We're on our first commercial purchase. We requested cash out from primary home equity to jumpstart the purchase. The lender said after all things considered including debt to income, they could do $75,000 cash cash from home equity. The remaining loan amount ($125,000) would need to come from a commercial loan.

So they said we'll talk more Monday with the commercial department about covering the rest. My question is, if my personal debt to income was maxed out in effort to obtain the initial cash out from home equity refi, will the commercial lender see there's no debt to income to work with and scrap the remainder? It's a local rental investment so of course the mortgage will be paid in rental not out of pocket. Any advise is welcome.

Makes sense to me. Thanks for the insight!

So if I'm understanding your transaction correctly, total purchase price is of the investment SFR is $200,000, of which you will cash out from your Primary Residence $75,000 and will need the Commercial Department/Bank to provide an Investment SFR loan for $125,000, is that correct?

If so, your "cash down" will be 37.50% of the purchase price, with a remaining loan to value/cost of 62.50%. That's a bankable deal all day, assuming your cash flow checks the box. Most commercial lenders want to see 20-25% down on an investment SFR, so your 37.50% is very much above the minimum requirement.

Most commercial banks will want the deal to "cash flow" at a debt service coverage ratio of 1.20-1.30X (times) DSCR. In the simplest terms/example possible, if your net cash flow/net operating income of the property (rent minus property & operating expenses) before debt service is $130/mo, your debt payment could be no greater than $100/mo to hit the required DSCR ratio of 1.30X.

While your personal DTI is important on your side, with the commercial loan, it focuses more on the project specific cash flow. When you are preparing your deal, just make sure your rent & estimated expenses take this fundamental structure into account and you should be fine. With that much "cash" down, your project should be able to cash flow just fine.

Since I know you've all been waiting for an update here's what's been happening. I was able to get $65,000 in cash out of home equity. The cash wash funded today along with a simultaneous closing when I immediately cut a check for $55,000 to the commercial loan department and closed on a 4/2 rental here in town. Long story short. After 4 months of asking/ learning/ moving forward, my wife and I have closed on our first rental property with the only cash spent being $450 for some closing cost on the original home equity loan.

Now I know what your wandering. You got $65,000 cash out from home equity and only put $55,000 as down payment for commercial purchase. What happened to the other $10,000. Ssshhhhh that's gonna be our secret.

Congrats!

If this is a residential investment mortgage like a SFH, Duplex, Triplex or 4 Plex.
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