I am new to real estate investing and want to purchase a single-family or multi-family dwelling in new orleans. (non-owner-occupied) I can put anywhere from 10-20% down. I want to get pre-approved before looking for properties. My score is about 630, spouse is 670.
What’s better for me? Traditional banks or HMLs? I checked with one national lender and they couldn’t help me. Should I keep trying other national lenders or try an HML? Also, can you get pre-approved with an HML if you haven’t picked out a property yet?
yes you can get preapproved with a HML before picking a property
with your credit score you can get 100% LTV
You should be able to get decent traditional financing with that amount down and your credit scores. HML usually means high rates and high cost and I advise my clients to go that route only if necessary or if they need money quick.
You have pretty good credit scores. If you want to increase cashflow, here is what I would advise you to do:
Get 100% financing. We do a lot of 100% financing for investors, and with your scores you will have no problem getting it.
We have a program right now where if you put 20% down you can get into a 1.5% fixed for 5 years on a 30 year mortgage. If you are looking to put money down, this program would be phenomenal for you to use. It would be a huge boost to your cashflow.
I disagree with Bill- you will not increase cash flow with 100% financing- any time you borrow 100%, your payment will be relatively high and probably will be more than the amount of rent you are collecting in the first couple years if you intend to keep the property. With 100% financing, rates are higher than if you put money down, and unless you have bought the property at rock-bottom price (hopefully you have if you are a savvy investor), the mortgage payment will be more than the rent payment.
However I do agree with #2- if you have equity- you only need 10% equity, you can get the Option ARM program which will increase cash flow dramatically because of the 1% minimum payment rate you can get.
My mistake. Reducing cashflow was meant for option # 2. For # 1 that is if you want to take as little money out of pocket as possible. With your credit scores you could still have relatively low rates even with 100% financing, but they would be higher than putting money down. Thanks for catching my mistake Baxter.
Couple of notes,
A 630 is not pretty good credit. I don’t want to make you feel bad, but you are going to be paying premium rates. There is usually a break around 640 that would save you a bunch. The next break is about 680 and if you have over 720 scores, you will get preferred rates.
One easy way to get a higher score is to reconfigure your credit. You get a better score with less money owed vs the balance on a credit card. Most people pay them down one at a time. This is the wrong way to do it. You should pay them all off evenly. A zero balance on one card and another thats near the limit will get a worse score than 2 cards at 50% balances.
You can get 100% loans with your credit if you are moving in. If you are applying for non-owner occuppied loans, you will probably be required to make a down payment. (or pay through the nose)
The option ARM is a good program for getting a low payment. However if you pay less than 20% down, figure a few hundred more each month to cover mortgage insurance. Some lenders will do a 2nd behind an option arm, but usually not for non-owner ocuppied properties.