With the current credit crunch and the state of the banking world due to the economy, I know its getting harder and harder to find stated loans for self employed investors on non owner occupied investment properties. I was told by one lender today that “Freddie” and “Fannie” will still do some of these loans, but really aren’t touching these types of deals any longer. What are investors doing to find lenders willing to do these types of deals? I can give a little background of 2 situations I’m going to find myself in. any advice or insight would be greatly appreciated.
I can obtain financing via construction loans that cover, purchase, rehab and up to 6months interest payment. Is it going to be hard to fine permanent financing for properties if I’m just looking at a rate/return refi?
I have recently gained access to unsecured business loc’s. If I purchase and rehab the property using a loc, is it hard/easy to get permanent financing if I want to pay off the loc and free it up to use it again? Do they look at it as if I was trying to get cash out?
Fannie and Freddie both now have a limit of 4 financed properties and require 6 months on title to do a cash out refinance. Just paying off the original purchase loan doesn’t not require seasoning. Most stated loan programs have been eliminated, especially in MN. Possibility may exist with portfolio lenders but you’ll have higher rates which result in less cash flow. A big question would be do you really need stated and why? If lack of income then you have problems but if because you have write offs then your tax returns might be better than you think. Best to have a mortgage professional specializing in investment loans help direct you.
Using local banks that have commercial loans may also be an option for you.
In the first scenario you presented paying off the short term interim loan would be considered rate term so this could be done immediately. The latter example would be cash out.
This is a big issue right now. It feels almost like the gov’t doesn’t want us to participate in the economic recovery at all.
One of the biggest mistakes you can make is to pay cash (using a LOC is paying cash) for a prop and expect to get it back soon. Your cash will be tied up for a minimum of 6 mos and after that time the amount of cash out will be limited as well as the LTV.
Portfolio loans are the way to go and I disagree that the rates are higher. The rates are comparable. In fact one of my students got offers of 5.5% last week with a local credit union on her LLC refinances.
Get a portfolio lender relationship established ASAP.
I don’t feel paying cash is the biggest mistake unless you don’t have your end financinng relationship secured. Having commercial loans through banks or portfolio loans that get that cash back prior to 6 months may be possible for investors. I do believe there other alternatives to securing properties and each deal may be different. But too say it’s a huge mistake may be overkill.
I highly doubt the client will get a 5.5 for a stated portfolio loan. Stated was the context in which I referenced portfolio loans being higher.
Susan, you’re a frequent poster and fellow mortgage expert so I’d ask for the benefit of other readers that we as professionals refrain from posting specific rates. It can become confusing to readers when they don’t realize those rates tie into credit score, term, ltv, loan amount…etc…which none of this was disclosed to help make reference.
You also mentiond the individual was “offered” a rate which to me means a bit less than actually closing with those terms.
I will always think that it is a huge mistake for investors to pay cash for a property IF they want that cash back any time soon. I have seen too many “financing relationships” go south this year. I get calls daily from investors that are stuck.
I’m all for full disclosure. If a client was offered a term sheet with a specific rate, why should I not share that? It is misleading to say that rates on portfolio loans are higher than those on conventional loans and I think that we are all smart enough to realize that each deal will be evaluated on its own merits. I think a little transparency is a good thing these days.
While I do agree with you in regards to purchasing with cash I have to agree with Ben regarding posting a rate. If your going to post a rate, and not post along with it the terms of the rate it can be construed as misleading. Not to mention confusing to investors when they start looking for financing and can’t get that same rate. I know for a fact that finance companies like “LowerMyBills.com” have been fined for those ads that say “$700 a month for a $250,000 mortgage” because they can be misleading and this is essentially what you are doing. I, like Ben appreciate the insight that you bring to this forum but it would be my suggestion as a moderator to avoid posting rates in the future.
Remember when we are talking about portfolio loans they are underwritten like commercial loans so “stated” isn’t a term we would even use. In fact, if you went to a portfolio lender and asked for a stated loan they might look at you funny.
Stated in commercial means something entirely different on commercial loans than residential and I don’t know of any portfolio lenders that are offering stated commercial loans. They may be out there - but I doubt it.
I think there was some confusion that I was the one offering the rate. Not the case. It was Truliant Credit Union in North Carolina. I am simply reporting what one of my subscribers told me she was offered. She is self-employed - a realtor - and was turned down by Bank of America. She came to me because she was shocked that she was declined for a loan for the first time ever and that’s when she approached a local credit union on my advice.
Mortgage brokers can’t get portfolio loans for investors. They don’t have wholesale channels so if a “mortgage professional” claims they can broker portfolio loans chances are good they are not being truthful. Unless they have negotiated a master loan commitment with a local lender but even then I would proceed with caution because you will probably be paying double origination.
This is obviously a touchy subject for mortgage brokers since we are being shut out by the conventional lenders and can’t profit on portfolio loans. But the misconception that portfolio loans have higher rates than conventional loans is forcing a lot of investors to stay in conventional loans instead of considering a portfolio refi strategy that would once again make them “financeable” in the eyes of Fannnie aand Freddie.
I think making the info available to investors who are obviously going to do their own research and rate shopping is in the best interest of all. But in the future I will refrain from posting rates that I have heard about - suffice to say they are LOWER than many are leading you to think.
The above statement is partially untrue. I have brokered plenty of my customers to local banks for lines of credit as well as construction loans for investors. Many times the documentation that the bank requests is above the heads of the regular investor, and having a mortgage broker that is familiar with an executive summary, a profit and loss, and other documents can make things a whole lot easier. And you are correct in the fact that many times you will end up paying two points origination versus one point but because of the value of the service provided I have never had a customer complain about fees that I had previously disclosed.