How I Bought my Home with No Cash on Hand and a High Interest Rate
As a way to inspire, I want to share the story of how I bought my home. When purchasing property, even though you may have to go great lengths to pull it off, there is always a way.
Last spring in 2023, a year after interest rates doubled, many people were on the real estate sidelines not wanting to buy, but I was on the hunt. For two years, I had been living in a 500 sq ft bungalow unit, and I was craving a place I could make a home in. Hang some art, display books and entertain friends and family. On a Sunday morning with no appointment, I went to scope out a large duplex property located in a unique half-gated neighborhood of Mid City called Victoria Park. I instantly became smitten by the area with its large old Craftsman and Historic homes.
II made an appointment for the following week. I was clear on my criteria (a vacant duplex I could occupy one unit (preferably the top) and offset the high interest payments with rent from other), and had seen enough property, to know instantly upon seeing the inside that was oozing in charm and original details, that this was the one. I just had to have it. But how…?
In the last month I had invested my savings in an apartment deal with a small group, and was tapped out. But that didn’t stop me from making an offer. And so how, with these questionable financials, could I have gotten my offer accepted. It had a lot to do with the high interest rate (double from just 12 months before), keeping many buyers out of the market. The Seller didn’t have many willing buyers out there to choose from, and so that worked to my advantage.
Here is the old listing from when I bought it:
https://www.themls.com/Share/YWFjZGhnaGZj
I was told by the listing agent that as long as my offer was no more than $100,000 below the list price, it should get accepted by the seller. I needed them to be patient with me, so I went in $50,000 below the list price.
(Note: it wasn’t at the bottom of that range she has shared. And that’s because I needed them to play ball with me while I took some time to solve my down payment problem. And why low ball anyways? I knew there was a ton of upside on this property.)
Here were my Terms:
Price $1,550,000
Down payment 20% ($310,000)
45 day close (Myself and Seller had ability to extend by 30 days)
Seller given (the one remaining half of the trust and who occupied the duplex still) a Contingency to find a replacement property and ability to stay back for a month in home after Escrow closed.
With my Offer accepted, I came up with a plan to acquire a Home Equity Line of Credit (HELOC) against an income property I own. I got started on that right away, as I knew on a non-owner occupied property, it wouldn’t be as easy to tap equity from it because it wasn't my primary residence. It took three banks to finally approve the line of credit.
Oh, and in addition to borrowing my down payment from another property, I also needed $46,500 in three days for my Earnest Money Deposit which I needed to wire into Escrow. Luckily, a friend was willing to loan me the $46,500.
So, now with the home tied up and inspections coming back satisfactorily, the lynch pin in the whole deal was seeing that the HELOC got funded.
Bank #1 (Comerica):
Comerica wouldn't count income from my rental properties and therefore my debt to income ratio was beyond their limit.
Bank #2 (Banner):
I was recommended to a small local bank called Banner. Everything was going well until the appraisal. The appraiser they called valued the property at 43% below what I knew to be the market value. I concluded that he must have been drunk, but I knew that appraisers rarely admit they were wrong and reverse their values. So, with time running out on my contingencies I went to the third lender.
Bank #3 (United Wholesale Mortgage):
I found a hard working and aggressive broker named Rose who was using UWM as a lender. I was tense waiting for their appraised value to come in as the first appraisal had now cast a shadow of doubt on what I thought was the market value of the property. I started to believe that the whole deal might not happen.
Luckily the appraisal came in on target. I was one step closer. I had the HELOC.
Although I was still earning steady income from selling homes, I still needed loan approval on the purchase property. The Underwriters need to make sure all my liabilities are covered and track any other expenditures to ensure I can always pay the new loan payments on top of everything else.
You may have seen one during your own purchase or perhaps heard of a “needs list”. A needs list is something that a mortgage broker will send you. It makes up the conditions that a bank wants to see/satisfy in order for them to give final approval on making the loan. I see them all the time for my buyers. Typically, there are just a few conditions on the list, like: show another bank statement, pay down a credit card, write a letter of explanation on certain transactions they note. The lender didn’t send me a few items needed to be satisfied, but the longest list of items I had ever seen. See the list here:
I couldn't believe it, three pages of items to answer and satisfy. I truly just wanted to throw the towel in on the deal. The time, the energy to fulfill a three page list, I didn’t think I had it in me. I printed the list, and tacked it to my office wall. Each morning before work, I chipped away at it. Eventually, I got all of the conditions met and the loan approved. We closed on time. I breathed a sigh of relief and then got to work on the renovations for the new old house.
I share this tale, as a way to inspire you. I have learned that with enough determination to buy real estate there are people, resources, tools and strategies that can make it happen for you. People like real estate. And if you are seeking good deals, opportunities are bound to present themselves. Let’s not forget the most unique thing about real estate is that you enjoy the full appreciation of the entire value, but you only need a fraction of it’s value in cash to purchase it.
It involves work and confidence to know your business plan on the property (this can also be your agent's job to guide you on), but well worth it in my opinion. And a great deal, if you add value to the property and hold it a while, can return you enough capital and comfort to put any temporary stress and inconvenience far into the rear view mirror. Neighboring homes in Victoria Park are selling in the low $2,000,000 range.
Here I was that Sunday morning seeing this property for the first time, which would soon become my home: https://www.instagram.com/reel/CqlWBZDDiUr/?utm_source=ig_web_copy_link&igsh=MzRlODBiNWFlZA==