Scenario Spotlight with Steve: Its always sunny in the Hamptons

There are many, many, different loan products out there for borrowers who are purchasing a new home or refinancing an existing mortgage loan they have. Part of my job is being an expert in those many loan products, so I can find the right fit for each individual borrower.  Mortgage loans are investment vehicles and for many people this loan is the largest financial investment/undertaking they will make in their lifetime. Having the right mortgage loan adviser on your side may just be the final ingredient for a successful investment.

I will be writing a “scenario spotlight” each week highlighting interesting loan scenarios I am currently working on, or about loans that I recently closed. You will find the common theme across these stories are that they are scenarios that your typical banks would not likely be able to grapple with. I hope you will find these stories interesting and intriguing, as I did in the moments I was working through them. I encourage you to reach out to share your thoughts, questions, and referrals of yourself or people you know that can benefit from a creative & holistic look at their real estate financing needs.

Its always sunny in the Hamptons

I received an email from a former client requesting help with a refinance to pull some cash out of his single-family investment home he owns in the Hamptons. OK I thought, we’ve recently done a loan for him on his primary residence, he is a self-employed individual with very strong financials, we’ll get this loan closed in no time. Or so I thought…

The last loan we did for this client closed 4 months prior, so I reviewed what documents we had on file and sent an email asking for some updated information. Pretty standard situation, we’ll get the 2017 tax returns which were on extension when we did the last loan and move forward full steam ahead. Here is where the first curve ball came hurling toward me.

The reply I received from the client to my request for the 2017 tax returns would have made most other lenders reply with a sympathetic “give me a buzz when something changes”, or “check back in next year to revisit this” or “best of luck to you”. You see, the reply from the borrower to my request was that he had recently sold his business, had no more income, and wasn’t even going to file his 2017 tax returns at all. It was October 24, 2018. That is not a story you want to tell a bank when applying for a loan.

I take a breath. “I can work with this, no problem at all” I tell him. We have a new program that we can qualify the borrower using the rental income on the property. NO TAX RETURNS REQUIRED. Wow I really saved this one, I thought. “What is the monthly rental income on the property?” I ask.

You might want to duck for this next curve ball.

The property is only rented in the summer and being that it is currently the middle of the winter in the Hamptons, the property is vacant and there is NO rental income on the property. Boy oh boy. Well, should we wait until summer to refinance? There will be a tenant with cash flow, maybe we should just wait. I ask what he actually rents the house for in the summer but there is no clear answer because the house is rented using Airbnb. There is no stable tenant with a lease agreement we can procure. But the figure he tells me is around $750 per night. OK we can work with that I tell him, lets proceed now. We can send an appraiser to tell us what the market rent is and we will use that as the qualifying income. If the appraiser comes up with a number in the same range, we’ll be in good shape.

We get the appraisal report completed and the market rent noted is way below the estimate.

The pitcher cocks his arm, eyes glaring, cap pulled tight around his head, and there I am gripping the bat white knuckled with two strikes. Will I swing and miss at this fastball flying at me at 90mph, or hit a home run to tie the game heading into the 9th.

BOOM! My bat makes contact and the ball goes soaring over the left field wall. I am able to pivot the loan for a slightly higher rate into another loan program where it doesn’t matter what the rental income is on the property, it doesn’t matter that the property is vacant 9 months of the year, it doesn’t matter that the borrower has NO reportable income! The numbers still make sense for the borrower and he is happy to keep moving forward!

The loan is submitted to the underwriting team as a no-ratio loan product and after about a week, or what seemed like a year, we got the LOAN APPROVAL letter!

We expect the closing to happen in the next week or two, so stay tuned and I will be sure to let you know the final score!

And that’s a wrap for this week’s scenario spotlight with steve

Look out for next weeks story, the 60 day rate lock, turned 6 months and counting…