Whats the best loan option to get for my situation?

Question

Me and my buddy are partnering up to get Into our very first fix and flip (we both just turned 18 & 19). We have experience in construction and have family connections. Since I just got a credit card my credit score isnt the best (his is 700 mine is 600). the good news is we have saved combined $20,000 to put into our real estate. we have no debt and We both work full time and have Paystubs to back it up. So my questions is do you think a traditional HML will be our best bet or are there any other type of loan types I haven't found out about.

Mike Klarman · Answer

Honestly, it will be hard for a few reasons.  One, neither of you have an extensive credit history and one of you is in the 600 range.  Two, no experience.  You are both young and ambitious but no lender is going to trust a new investor who is 18/19, that's my gut feeling.  I know the credit history for sure will be a problem.

I financed a loan for a new investor who was like 27 once.  His first loan.  His credit score was 750, ok?  And his debt utilization was only about 33%.  They denied the loan and wanted to see his liquidity first.  They told me, they wanted to see at least 50k in liquid assets.  He only needed like 17k for the downpayment and fees.  He handed me a statement with 150k in it, enough to buy the house in cash if he wanted and the lender was only willing to go 80%.

Now you tell me 18/19 with questionable credit, no real credit history and no real liquidity?  I say you have a major uphill battle with a HML.

Dave Skow · Answer

@Arshiya Taami- thanks ...definitely get  fully pre approved for a  hypotehtical purchase price/ loan amount - this process is free  and  easy  and  it will allow you to  become educated and organized .  Your  low  credit score will be a hurdle  so you might consider  having your partner go solo while you work on getting  score built and improved .  Also - many loan programs  require at least  3  credit accounts with history be  on  credit report for all borrowers - good luck

Sophia Buesing · Answer

Hard money loans are ideal because they are fast and efficient. We don't look at your income and require a ton of paperwork. We just look that the ARV is there, you have the cash to close, and credit. You are also able to close faster and have a more competitive offer. We also fund acquisition and rehab rather than a conventional loan where you have to come out of pocket with the rehab costs. Would love to connect!

Cydney Gray · Answer

Hey Arshiya,

I am so glad you guys are starting so early in life. If you ask any investor, they wish they did more and had a longer hold time for equity and cash flow with rent increases.

What about having your first place be a buy and hold? You could buy it, fix it as you had the funds to do so and live in it. As you pay the mortgage payment on time. you'll be building really good credit.

There are many programs for first time home buyers for owner occupied properties. Some programs even have down payment assistance so you don't need to come in with that much money.

A lot of investors get their start by buying owner occupied and renting it out when they are ready to move out. I know this isnt answering you question but it solves a lot of the things you are looking to accomplish. In addition, it will be at a much lower rate and lower fees than a HML.

What are your thoughts?

AND - full disclosure -  I am a lender and lend in in several states to Include CA.

Chris Seveney · Answer

@Arshiya Taami

How long you been collecting a w2 and what are your incomes vs expenses? Do you have any other assets outside the $20k?

Best bet may be to bring in a partner

Kenny Simpson · Answer

Hi Team sent you a DM, a chat is much easier to help you out.

Jared Rine · Answer

@Arshiya Taami...full disclosure, I'm a mortgage broker providing fix/flip loans in CA + other states and other private/hard money loans.  I would recommend first off handling whatever credit issues or building your credit profile/score.  If you don't have much credit, I'd recommend also seeing if there is a way you can get a secured credit card (card that reports but it acts as a debit, so the money you spend is used).  There's more ways to build quickly, but too much to type here.  I would also recommend putting together more funds and build that as quickly as possible.  While there are lenders out there who lend to first time investors, it would also make sense to start partnering on deals and/or with your first few deals, to bring a partner in for experience, so you can be mentored while also getting hands on experience. As another poster stated, it's going to be an uphill battle in your current position.

Bradley Buxton · Answer

@Arshiya Taami

Talk with multiple lenders.  They will form an integral part of your team. A good lender will tell your your best options based upon your deal design.  There are some interesting loan products that can lower your monthly payment which can help cash flow but these will come with trade offs.  I've have some reference in the Tahoe Reno, NV market if you ever invest in the area.

Whats the best loan option to get for my situation?

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