This will be my first deal. Asking price is 135K, ARV is approx. 180-185K, going by comps in the area.
I was going to go through a HML, but my realtor, come to find out, is also in the loan business, so I called her just to see what she had to say or offer. I emailed her our info (hubby and I.) Next day she says we are pretty much good to go. She had pulled our credit reports last year when we thought we were going to buy a house for ourselves to live in, not to rehab.
I asked her what type of loan it was and she said 30 yr fixed or 80/20 (I think that’s what she said, stupid cell phones…) or however we wanted to proceed. I asked if the closing costs could be lumped into the loan so we don’t have to come up with that. She said yes. I asked about getting the rehab money, you know, like a HML would do. She said that we could offer more on the house, then have the seller ( a bank) cut us a check for the difference at closing, then use that for rehab work.
Question here is…do people actually go with a 30 yr fixed rate mtg. on a flip deal. What are the pros and cons? Her associate told us that for a buyer who might be using FHA, wouldn’t be able to offer on the house til we had held it for 6 months. I guess having a lower interest rate mortgage would help, right?
I will find out on Monday the terms of the loan, but just wondered what others thought of this.
Hello, It sounds like your loan person thinks that your going to live in it. It is an investment, correct? You will always want to get traditional financing for your projects first. But, if you don’t qualify, then use HML as a last resort because the rates are higher.
It sounds like your loan person thinks that your going to live in it. It is an investment, correct?
Yes, it’s an investment. And yes, she knows we intend to flip the property. When I told her before that we were going to use a HML, she said But they charge you so much interest. So I’m guessing that since my hubby has great credit, she’s just trying to take us down the traditional route, if there is such a thing, and save us some money.
The real questions is: Is your Realtor a Realtor acting as a loan officer with some knowledge or is she a realtor that is looking to make some money off a transaction and say whatever makes you feel good over the phone.
You need to consult a professional mortgage broker when dealing with investment property. A Realtor who also closes loans is not always going to be the expert in the field you’re looking for.
Would you go to a guy who pumps gas at a gas station who knows how to change a tire and change your oil OR would you go to a full service mechanic who does nothing but work on cars sunup to sundown?
I know what you mean and I can honestly say that I fully trust her. She is a very knowledgeable person. She has helped us with our credit reports and gave us tips on improving our credit. She used to work in this field. She is one intelligent lady.
You know you can usually tell when someone is BSing you and I do not have that feeling at all.
Last year when we were looking for a home of our own, she directed us to a lender who got us approved in about a week. She just has connections all over the place.
She’s not one of those women who are like wall flowers. She’s a very confident, assertive realtor.
Hello, It sounds like you just answered you own question. Since your credit is great and you trust your realtor then that seems to be the way to go. At least you know that you have another option, like a HML, incase you need it. Good Luck!
use hard money for the investment then go to conventional if you intend to keep the property. conventional takes too long and is a lot of paperwork vs. hard money.
Deedeelyn:
There are pros and cons for both a conventional mortgage and HML’s. Because this is an investment property that you intend to flip, I would not suggest getting a 30 yr fixed loan if you do decide to have a mortgage through a traditional lender. I would suggest getting an ARM (perhaps 3yr or less). Beware of prepayment penalties…as they may make you have to pay a penalty for selling or refi-ing too soon. Prepayment penalties are typically used to bring down your rate, but if you plan to flip it, then take a higher rate if it means there is no Hard pre-payment penalty. (A Soft pre-pay will allow you to sell anytime, but you must wait to refi).
Now, depending on your credit, you could get a mortgage in as quickly as 14 business days (or less depending on the circumstances). And although there may be more paperwork than what an HML may require, there are some loan programs that don’t require anything more than a copy of your driver’s license and social security card…though expect a higher rate for that type of loan…but again, the interest rate won’t be near as high as an HML rate.
Of course, I am no expert in HML’s. What I have gathered is that they can be faster in some cases, but have very high interest rates. I have also heard that you may have to put money down (as opposed to doing a 100% loan)…but if this is not the case, I invite anyone who is very familiar with HML’s to fill us in.
Either way you go, I would recommend that you compare the rates/numbers/terms etc. before signing onto anything. Best of luck!
Hello, An HML will not do a 100% loan. They don’t work that way. They base their lending on the project, 65-70% of value. HML is a last resort for a loan. It is for people who want to be successful but cannot use their personal credit. Yes, the rates are higher but their your last hope if you want to do your project. Otherwise, you must continue to quailify with a traditional lender. If your credit is great, then go traditional first and save the rate money.
Hi again,
Here’s what my realtor sent to me via email. Let me know what you think…
[i]Here is the breakdown of the loan:
This is for 150k loan:
1st of $120,000 at 5.75% - payment would be $700
2nd of $30,000 at 3.99% - payment would be $181
Total payment would be $881 plus taxes and insurance.
This is a no money down loan and we can write a contract for the seller to help with closing costs.
[/i]
Looks like the second must be a HELOC (which is variable rate). I suppose if you plan to sell the home quickly, then it’s not such a bad thing. Variable rate seconds can get people into trouble because they may not realize that it goes negative am.
The only thing I would recommend is to do an interest only first lien if it isn’t already (I didn’t run the numbers). If you know you are going to sell it quickly anyway, this is probably a better scenario for you.
The only other word of advise I could give, and this is pretty important, is that if she has told/showed you those rates/terms, ask if she has locked them. Rates have been increasing, so you want to definitely lock as soon as you can.
