Non-qualifying Home Mortgages and HELOCS With Benson Pang

Hey simple passive cashflow listeners. Today’s going to be a little bit more of an advanced topic or for some of you guys save for the later, it’s going to be talking about what do you do to qualify for a really big mortgages when you buy these really big houses that, you shouldn’t be affording it, but Hey, you got all this cash flow because you’ve been investing the right way.

 

Now again, might be a more advanced topic for later. But if you’re getting started and you’ve got a lot of home equity, if you’ve got more than 20% of your property, your home paid off, dude, you guys gotta do something with that, right? You guys should not be living by the mindset of paying off your house.

 

Right? There’s these two kinds of sets of paradigms out there, 99, 95, whatever. I’m just making this stuff up. I’m going to argue that 99% of people out there are really bad with their money. They’re not like folks like you who listen to financial podcasts, max out your 401k, good little boys and girls work your jobs.

 

High contributors to society pay most of the taxes. It’s not the wealthy people paying the taxes, that’s for sure. If you want to check out our tax guides, go to simplepassivecashflow.com/tax. If you’re interested in learning more about that type of stuff, and it’s not the poor people. Obviously, we’re not going to go down that road.

 

Now again, a lot of these people were people that look like grownups, that kind of act like kids financially, nothing wrong with this. Again, most people are like this, and this is why the mainstream financial advice out there on the street is buy your house to live in because y’all, can’t seem to keep your grubby hands off your money. So we need you to put your money into this house and pay it down over time. Before you spend all your money on all these things that you can manage your money in, create a budget for. But again, a lot of you guys aren’t like that,   there’s a paradigm shift here, the type of advice you’re moving away from this Dave Ramsey world, where you’re told to pay off your debt and you  use debt now responsibly.

 

And this is why you listen to this channel and you are supposed to use debt to your advantage. What I would suggest is to go to simplepassivecashflow.com/heloc if this whole concept is new to you, I am going to suggest checking out some of the articles I wrote in Forbes at simplepassivecashflow.com/debt.

 

It is a mindset shift. And I think that, you know that you understand it, but you may not embody it. And you’ve got to get around other people, right? You have to join our mastermind group, getting around other people who are taking a huge HELOCS and then taking it. The next level of getting things like secure backline of credits, secure Line of credits on the infinite banking policies is the next step.

 

And for somebody who’s just thinking about refinancing their home, that might make their head explode. And because it goes against everything we’ve been taught, like I always say, take advice from financially independent people moving on this path. Not from your parents, your friends, or family.

 

How are you going to spend 30, 40, 50 years paying down their house and that’s it. They’re going to be cash poor house rich. That’s not what you want to be. So again, all you guys, you’re going to get me to get a heloc first, because a lot of your equity is going to be trapped in your home equity right there.

 

HELOCS  are a great way. You don’t pay fees on it. The only downside is you’re not gonna be able to tap all their equity because the banks are gonna want to sandbag you on the evaluations to cover their old buds. But that’s fine, right? For a lot of you folks who have your properties paid off more than 30, 40% plus, that’s not a good thing.

 

Any time you’ve paid off your house more than 50% and you come into one of our events before are looking around oh my goodness, you need to stop doing that for your own good. And then put it into good investments where you’re going to create positive cash flow and grow your money.

 

And then that kind of creates gets you on the bandwagon for all these tax advantage investments. But, before I go into the whole simple passive cashflow, the trifecta, which is good investment, tax systems and infinite banking, I’m just going to send you to the websites simplepassivecashflow.com/heloc  to get started with that and enjoy the show because if you keep following this, it take most people like four to seven years to get on the bandwagon, get your passive income up by getting your lazy debt equity, which is typically in your home doing something. And if we get them doing something, at some point, it’s going to grow over time.

 

If you have a million and a half in the bank right now, it may not be in the bank. It may be in your home equity, retirement accounts,  if you get into something lame, that’s making 10%, which is very achievable in the alternative investment world. You’re making 150,000 probably tax free. You probably don’t need to be going to work tomorrow.

 

You have enough potential energy. You just have to really shift things and part of that is getting a heloc and putting that money in the right place. So it’s a knowledge game. It’s a mindset shift to get there. Fortunately, you’re gonna need a peer group to do that, but enjoy the show.

 

Hey folks, I got my buddy Benson Pang, a lender out of California, to help me out with a personal issue that I’m having. As a business owner, I am pretty good with my taxes and deductions, but in terms of dropping down my taxes, I drive it way down. If you guys want to see my taxes, I think last year, My AGI was 25 grand in 2019 or 2020. And then this year it’s probably gonna be something very similar. I haven’t gotten it back, definitely like nothing of course, but which excuse me for going into loans now. I co-sign on all my general partnership syndication deals, but it’s totally asset backed.

 

And the funny thing is they don’t care about credit score on my tax returns, they just based it off of the asset and my personal net worth. But unfortunately I can’t go buy a house here in Hawaii cause I don’t fit in their stupid box. For those of you guys who are business owners, this podcast has really pertained to you guys and it also may pertain to you guys. For those success stories out there, you guys want to buy those 1, 2, 3, $4 million.

 

Dream homes. I think today’s podcast is going to pertain to you guys. But this is the second time we have Benson on the podcast. Hey Benson, why don’t  you tell us your engineer to lend a story real quick.  Hey Lane. Good to see you again. I went to school for engineering and graduated civil engineering. I worked at a local utility company, new nuclear power plant for four years.

 

And God, my engineering, masters, professional engineering license, and gave it all up to be a loan officer.  As an engineer, I need someone to explain to me how a loan works in the engineering way. So the whole reason I did that is so I can benefit the engineer  crowd. So we got Benson to explain it in engineering, speak to me today.

 

So maybe it should explain to us like, okay, what options are available for weird folks like us in this situation. For weirdos, like you. I filed my taxes. I got with letter taxes. It’s just, you have a lot of legitimate deductions. And I think in 2020 a lot of self-employed borrowers will suffer for the most of the year. Really for the first eight months of the year is really uncertain. You don’t know where your next dollar is going to come in. You have to pivot very quickly. And hopefully by now of last year, you have already pivoted and started making some reasonable income. And a lot of times when we look at business bank statements, it shows that around August or September is when people started getting their regular deposits back. If you were to look at your 2020 tax returns, you’re going to be like, boy, how am I going to qualify for a loan?

 

Because the first nine months or eight months, it’s just crap. Recently there’s a lot of bank statement programs that pop back up as they allow us to use your business bank statements from your last 12 months to qualify you for a loan. So even in a conventional loan and a home equity line of credit, those are all requiring tax returns, business main statement loans.

 

We call it non QM loans. They don’t look at  your tax returns, and really only look at your business bank statements. So I’m right to think like the Fannie Mae Freddie Mac route is no blood. All of us don’t even waste my time. Yeah, I’ll take a look at it just to see if you qualify, there are things that I can add back but for the most part, yeah, you’re right.

 

It’s going, we typically glance at it and go straight to the business bank statements and a lot of people ask oh, I also have a lot of expenses on the business bank statement. My answer typically is I don’t worry about the expenses. We look at the deposits, legitimate business deposits, and then 50% is the most we’ll take from it.

 

We deduct 50% as your expense ratio in cases like real estate agents, where they don’t have a lot of expense. So we just need a CPA letter saying that, oh, their expense ratio is 10% or 15% and we can use most of that business deposit.

 

Even in a higher expense ratio type of business, I don’t know, manufacturing planner. That will use 50% yeah. You mentioned the 12 month rule. Would it behoove me to take all my income in a certain period of time and then lock it in? Is that part of the game? Yeah, basically. So the lenders we use have an AI technology where we send in bank statements, it spits out an income.

 

And obviously I know how that works. They add up all the business deposits and average in the last 12 months.   What about some business owners who do this S-corp salary, dividend split, where, I can show how much I make right. Are they going more on the business level or that S-corp  level where I can connect to and show my business level?

 

Since we’re  already looking at the business deposits. They’re not going to care about how much of the business paid you as a business owner. Let’s just go off like a million dollar home  this is what exponentially, the price of the home that you’re getting into. You still have to maintain a debt to income ratio, right?

 

If you’re buying a $1 million home, 20% down, your monthly payment is probably like $4,000 or $5,000. Ideally we want to see $10,000 after your expense ratio. So if it’s 50% and we wanted to see $20,000 gross being deposited into your business bank statements, average for the last 12 months or a million dollar purchase price.

 

Correct. Prices here in Hawaii and California are expensive. Yeah. And we go up to a one and a half or even $2 million in those business bank statement loans. What about there are some ballers in our group? What do you do when you’re trying to buy a $5 million home?

 

I asked the question because, like I rent where I live  and I should probably buy, but I just do it to motivate the young guys, give them somebody to aspire to, a good role model. So I don’t buy my house to live in. And I’ve been using this whole thing as an excuse.

 

Oh, I can’t qualify for a loan. But that’s why I’m asking you the question, what do you do when you’re at the end game and you actually want to have a place that you just sink money into, as a money pit. And you want to buy a $5 million, $10 million house. What are the options for that?

 

 At that $5- $10 million range, now we’re talking to a whole different loan. A lot of the loans go up to $3 million. And then when you get past that 3 million, you actually have to have some sort of banking relationship at that point. We also work with lenders that can go up to that level.

 

But now we were talking about okay, are you a private banker with XYZ bank? And now they can hook you up because you have $20 million sitting in that bank. Got it. Like  a lot of people get a collateralized loan on their cash value, life insurance. Morgan Stanley has that.

 

A lot of those wealth management companies have collateral. Like they use their cash as collateral. So that $3 million purchase price. Again, you just have to strategically find that full month period where you have 20 grand for every million dollars so 60,000 or a little under a million dollars  of income per year. But when you get above that mark, this sort of Johnny Walker blue label comes in and walking into some banks is like, just giving you the Johnny Walker blue label and you go divvy that up to your friends and lending partners. Like, how does that work? Asking for a friend, of course. It’s still all by the guidelines, right? But I think in that realm, guidelines are meant to be pushed a little bit. So let’s say someone who has less than required income, but they have other compensating factors, like they have a really high credit score or they have a lot of cash reserves.

 

Then that can be looked past. So it really depends on the price range. I think those borrowers all look very different. It’s not just an 80,000 to $190,000 engineering job. The one thing I’m concerned about doing is that I don’t want them to lock up dead  equity, right?

 

You hear these IUL, premium financing, these types of products that a lot of us talk about in end games scenarios. Like they don’t lock up a lot of your liquidity. You can’t touch it. It’s dead to you. It’s effective, like you put a down payment on something cause you can’t touch it.

 

That’s something I’m a little weary about. So what about this strategy? Let’s just say you went out and you bought the $5 million home cash. Can you get a heloc  and effectively strip out 80000 of that. That’s a lot of money for a heloc. When I think about a $5 million house, I might just invest enough with you and have the cash flow to rent a $5 million house, but that’s the problem, right?

 

At some point, that’s why I do what I do. I kinda currently rent a million dollar house. That’s an average house here in Hawaii, but when you start to get to that higher echelon three, four, $5 million to rent your option goes severely down. That’s true. Yeah. And the people who rent out to those people, they’re a little cookie, right?

 

They’re typically like international Asian investors that own that south. And they, for some reason, somebody tricked it into renting them and they just slipped this on a whim and they kicked you out. Like I don’t want to be kicked out of the place I live. That’s why, unfortunately to me, I have to buy at that point.

 

When you’re at that one, one and a half or even 2 million, I think it would be wise to buy. But if you were to take that money back out of your down payment money back out, you might have to wait a couple of years for that appreciation to happen before you can take the money out. I agree with you.

 

If you put that down payment on any half decent investment, you’re going to have a lot more fun. This is like, when you have such an amount of money you don’t care anymore. It’s more about enjoyment and quality of life, that’s what people tell me. I think at the $5 million, $10 million house, I don’t think it’s about money anymore at that point. Your taxes are like 40- 50 grand right there anyway.

 

Your property tax alone  it’s a lot. So you’re saying the banks would max out the amount of the heloc  thing. Like it’s not as simple as getting 80% of the value. Yeah. Is that the four or $5 million property? Yeah. But when we’re talking about let’s say let’s bring it back from Mars back to earth for a second.

 

For people like you and I, we have a $1 million house in LA or Hawaii, and perhaps your loan is up to six, five, 600,000 and you need a couple of hundred thousand. Usually the helocs  are not a problem, which kind of brings me to a lot of people asking me, like I asked, should I cash out?

 

Or should I take a heloc? How do you typically do? On earth, not mars, right? Like the heloc  you’re going to get away with less fees doing it that way it’s more flexible. To me, the downside is that HELOCS can be pulled at any point, whenever the world gets a little crazy. And I think the bank is always going to screw you with the appraisal.

 

They’re always going to shortchange you on that perspective. Effectively, you’re only getting if the advertised LTV was 80% email and he gets 75 or 70, but at least you don’t have to pay a lending broker and go through all the blood draws of DNA samples and pay fees too. I don’t know what you would do?

 

 I’ve gotten a couple of helocs  myself and a couple of times I, they actually asked for more documents and when I was refinancing myself.    They actually asked for more because when you get a heloc  now you’re at the bank level, you’re at their mercy of their guidelines, their heloc  guidelines.

 

And each bank might have a different guideline. The US bank or bank of the west, they one might ask for two years of tax returns. One may ask for one year. But if you’re doing a conventional loan, you already know what the guideline is. So to me it’s a similar difficulty and even on a cash out, you can do a no point and maybe even no fees kind of cash out refinance. The pros and cons are number one. I need a HELOC, or why do you need a HELOC?  I need access to money from the equity, right from my house. Why do you need it? Is it for the short term or is it for the long-term? To me HELOC is more like the short term.

 

Like you said, less secure because they can pull it anytime when there’s an economic downturn. They can pull it to today. Tomorrow. Wells Fargo froze everyone’s personal line of credit, even though they unfreeze. I think a couple days ago but it shows that they can do what they want to do with their line of credit.

 

What about the jumbles is conventional financing, right? So for me, there’s no chance that even looking at that, when it comes to jumbo, you’re looking at an even lower debt to income ratio, right? 43, a debt to income ratio instead of 45-50. And they asked for more documents. So a lot of times in LA our clients who are looking at 1.1, 1.2, we in 20% down, we sometimes help them do what we call a piggyback loan, where they get the first loan as a conventional loan, Fannie Mae, Freddie Mac loan, and then a second as a piggyback HELOC.

 

So it was a smaller amount where they can manage to pay off in the next 10 years. Again, heloc  has a ten-year drought term adjustable rate. It can turn into a fixed loan after 10 years at market rate. And that like whenever that fateful day comes, when I give you that call, you may choose to piece it in that fashion or go to somebody in your black book to get the whole thing as a business loan or  the non QM. See, that’s a thing too. Bank statements are just one of them. There’s 1099 loans where, you get a 1099, you’re a truck driver. You could be a real estate broker and you get a 1099. I can go off of that 1099 instead of bank statements. And or if you have a couple million dollars sitting in a bank and you just don’t have active income, we can actually use something called asset depletion loan.

 

You, you have $2 million, we divide by 84. And that’s your monthly income? That sounds like a lot of people in the mastermind are getting like they’re stuffing their cash value and over time, maybe it goes to over a million dollars. They can take the loan from Penn mutual or whoever they’re working with at 5% or they can take it to one of these little small banks and get 3.5%.

 

That seems to be that option for that. Is that the same term for what that is?  Yeah, you can actually get a bank statement, loan or asset depletion loan for three and a half depending on your down payment amount and credit score range between three and a half to four, that’s another option.

 

What about another person who mentioned to me that just getting a straight up business loan is not on your house. But you get a business loan on your business, but then you just use that to pay cash for the property and you collateralize a loan with the property. I would say, if you can get it collateralized using the home instead of a business loan,  that would be the wisest, just because it’s going to be stupid, expensive to get a business loan.

 

And they always trick you. I got a letter from American express the other day. Oh, working capital loan, only 0.75%. I’m like, oh my God, 0.75% per year. And then I looked into the fine print it’s per month. And if you multiply that by 12 that’s a 9% interest rate. Yeah. That’s how all of these online banks make money, right?

 

Like they’re all free and they have good services, but they send out these teaser rates for working capital or essentially like payday loans for business owners or online people. That’s how they’re making money. That’s all online banks are. And sometimes I just like to look at those letters and try to call in and see what they really are.

 

And I got offered a 13% interest rate loan by some lendme.com or something. And I’m like, dang, that’s predatory. I mean it’s white collar payday loans essentially on the internet, essentially what it is. That’s why we do infinite banking, right? You stuff, money in there and you don’t have to deal with one of these guys.

 

You can just bank from yourself.  You bankrupt yourself and you have to start young too. It’s not something you want to start. You start whenever you can. You can be 25 year old. You can be 55 year old. You just gotta start somewhere. Never too late to start infinite banking.

 

Going back to this first world problem. Big home purchase, which by the way, I’m not doing guys relax. Oh my goodness, that’s an expensive home. It’s kinda just curious like what the interest rates are, what are the options? Planning ahead, but if you exhaust all options, all I’m hearing is just, we’ll go talk to you.

 

There’s a way to do it at the end of the day. I think if you’re Lane or you comfortable living in it for the next five, 10 years, I think it might be a good time to consider the options.

 

Folks, if you guys are in similar positions as this going to Mars scenario reach out to Benson Pang, nestmade.com. He’ll help you out. You guys can guinea pig it  for me and then that way Benson knows what to do when I finally come knocking. When you get that $10 million property. We’re going to party in it. One of these days. Thanks for jumping on Benson. Appreciate it. Hey, thanks Lane.