Most of the homes I buy are 30-50K in low income areas of Ohio and soon to be PA, and I finance everything 15yr fixed. I will also buy doubles that are a bit higher (50-80k) and have been actively looking for 4+units. The homes are all in the “nicer areas” of the low income areas and are either in excellent condition or else I make them into excellent condition. Most of these homes will appraise at 20-40K above what I pay for them without a problem.
My problem is, to buy a 40K home I have to pay closing costs plus 10% down. My lender will only do 80/20 on homes over 50K. I’ve shopped around and found this to be the standard (or sometimes 60K). I have credit of 750 and income in the 90’s (excluding my LLC rental income). By the time I pay closing costs, 10% down, and put a few k into fix-up, I’ve got 10K into every property I buy. This is keeping me to 3-4 a year, and I want to accumulate properties faster. Ideally I would like to buy 1 a month, but I need to find a better way to finance these so I’m only spending 2-3 K (or 0 if possible) out of pocket for each house. I would like to have 1 lender (as I do now - national city) that can handle all of my residential loans (4 family and under) that can meet my needs on money out of pocket without killing me on huge closing costs (financed in or not) and high interest rates. Am I expecting to much, or should good income, strong debt/income ratio, good credit, and solid experience in the rental business not get me what I’m looking for?
Any good suggestions or lenders I should call are appreciated!
That’s that way it is. Most lenders do not like lending small loan amounts. At 90% ltv, the seller can contribute at least 3% towards your closing costs; try structuring that into your deals to save you a few dollars out of pocket.
This is unlikely, but if you can acquire multiple properties in the same area at the same time, you could try to do a blanket mortgage on them.
Best advice I can give is to focus on the multi-units. You should be able to get 95-100% financing on those as long as the purchase price is high enough. Interest rate usually improve once you get over 100k.
I do alot of loans for investors in Ohio. I am in Cleveland. The main problem has nothing to do with your credit score and income, its the loan amounts. 30-50k is usually a minimum through most lenders. With your score and income, you should qualify for 100% financing on a NOO through a broker. Have you had 2 years landlord experience? Also, the more the loan is, the more money you can get towards your closing costs. You will usually see 3-6% of the loan amount towards your closing costs. If you have a 80k double, you should see $2400 - $4800 towards your closing costs. This is called seller concessions. There probably is a more ideal scenario out there for you although interest rates may not be as good as national city.
I would have to concur with everyone else. There are lenders that will do small loan amounts, but, then will they do N/O/O, then will they do Cleveland, then will they do…
Too many issues for small loan amounts. Bank’s feel that it is not worth time and/or effort. Most will resell the note and they do not have investors that want them.
By the way, there are not many sub prime lenders that will do business in Cleveland.
In case you hadn’t gotten enough confirmation, I wanted to agree with everyone else. You might be able to hope for 95% for a 30k-50k loan, but at an increased interest rate. Try to work the seller concession into each deal. Just offer a higher purchase price with the 3-6% built into the offer. One of my clients just did that and it helped him out a lot.
Forgive my ignorance, but how is the buyer going to get a HELOC on properties he does not own? If you are talking about HELOC’s on the properties he already owns he has only 10% in each of those properties. By doing the lines of credit he will have higher rates on the HELOC’s plus the rate is not fixed. By doing a HELOC at that high of an LTV his rate is gonna be worse than if he does a fixed rate 30 year loan, and as I said the rate is not fixed; as prime goes up so does his rate. Slowly eating into his profits.
Recently found some lenders that will do 1 loan at 100 down to $50K. Rates would be in the 8-9% range.
Here’s another idea, and I havent run the #s but it could make sense. Since the properties are well below market value, a HML could fund the purchases. You figure that the points could be rolled in and would not be that much since low loan amounts. Of course you wouldnt want a prepay on this. Then you could do a rate term refi on the hard money loan. The ltv would be much lower since based off the appraised value. With the ltv lower you would have access to a lot more lenders and much lower rates (around high 6-7% range) It may be possible to even get cash out. With this scenario you have no funds out of your pocket except for the appraisal.
Downside is 2 sets of closing costs. But if you have a mortgage consultant that knew you would be doing business only with him, I’m sure everything could be worked out.
Come on brother, Columbus!! Columbus!! Columbus!! not cleveland. Home of the almighty buckeyes
Just kidding, I know it doesn’t really matter on what we’re talking about here.
Ben,
I appreciate the thoughts on the HML, but from what I’ve looked at it seems way too expensive on the closing costs.
4eem,
That is a good thought and something I’m strongly considering. To answer christophers question - yes, I do only have 10% in them, but I could borrow to 90% of appraised value, not just to what I have in them. If I have a property w/ 40K in that is worth 80, I could still pull 32K off it to 90%, right? My only concern w/ this is that I’m trying to pay all these properties off quickly and I hate to pull all my equity out of them. I guess that would at worst break even because I’d gain equal or greater equity in whatever I buy.
Concerning seller concession comments, I have been doing that but I’m told that legally the seller can only pay up to 3% (maybe not true, that’s what NatCity tells me), and 3% of 40K is 1200. My problem is that w/ closing costs of 3K, dp of 4K, and 3k fixup, I’m at 10K. The 1200 is better than nothing, but it doesn’t solve my problem.
absolem,
do you know how commonly blanket mortgages are done? I love the idea b/c it’s common for me to be looking at multiple properties at one time, sometimes all from one seller, but they are different parcels. I figured that would require some kind of commercial loan. If I could wrap multiple properties into one set of closing costs, that would help a lot. It wouldn’t solve all my problems, but it would be extremely helpful some of the time.
Thanks everyone for the replies. I know there are multiple good solutions out there for me, I just have to them.
A HML can be done at 4-5 pts. The rate would only be applicable for less than one month. You’d be in and out within 15 days.
Average Conventional Loan Fees for low loan amounts
Origination = $1000-$1500
Processing = $350-$500
Lender Fees= $650
Average from $2,000-$2,650
I’m not sure what the cost are on most of your purchases, but I’d imagine that a broker charges a bit more upfont compared to larger loan amounts. This is because they are not making much on the back end from the premium paid by the lender.
So just these fees could be comparable to the points involved on the hml. Rember that a HML can structure the loan however they want when it comes to seller paid closing costs or them rolling fees in.
Your probably looking at an additional $3,000 in costs out of the equity to do the transaction with nothing out of your pocket. Plus your rates would very low from the refi.
A blanket mortgage can be done by your local banks and isusually a commercial loan. Rates may be bit higher and term set as a balloon on a 20-25yr amort.
They like to have the ltv of all the properties down to 75-80% which would work great for you. The bank looks very heavily at the cash flow of the properties.