Our clients, a married couple looking to relocate to Florida from California, purchased a historic property built in the 1920s in Old Town Key West, the heart of downtown Key West, Florida.
They secured a $1.25 million construction loan at a steep interest rate from a private lender to completely renovate the property into their dream home.
However, construction was delayed, and even stalled for a while, because it took a long time to obtain approval from Key West’s Historic Architectural Preservation Division. They ultimately exceeded their construction budget by $700,000 to complete the required preservation work such as lifting the house on stilts for foundation repair.
When the construction was finally complete, they were eager to refinance out of their private construction loan into permanent financing with better terms.
Unfortunately, traditional refinancing options were unavailable. One spouse was put on furlough by his employer (a major accounting firm) and was unable to secure new employment, while the other spouse was unemployed.
Despite the property’s prime location in Old Town, two local community banks in Key West denied their refinance application. That’s when they reached out to us for help.
We introduced them to the no-ratio program, which eliminates income verification and debt-to-income ratio calculation entirely.
Under this non-QM program, instead of requiring income and employment documentation, the lender shifts its focus to other factors.
First, for rate-and-term refinances, in order to ensure the borrower has enough “skin in the game,” no-ratio mortgage lenders typically allow no more than 65% to 80% LTV. Our client was willing to accept a low LTV of 56.5% to demonstrate their commitment and financial capability.
Second, no-ratio lenders require a minimum credit score of 660 or 680. Our clients easily met that requirement with credit scores in the 700s and a clean housing history.
Third, as a tradeoff for not having to document income, no-ratio lenders require enough post-closing reserves to make at least 6 to 12 months of mortgage payments. Despite dipping into their savings accounts to fund the renovations, they still had enough left over to show at least 12 months’ worth of reserves.
With no income or employment verification requirements, the underwriting process went smoothly.
Once the home’s certificate of occupancy (CO) was obtained, we scheduled the appraisal, and the appraised value came in favorably at $2,335,000, a testament to their renovation efforts.
They successfully closed the loan, paid off the private construction loan and cleared all secondary liens.
They also cut their interest rate nearly in half.
And, with no prepayment penalty, they have the option to do a cashout refinance once the borrower returns from furlough. Alternatively, they have the flexibility to sell their home to capture the appreciation in value.
In the meantime, our clients are enjoying their dream home in the heart of Key West.
DAK Mortgage is a licensed mortgage broker that can navigate you through the process of finding the right loan for your needs.
