I have been looking to invest (being very patient) in either a rehab flip or possibly a cash flow property and still feel there is a way to go (I’m in So. Cal). I am starting to see the short sales perk up just in the last month and anticipate buying over the next 6 months. I want to set myself to be able to pull the trigger when I need to, so I want my financing options in line and I see a drastic tightening of what is needed to get a loan. Here’s my question. I have excellent credit, FICO 805, and some liquid funds ($75K), but I just started my own business last year and had no income for 2006 and so far low income in 2007 which will be a problem when I need to get funding from traditional sources. Should I open a home equity line of credit with my current mortgage company on my home (Approx. $550K in equity on my home) just to have or will that come back to hurt me later when I may not need to use the line of credit, but it will work against me as I try to get funding elsewhere? I am concerned because I see that getting financing is getting a lot harder right now and I may not be able to qualify for what I need in 6 months from now so should I try to pre-arrange as best I can now. Any help and opinions appreciated.
You will probably only qualify for a No Doc mortgage at this point which is essentially a blank loan application, because your business is not 2 year old or more. No Doc mortgages have lower loan to value ratios than loans with more documentation, and higher qualifying scores. You definitely have the credit, but since you are talking about buying investment properties, you will be capped at 90% LTV, maybe 95% LTV.
That being said, you are right- the market is contracting right now across the board, so 95% on a no doc program and even 90% may not be possible in 6 months.
Once your business is 2 years old, even if you can’t document your income, you can then qualify for a stated income program. This is slightly more documentation program where you would document your employment history for two years, but not your income. With this program, you would get slightly better rates and could find higher LTV financing.
The reason I went into that is that your idea of getting the home equity loan on your primary home is not a bad idea. If you have not borrowed against the line of credit- if it’s just an open line of credit- then it won’t count against you. That way, you would be sure to have access to the cash you may need for a down payment.
It’s a good time to be patient. I don’t know what home prices are like in your area, but the jumbo market, >$417,000 loan amounts, is experiencing a liquity crisis right now, so rates are significantly higher on those programs, especially for no doc investment property loans, and some lenders aren’t doing them at all.
Ya your best best is to do something like a 90% no doc loan and then use your liquid funds to do the rehab and then sell or rent out. Of course you can only get a no doc conventional loan if the property is in livable condition.
Alright guys, correct me if I’m wrong but the no doc loan is almost extinct. You both mentioned 90%, if memory serves me right there’s only 1 end investor buying these that high on the secondary market. (not in the office so I don’t have my matriced). That lender is Lehmans and several lenders underwrite to their guidelines. Several things:
I really don’t think 95% is available but will check tonight and verify.
Don’t forget about the property ownership restriction these lenders have. Basically you must have owned your primary for 2 years before buying your first investment. After you buy your first you must wait 2 years before buying the next. (this is just with this lender over 80% and could disappear in time)
Last thing about Lehman’s high ltv no doc. Expect changes. As I sit here CBNC just showd the trading for Lehmans. Check it out, not so hot.
I’d absolutely obtain a heloc on your primary. As the market continues to tighten your ltvs are going to decrease.
Consider using hard money to help your rehab deals. There are some hard money lenders with low points and rates.
Definitely get with a mortgage planning consultant that specializes in investment loans such as these now.
Not to mention that the rates at Lehmans have skyrocketed. I was pricing an owner-occupied property on a 30 year fixed and PAR was 10% using the mortgage maker program. Ouch.