- I have good credit (680+).
- I want to finance new acquisitions with 100% NOO loans.
- Properties purchased 0-25%, or more below FMV.
- Exit strategies: (1) Buy, Fix, Flip within 6 mos. max., or (2) Buy, Fix, Owner Finance w/2yr balloon.
For the 1st exit strategy, I’d like to be able to get a single short-term IO loan (1yr? 3yr?), so my payments are as low as possible. Is this possible? Or would I need to get two loans (i.e., 80/20)?
For the 2nd exit strategy, I’d again like to be able to get a single short-term IO loan (preferably 5yr) so my payments are as low as possible. Is this also possible, or do I also need to get two loans (and refi to one)?
If I can’t get a single loan initially is it possible to get both the 80 and 20 at some ridiculous rate (like both 3yr or 5yr IO ARMs)?
Note: These acquisitions require very little repair, and are outside the realm of almost all HML’s requirements (i.e., >70% ARV), so conventional is about the only other way.
Thanks.
I have a ridiculous rate for you if that’s what you’re looking for!
Just kidding…
You should be able to qualify for 100% NOO financing with a fico above 680. I don’t personally know of any who will do a straight 100% loan, you will likely be looking at an 80/20. The 80% 1st will not be too bad of a rate- probably 7.25%-8% on a 5 year ARM, but the 2nd will be a killer- anywhere from 12%-15%. These rates just depend on other qualifying factors.
Most bank lenders are not offering better rates on shorter term mortgages than they are on 5 year ARMs, so you will probably be better off in all of these scenarios looking at a 5 year ARM. Sounds crazy, but it is true- that’s just the nature of the mortgage market right now.
Also, be careful of “rapid acquisition.” Lenders have rules that if you don’t have documentable landlording experience covering 2 years, they will limit you from acquiring too many properties too quickly. The best I have found is a lender who will allow up to 4 in the first year. Many lenders cap it a 2.
A good broker can help advise you as to the best course of action.
With your 680 score you should be able to qualify for 100% financing. This can be done with splitting the loan up into a first/second combo or with just one loan.
You’ll need full documentation of income and assets for the majority of those lenders who offer a single 100% loan. There are only a handful of lenders that do this and most will have a prepayment penalty. The rate on a single loan will be higher too; but you benefit by not having the 2nd set of closing costs and a super high 2nd rate. I wont quote rates here but can do so for you off the site if you choose.
As previously mentioned most adjustable rates are not that much better than fixed rates. Maybe .125-.25%, if that.
Rapid acquisition is a factor with some lenders, but there’s enough lenders out there to accomplish your goals.
Another issue that will come up is the cash flow on the property. The lender uses the lower of the actual rents or market rents (as determined by an appraisal) to calculate cash flow. With a vacancy factor considered, the majority of the times a property is going to be very close to having a negative cash flow. In certain cases, lenders will not allow for negative cash flow. A vacant property could also raise problems with some lenders.
It will be important for you to develop a relationship with a consultant that understands all of these issues and can address them as each property comes up, not 3 weeks after they submitted to underwriting.
Thank you both.
rbaxter: “The 80% 1st will not be too bad of a rate- probably 7.25%-8% on a 5 year ARM, but the 2nd will be a killer- anywhere from 12%-15%. These rates just depend on other qualifying factors.”
This is what I kind of figured with an 80/20. The 2nd is usually 1.5-2 times the rate of the 1st.
rbaxter: "Lenders have rules that if you don’t have documentable landlording experience covering 2 years, they will limit you from acquiring too many properties too quickly. The best I have found is a lender who will allow up to 4 in the first year. Many lenders cap it a 2. "
I’ve been a landlord (including property manager) of my current properties for a little over 1yr now - maybe that would help somewhat?
Investment Loans: "As previously mentioned most adjustable rates are not that much better than fixed rates. Maybe .125-.25%, if that.
I noticed the same thing on bankrate.com. I guess I’m more interested in the monthly payment more than anything else (ok, not true - I’m interested more in the overall net profit, which is usually tied to a smaller monthly pmt - especially for very-short term holds - but not always).
Investment Loans: “Another issue that will come up is the cash flow on the property. The lender uses the lower of the actual rents or market rents (as determined by an appraisal) to calculate cash flow. With a vacancy factor considered, the majority of the times a property is going to be very close to having a negative cash flow. In certain cases, lenders will not allow for negative cash flow. A vacant property could also raise problems with some lenders.”
This is a definate concern. With owner financing, I can usually have positive cashflow on these types of properties, tho.
Investment Loans: “It will be important for you to develop a relationship with a consultant that understands all of these issues and can address them as each property comes up, not 3 weeks after they submitted to underwriting.”
Good advice.
Stephen,
You mentioned owner financing. We’re you referring to a lender doing the first mortgage and the seller holding a 2nd mortgage note?
If so, there are very few lenders that will allow this. Your field of lenders will be reduced.
You mentioned owner financing. We’re you referring to a lender doing the first mortgage and the seller holding a 2nd mortgage note?
Not really. I was referring more to an AITD/wrap. Thanks!