Hi everybody. I’m a newbie looking to purchase sfh for rentals. My problem is my wife and I don’t have cash. I have 50k that I can borrow from my 401k and we have a 50k HELOC. Our credit scores are 780-805. Are owner non occupied 100% loans a feasible option? Any thoughts would be appreciated.
Yes, noo 100% financing is still a possibilty.
What is the rate/terms of your HELOC. While 100% is available you MAY be better off using the HELOC for part of the purchase money.
I would absolutely recommend looking at using your heloc. Some helocs have the ability to fix in portions of the amounts drawn. National City has the option.
It sounds like these are your first properties so you should be able to use normal conventional financing at 90% and have terrific rates.
I can take a loan out of my 401K at 50k 5yrs 8.5% My heloc can be converted to a fixed loan up to 20yrs. I can fix any $ amount up to 50k 3 times in the next 2+yrs. I believe the rate today was 8.75%
I’d recommend consulting with your financial advisor about taking money out of the 401K.
My personal opinion is that those funds should be left there for retirement. Those funds are already making money for you.
The equity in your home is “dead equity” and not making you any thing.
You don’t have to use your 401K or your 50K LOC. If your credit is good you can borrow 100% (assuming your debt to income ratio is less than 50%) in an 80% loan at about 7.9% and a 20% at about 10.2%. Keep your assets as a buffer so you wont be stuck in a bind making late payments.
Where is the property? how much are you planning to spend?
You should do the 100% on the NOO or use your HELOC. I do not reccommend touching the 401k unless you really have to.
Perhaps I should have read this BEFORE I made my post. Lots of recs for using helocs. In my view wouldn’t this be a better option than long term financing? This depends on what the plans are for the property (flip for fast cash or hold for rental cash flow). If flipping it would seem to make sense to use heloc as an interest only payment for 50k is under $300/month for hopefully only a few months. If you wanted to go long term maybe other types of loans make sense and still maintain your full value of heloc to do more deals.
Anyone and everyone can chime in at will if I’m out of line on these things because at this point all I know is what I read, but I definitely want to learn the right way to do these things.
Thanks.
Naperbill
You’re right naperbill. If they are looking long term hold for the properties they shouldn’t max out their heloc right now. If it’s a flip then most definitely do it.
If you plan on using your heloc then don’t put a full 10% down. You’ll want to spread your cash further. Look for a 95% loan to get you going. 100% is still available, but it’s becoming more difficult to qualify
This is the great thing about rei, everyone can have a different business plan to fit their goals.
Your financing should really depend upon the type of financing you can qualify for. With your scores it could be possible that you could qualify for up to 10 properties under Fannie Mae guidelines. Fannie Mae will allow 90% for a sfr. You’ll get the best interest rates with these programs. Sometimes underwriting will ask for a 2 year history of landlord experience. If this happens or if you cant qualify for conventional financing due to income, assets or maxed out on # of properties, then you would need portfolio (alt a) loans.
When you’re looking at this type of financing I agree that 95-100% financing would be better as the rates (payment will not vary greatly)
The Fannie Mae Conventional loans that I first referenced will save several hundred dollars more per month, maybe more depending on loan size.
With $50,000 available this would be good for a several properties putting down 10% on each. This is also where flipping properties comes in useful because profits can be used for future down payments on other purchases.
If you’re buying properties way below market value then even doing 100% financing will probably still get you good cash flow.
Depending on what your plans for the properties are…hold or flip…my suggestion is to use the HELOC, or go 100% LTV…with your credit scores MORE THAN POSSIBLE!
Whatever you do, make borrowing from the 401k your very last resort. With your credit scores, 100% NOO is very doable.