Banker helps couple buy a multi-family investment property

Mortgage banker: Patricia Leary Property type: Multi-family investment purchase in East Haven Purchase price: $150,000

Loan amount: $105,000 Appraised value: $165,000

Loan type: Conventional Backstory: Leary often works with buyers who are purchasing investment properties.

Leary received a call from a couple with whom she has worked in the past. They were looking to purchase another investment property. Leary had helped them finance their owner-occupied property as well as their four other investment properties

Leary started the pre-qualification process, which is much more involved than that for purchasing an owner-occupied property or second home.

After the mortgage crisis, Fannie Mae reduced the number of properties they would finance for the same buyers from 10 to five. That number has gone back to 10 financed properties, with one of them owner occupied.

Leary started the process by looking at the credit report. Leary then had to obtain the buyers’ federal tax returns, mortgage statements for all the properties as well as the buyers’ income documents and bank statements.

Leary then had to fill out a Fannie Mae form 1038 with the information from the Schedule E, which is part of the tax returns for each of their investment properties.

The underwriter uses the results of this form, averaging the previous two years, to offset the cost of each investment property versus using the leases for each property.

The underwriter will allow 75 percent of the proposed rental incomes from the three-family property that they were looking to purchase to off-set the cost of the new property.

Leary then has to figure out what is needed for reserves on each property owned. If the borrower has one to four financed properties, the reserves needed would be 2 percent of the balances of the principal owed on each property.

For five to six properties, it is 4 percent of the outstanding loan balances. That was the case for this loan and 6 percent is needed for anyone with seven to 10 financed properties.

These funds have to be able to be liquidated if they are needed to cover the mortgages on the investment properties if there is a problem with tenants vacating the properties.

After reviewing the buyers’ income documents, preparing the Fannie Mae form 1038 and making sure that there were enough assets to cover the down payment of 25 percent, pay the closing costs and cover the required reserves needed, Leary issued the pre-qualification letter.

Leary then took the loan application knowing that the up-front work was completed for her processor.

Her processor, after reviewing, sent the loan to the underwriter for credit approval. Leary ordered a full appraisal on the three-family property. When preparing the appraisal on an investment property, the appraiser prepares a rent schedule to show the market value of the rents in the area.

This is reviewed by the underwriter before issuing the full mortgage commitment. If the apartments have tenants, the underwriter needs the current leases but if the units are empty, the underwriter will use the appraisers average market value.

Leary stays on top of her guidelines and knows that when someone is purchasing an investment property, they have to use their own funds for the down payment and closing costs. Seller paid closing costs or gifts are not allowed.

Patricia Leary, Atlantic Home Loans,

(203) 645-1037 (cell)