Investor qualifies without using 2023 tax returns

Mortgage broker: Liz Bayer, ProMortgage.

Property type: Single-family home in the Castro District.

Appraised value: $2.2 million.

Loan amount: $1.5 million.

Loan type: 30-year Investor Flex.

First note rate: 7.750%.

APR: 7.880%.

Backstory: A past client who was an experienced real estate investor reached out to me. He was interested in acquiring another investment property. He already had 16 rental properties.

We had worked together in the past, so when we connected, he advised that his 2023 tax return did not show significant income due to high expenses that he had incurred.

While 2024 was tracking better, this was a hurdle to qualify him for a traditional jumbo loan, because a traditional lender had to use the filed 2023 tax return income.

I told him we had investor products that did not rely on the borrower’s personal income to qualify. Instead, the cash flow of the investment property was another metric we could use as the income qualifier.

There are several options we had to choose from depending based on the debt service ratio. This ranged from debt service ratios of 1.00 or higher that had more lenient credit score requirements to properties that fell below the 1.00% ratio.

The way debt service works is that the monthly rental income is bumped up against the housing payment. In our case, the property was under the 1.00% ratio, and was actually less than 0.750%.

Even though the property’s debt service was lower, my client still wanted to proceed, as he had plans to make changes to the property to increase the bedroom and bathroom count to drive up the rents.

Our lender required, in this case, a larger down payment of 30%, and also needed a qualifying credit score of 740. If the property had a debt service of 1.00%, then, we only needed a 25% down payment and credit score of 700.

In my borrower’s case, we met the 740 score requirement and, because he had recently sold one of his properties, the sales proceeds were used to help cover his 30% down payment.

While the property listed for less, my client put in an offer over the asking price and got his offer accepted. His Realtor told me that the 30% down also strengthened his offer.

The appraisal was the key ingredient to the transaction, and fortunately — because of the hot market we are in — it had no problem appraising.

I look forward to my client’s next investment endeavor.