Hi. New to the site. So far a lot of good information. I was hoping to get some insight from all of you veterans out there in regards to investing. My fiance and I are looking to invest being that there are a lot of great deals out there. We stay in the Texas, DFW area. With both of us combined are stats are below:
124K salary
23% DTI
35K cash to invest
756 credit score
655 credit score-fiance
We have so many questions but I’ll start with financing.
I don’t want to use all of our cash with down payments and fees.
0% if possible. Ideally, we would love to flip and not rent for our first couple of deals so we can get the cash to quit jobs and do this full time along with our tax business. However, we’re lost on what financing we should try to get. Hard Money or Conventional. We learn quick and you definetly have to move fast in this busineess to get a great deal. Any suggestions on what we should do with financing would be greatly appreciated
if its a property you are going to be living in yourself, you can get a fairly low down payment with a conventional mortgage, if its an investment property, if you go conventional you can figure 20-25% down, plus closing cost and your rehab cost.
If you want to have the least amount of money out of your pocket, and the deal is really good, you can go hard money, and have very little out of pocket, you can then refinance into a conventional loan,but since its a refinance they will base the amount they will lend you on the appraisal, not what you bought it for.
I am closing on a house today (just outside Dallas), that was appraised for $120k, I purchased the house for $70.1k, and have $12k in a rehab budget, because the deal is so good, I am bringing $3k to close,thats it, and I will have $12k for rehab in escrow,after the house is rehabbed and a renteris in it, I will put into conventional financing.
Hard money lenders will normally not lender on a property that will be your primary residence, the laws in Texas are much harder for them to foreclose on a primary residence compared to an investment property, so they normally want nothing to do with a primary residence
Thank you for the reply. So with the HML, we can refinance with conventional and they will go on the appraisal versus what we pay for the house. So excuse me if I sound naive, but that sounds like the better deal because as long as the house is in good condition(whether we spend to rehab or no need to) with the refinance we can actually get more money and use the cash to purchase additional properties. Also, need to take into consideration the costs for the refinance.
no, you have to do rehab, if you don’t do something to improve the value of the property, the lender will not go along with a appraisal significantly higher than your purchase price.
You don’t have to tear down walls, but you can’t just put carpet in a room and say you rehabbed it, and the best deals are not with houses that are in great shape, the values are the ones that need some work (note I said some, not a rebuild)
You will pay normally 4 points for the hard money loan, and it will be around 14% interest, but the interest doesn’t really matter too much because you should be going into conventional in a couple of months.
andy
You will likely have to hold the house for 6 mths before any conventional lender will do a cash-out refinance (some even go to 12 mths). This is called “title seasoning”.
When you have the property re-appraised after your renovation, you should document the improvements you made to the appraiser, and even provide some sold comps from the area to support your target price. Getting the property to appraise out where you need it can be very challenging in areas where alot of foreclosures are selling at distressed prices.
Try to find a local bank that has a portfolio (in-house nonconventional) loan program that will finance you at 75-80% on your purchase price+rehab costs. These are normally smaller banks, savings banks, S&L’s, etc. Terms at my savings bank for this type of loan are as follows:
1 year adjustable rate mortgage (ARM)
1st year rate = 3.99%
After that, the rate resets annually at the 1-yr treasury rate + 3.75% (currently would be ~4%)
About $500 in closing costs; no other points charged
No prepayment penalties
You can use a product like this to finance your purchase+rehab, hold for the necessary period of time, then refinance into a conventional mortgage. If you just refinace the payoff amount, you might only need to have been on title for 4 mths or so. If you want cash back based on a higher appraisal, you’ll have to wait at least 6 mths, as I said.
The low credit score of your fiance may be a detriment (below 680 is considered “bad” by conventional lenders these days, and even below 720 takes you out of the running for the best rates). You may need to apply for credit in your name only, but that means you’ll have to qualify on only YOUR wage income. You’ll also find that conventional lenders won’t want to give you any credit for rental income on properties you acquire until you have 2 years of landlording experience. You may need to cut your consumer debt, if possible, to lower your DTI ratios to make room for obtaining new loans during the first couple of years you’re at it. Of course, a local bank can potentially be more flexible.
thank you for the additonal info.You both have been a huge help. I’ll definetly be back with updates :beer