I am in process of getting loan approval from BOKF to refinance my home loan. In addition to revenue detail they have requested a letter from all companies remitting royalty payments whereby company guarantees continuation of payments for 3 years.
I have gathered letters stating that I own xxxxx interest in xxxx wells, including division orders and revenue detail. My decimal interests are small, mineral ownership in roughly 130 wells with 99% of my interests are in Oklahoma’s Arkoma basin.
The bank per underwriting has advised that they will not accept my royalty income for the loan app without the 3 year guaranteed income. I would like to keep my acct at this bank for convenience. I currently have a 4.5% int rate and am locked for a 2.5% rate.
If anyone has experience or knowledge in this arena, I would welcome any suggestions or guidance. I am considering checking with contacts at other mtg cos or just dropping it.
A family member just went that route and they wanted the same information. Fortunately, she had a recent probate that had evaluated each of her wells and she had a non-discounted (and a discounted) engineer backed portfolio analysis that she could use to predict the income for the next few years. A good loan officer understood the analysis and was able to talk it through with the underwriters. She was successful in getting the refinance.
I went through some bone-headed underwriting from BOK. They were asking for copies of client agreements. Told them politely to pound sand as they were subject to attorney-client privilege. Eventually they understood. No company will provide such a guarantee and don’t be afraid to point out that they are being unreasonable to ask for such a letter. Provide historical information and perhaps an estimate of future income.
If the ask for weather forecasts give them the farmer’s almanac.
I receive oil and gas royalties from 4 great companies in Texas and not one of them will give me a letter that guarantees my income ~ if they don’t sell the product you don’t get paid for your share…until they do. Use your historic income records ~ bank statements, check details, 1099s, 3 years of tax returns ~ Good luck!
Dear Guitarillo,
For a loan to refi homes and rentals in the Past I asked my Bank to write me a letter telling me how much income I received for the last 3 years and then say it will continue forward.
I can’t imagine getting the Oil Companies to write a letter on your behalf. My Minerals have always been in a Trust.
Best of Luck,
Chris
Dear Chris; well, sir ~ that certainly sounds like you know what you’re doing. Maybe that would also work for Stephanie? Could be good advice. Thanks for your thoughts! Good luck to you.
There is really no way for a company to " guarantee" future royalty payments. However I was able to get Quicken Loans ( Rocket Mortgage ) last year to accept my payment history ( going back to 2005 ). No year did I not receive a royalty payment as my tax records would prove. If you have an accountant doing your taxes, they could write a letter on your behalf. Good luck! Bruce
We used my mineral rights income for our loan to buy our house in CT…they accepted it, I think because of the history of payments. They did not ask for a letter from the oil company. Maybe another bank? I know it is a hassle to start over again and the rates may have gone up…Good luck!
Thank you everyone. I have used this bank For my accounts and loans on four homes. It was the fourth home that I was trying to refinance. I provided them three years of the most recent tax returns, 1099‘s for the last two years, three years of revenue detail in alphabetical order, a master well list And my ist of properties where I own mineral interests. I provided letters from each company that responded stating that I owned mineral interest with the DOI, Division orders and they well list Provided by the oil company. I really did not think they would reject my application based on the 3+ year guarantee but that is what happened. Apparently they don’t want royalty owners income. This is the same bank that 3 prior mortgages were granted. My credit rating has always been quite good. I’m not even going to pursue with other mortgage companies. This one wanted to charge $8000 in closing cost. I’ll just pay down the principal. Thanks everyone.
How frustrating! Sounds like someone at the bank made some policy changes after last year’s drop in oil prices. One thing you can do is to prepay the mortgage a little more each month if you can. (see if you have a prepayment penalty clause-some mortgages do, many do not.) All wells have a naturally declining production profile, so your dollars today are worth more than tomorrow due to inflation and also your declining production. We paid enough extra principal each month to equal a full month’s extra payment (or more) spread out over a year and were able to shave a few years off of our mortgage and pay it off early. It wasn’t easy and required discipline, but allowed us to free up future cash flow possibilities for when our wells are in low production mode. By paying early, we saved on interest payments, so was like refinancing without all the hassle!
Ms. Wilbanks, I’ve personally been down the same road as you when applying for real estate loans showing oil/gas royalty income during the loan underwriting process. From my experience, I would find a mortgage broker to help you find a mortgage company to approve your new loan considering most banks don’t understand royalty income (and don’t care enough to learn about it). During the underwriting process, the mortgage company required us to provide prior two years of tax returns, prior two years of all 1099s received from the royalty income, prior three months’ pay stubs to help support prior years’ 1099s received, and prior three months bank statements. Additionally, because you mentioned you own four other houses (assuming some of them are rental/investment properties) the mortgage broker should know to order rent comp appraisals on all your investment properties which should help the mortgage company to get more comfortable approving your new loan. Ha long story short, I would recommend finding a good mortgage broker to help!
I am in the same boat right now with lenders not understanding royalty income. I’m holding my breath waiting for what they want next. I live in California. I wonder if they question the royalty income of actors that finance houses worth millions? An actor cannot get a guarantee on their future royalty income just as anyone without royalties would not be able to guarantee their income. Can you imagine what would happen if an employed individual requested their employer to guarantee income for the next three years? No one can guarantee a businesses survival. There oughta be a law. Keeping my fingers crossed.