Buying a Home is Like Buying Groceries

21 December 2011

Everyone gets excited when they buy a new condo from a developer on day one. Over the next few years it appreciates nicely. Now you are ready to close and rent it out. You apply for a mortgage and then the fun begins! First, do not put the condo in a company name! Lenders hate it – even with a personal guaranty. The primary reason is that these mortgages cannot be packaged easily for resale by lenders, which is how they do their business. Rather than turn you down, they will start making more and more demands/requirements before they will fund. And they keep adding to the list as you approach the closing date in the hopes you will go away. Note they never turn you down – you just don’t meet all their requirements at closing! So you put the property in your own name. With the new mortgage rules, you only qualify for an 80% mortgage with a rental property. But again the lenders are smart. They will only give you 80% on what you purchased it for at the outset – not what it is worth today. (On the other hand, if property values had gone down, they would lend on 80% of today’s price!) Furthermore, if you have upgraded your condo with the builder and you paid cash – that is the only way builders work with upgrades, then you get no credit with the lender for that either. Your best solution is to try to close the condo unit for ‘all cash’. Then refinance up to 80% of appraised value. With this option, you will find you can get more money and there will be fewer borrower requirements. If you cannot close ‘all cash’, then close with an ‘open’ mortgage and again refinance. Now you know why our banking system is considered the safest in the world. No risk lending!