helped clarify some things.