Newbie Question re: Investment Prop Financing

Hi all:

The mortgage meltdown appears to be killing off my lenders I had previously lined up. I am hoping someone can give me some ideas.

There is a 4 family I want to buy. The seller is asking $280k. Rents = $2300/mo, prop tax $3200 yr. Our midpoint FICOs are 710 and 715. We do not want to live there, thus I need an investment loan.

My mortgage brokers are saying that seller 2nds are no longer valid. They say I need 25% down payment. I have the cash, but don’t want to tie it up since that’s all the cash I have.

One idea I have is to have the seller provide a 2nd mortgage after the close so that I can get most of my cash out. Is that kosher?

Thanks in advance for any help you can provide.

Yes, what you are proposing is allowed. It is just like doing a second lien cash-out.

I’m glad to hear it can be done. However I am not at all familiar with the term you are using.

I have a ‘traditional’ investment lender who is going to sell the mortgage to a Freddie Mac buyer. The officer keeps saying it can’t be done. Could you share some step by steps way of getting it done legally and ethically?

It is the exact same thing as if you purchased the home with 25% down and then went to Bank of America and did a cash-out loan. Bank of America would make you sign a note for the loan amount and then they would put a lien on the property for the amount of the loan. Once your loan term was up and your loan was paid off BOA would sign a release of lien and file it with your county. Sounds like you may want to speak to another broker.

I’m happy to talk with anyone who can get this done! :banghead

I keep getting the same answer: ‘Even if you did refinance, you would only be able to get a loan for 75% of the market value since its an investment property’.

The issue keeps coming back to a requirement for me to have “skin in the game” other than simply having loans. They want good old American cash.

Can you provide some names/numbers to call?

What type of documentation are you looking for? Full doc, stated, no ratio? Full doc programs are available with LTV’s to 80% and CLTV’s to 90%.

Full Documentation. The issue has never been related to credit or documentation. Our Ficos are north of 700.

I have more questions for you. I will send you a PM.

Thanks for the msg. However, I want to keep this on the boards so that everyone can learn.

In response to your questions, I have never owned investment real estate before, and have total cash of about $70k.

BTW, I just spoke with Wachovia (You have referenced them in other discussions). They said that a 4 unit they will only loan up to 70% for non-owner occ. They said for refinance, they will only go up to 75%. They said the amount of experience has nothing to do with it.

I’m starting to wonder if the various talk about owner seconds is all a bunch of er… :bs from people who are just trying to hock their wears. Given the price and the amount of time various hucksters put into marketing the stuff on this and other sites, it seems to me that their main interest is making a living pushing junk than actually knowing what they are really talking about.

I figure I’ll document my research for the benefits of all:

I just spoke with IndyMac Bank. They used to allow 5% down for non-owner occ. Now they require 20%.

Also, they do not allow seller 2nds on either new applications or refinance.

Max refinance LTV 80%


Just spoke with Bank of America. This bank was referenced earlier:

BoA said that they will only go up to 75% LTV, and that is for either originations or refis. Also they will NOT allow the presence of a Seller’s second. In addition, they require a signed disclosure saying that no other financing arrangements have been made other than what has been disclosed.

Violation of this can result in the loan being called, or (worse) a charge of mortgage fraud.

Account exec said the only way to make it happen without tripping any guidelines is to only have a verbal understanding with the seller. However that is completely unenforcable in court, and if you did try to enforce it, it could lead to BoA calling the loan and/or the FBI.

Come on experts… put up some facts here. Prove me wrong.

70-75% is going to be your max for conventional finance. As I said there are lenders that go above that but they are portfolio lenders that hold their own paper and service their own loans. Also, when you call Wachovia Bank you are getting information on a different set of products than the wholesale department that brokers have access to. Lastly, seller seconds were mostly allowed by Alt-A companies and sub-prime lenders. Most if not all of them are gone now, and the ones that are still around would scare you if I quoted you a rate. Based on what you posted below that 70K will not be enough to qualify you for the loan. In addition to the down payment you will be required to have reserves. Hope this helps.

That is at closing. They are saying that you cannot be borrowing the money from someone else as a down payment or have deals with seller prior to closing. What you desribed was taking out a second lien on your property after closing. Which does not in fact constitute mortgage fraud. As I posted above would it be fraud if you went to a bank and said “I would like to take out a HELOC on a non-owner occupied property that I recently acquired”? I don’t think that it would. What you are talking about is getting cash back from the seller. What I am talking about is you taking a note out on your property for cash after you have in fact closed the loan with YOUR down payment money. You are way over thinking this.

BTW I was using Bank of America as an example. They are the last bank that is going to loan on a NOO property at this point.

I have done this multiple times in the past. I will purchase a property then if I need some quick cash I will go to a private lender and use one of my properties to secure the loan. I have also cross-collateralized using equity in my properties as well. The equity in one of your properties is yours to do with as you please.


Keep in mind that lenders today will not allow a seller held second for a purchase transaction. For example:

Sales price $100,000
Loan from conventional lender $80,000, seller 2nd $15,000, $5,000 from borrower…that’s 80/15/5.

There are conventional loans at 90% for 1-4 units with 700+ fico.

All of the people you have spoken with (excluding this forum) are obviously not qualified to assist you with investment loans. It’s a specific niche that many brokers/retail loan officers fall short on.

After you purchase the property, if the seller wants to make you a loan and record a lien in 2nd position, that’s perfectly acceptable. Anything that happens after the sale like that isnt factored in to the actual sales process. It would be just like any other individual or lender giving you a 2nd mortgage and recording a lien.

What you’re hearing about lenders maxing at 75% for cash out using a conventional loan after purchase is partially true. The problem you’ll run into there is called loan seasoning. That is the length of time you’ve been on title. To do cash out and based the ltv off the appraisal value rather than (purchase price since usually lower) lenders require 12 months. There are a couple lenders that will no seasnoning immediately based upon the appraisal value at max 75%. There are also a couple that will go to 90% but require a 720-740 fico.

This sounds interesting. So who are these lenders?

The ones I know of require a broker’s assistance as financing is made through wholesale channels not retail.

Investors should really be teaming up with a qualified mortgage consultant to handle these transactions so your time can be better spent finding properties.

BTW, my attorney begs to differ with you. Perhaps I have not explained the issue fully.

Assume I want to buy a property from you. I have a lender who says the combined LTV may not exceed 75%. In this example, I have the other 25% cash. However, I want to keep it available for repairs, vacancies, etc. So, I approach you and say, ‘Psst…buddy. Here’s the scoop. I’ll buy your slum house for $100k. I’ll put $25k down, and ACME Bank will lend the other $75k. HOWEVER, you must agree to give me a 2nd loan for $20k (or 25k or whatever) immediately after closing the loan, or we have no deal’.

That’s the problem. In this case, it is a clear violation of lending regs since there is intention to violate the CLTV. That note can be called, and I could be charged with mortgage fraud (at least in this state. I don’t know about others).

The more I read the so called ‘experts’ in Real Estate, the more I laugh. The real money is not in real estate investing. Its in lending… and in hocking over priced materials or supposed mortgage expertise (at insane origination fees). Notice for all the talk, there is no walk with the experts. They want you to believe that they have secret knowledge. Its a load of :bs

Case in point: Read the experts here, then go read all the “no money down” works available for $500. You know, those ones which teach you how to get a seller to give you a second mortgage. Which is it? No money down, or 10% down? Maybe 25%? And, more important, once you do become an investor like the experts, do you have to wear Carlton Sheets’ Plaid Pants? Do the experts give refunds when the rules change? (Thats a negative, Captain WildGoose!)

So many suckers… so little time.