Is Lending Drying Up for SFHs?

Question

Hello All! Just wondering if everyone else is running into what I've been running into. Called a couple of mortgage brokers I've used before (big ones) to see about a cash-out refi on a property so that I could extract the equity and purchase an additional SFH. Basically, three firms told me the same thing: They simply have no way of doing investment loans right now because no one wants them. "Can't get a rate" on purchases or refinances at all, which they attribute to institutions not being interested in owning those loans. Something about Fannie and Freddie limiting the number of investment loans for institutions?

Maybe I'm not understanding them correctly.

Anybody else seeing this? Essentially, if I understand it properly, the loans "can't catch a bid." That's weird and . . . a little unnerving.

Maybe I'm not understanding them correctly.

Anybody else seeing this? Essentially, if I understand it properly, the loans "can't catch a bid." That's weird and . . . a little unnerving.

Chris Mason · Answer

Minor quibble. The terms "mortgage broker" and "big ones" are a contradiction. You're probably conflating mortgage banker with mortgage broker. Quicken Loans, Bank of America, Guaranteed Rate, and Wells Fargo, all together, employ a grand total of zero mortgage brokers combined, for example. A mortgage broker, by definition, and according to the courts (yup, it's been litigated), does not work for a lender or bank. (For the record, next to my name above... BP doesn't have a "mortgage broker" option, only "lender," so me and the other mortgage brokers have to pick the "closest fit").

On the actual mortgage broker side, lending for rental properties, including cash out refis, is alive and well, both on the Agency Fannie Mae front, and on the non-qm DSCR front.

It is true, and important to note, that Agency type loans have gotten a little worse, and DSCR has gotten a little better. They now often overlap. Whereas, before, there was about a 1% to 2% gap (sometimes a rate gap, sometimes a fee gap) between the highest Agency rate and lowest DSCR. That gap is now gone. The important thing to do now is be able to compare/contrast the nitty gritty details to see what's the best fit (if it's "what has the least paperwork," of course DSCR wins all day long hands down...).

George Despotopoulos · Answer

@Alfred Litton Cash-out refinances w/ non-bank lenders are very competitive right now. You can get a 30 yr fixed on a 1-10 unit residential investment property w/ a rate in the 4% - low 5% range.

Chris Mason · Answer

@Taylor Gardner <-- reach out to him -- EDIT: that looks like a fake profile... odd.

Alfred Litton · Answer

@Chris Mason Thanks for the info. I should have clarified. By "big ones," I meant the ones that are very prominent or well known in the DFW area.

James Mc Ree · Answer

I just started looking into DSCR loans and am seeing 5% - 6% rates from Lima One and LendingHome. Is this typical? Naturally, I am very interested in the 3-4% rates mentioned above.

My lending product/profile is PA properties, 30 year fixed, 25% LTV, 760+ credit for mortgages around $150,000. I would prefer no escrow, but haven't found that yet.

Jonathan Taylor · Answer

Conventional is getting tighter but Non QM DSCR Lending is thriving with rates in the mid 3- high 4%. No income/tax return docs needed and can  close in an LLC. This would provide you the best options.

Reid Chauvin · Answer

Hi @Alfred Litton - having worked at Fannie for a few years prior to getting into mortgage lending, I can share a little bit of insight. Fannie and Freddie's regulator (FHFA) has called on the two companies to cut their second home and investment portfolio's drastically (basically trying to get private investors to step in - seems like more of a politically charged decision than anything).

Private investors (like Lakeview) ARE stepping in and buying the investment property loans from Lenders now. I have personally still been able to price and lend on investment properties. I'm licensed in TX - feel free to dm me if you want more info.

Stephanie P. · Answer

Here's a real time comparison of Fannie pricing vs a DSCR loan.

Borrower had a 731 mid score and both were on a 30 year fixed at 75% cash out.

The bank was at 4.875% with a cost of 1.88 points with full income documentation and everything Fannie Mae can throw at it to not want to close.   Bank charges $1050 for loan fees.DSCR loan (debt service coverage ratio), no tax returns, no income verification other than the property's lease was at 4.75% and 2 points.  Lender charges $1695 and we charge $450 processing.  Borrower can close in his LLC with the DSCR loan with a $595 entity review fee.

DSCR is a little more expensive, but WAY less onerous to close.

Stephanie

Matthew Crivelli · Answer

Yes, Conventional lenders have had their guidance changed and they are shying away from investment properties. Their is no benefit to going to a bank anymore. Private institutions will have better rates, higher leverage, and way less hoops to jump through. Times are a changing!

Is Lending Drying Up for SFHs?

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