Which loan for a group of rookies?

[Mark Culotta]

Hi All, I am one of three individuals hoping to purchase our first rental (single family or duplex) in the coming months. We keep getting different answers on which kind of loan we need and how to apply for it. We are all married, have great credit, and earn >$75k annually (not counting our wives). We plan on forming an llc but understand we cannot get a traditional loan to a brand new llc. Any advice would be appreciated. 

Thank you,

Mark

[Andrew Postell]

@Mark Culotta thanks for posting. I guess depending on what your definition of "traditional" means but here's a quick summary for reference in what you are asking:

Generally speaking there are 2 main types of loans for investors: “Conventional” and “Portfolio”

Conventional - I'll define these as loans that come from Fannie Mae and Freddie Mac (if you recognize those names). These loans are all 30 year fixed rate loans. They have the lowest rates we can find and since they are 30 year fixed...they allow us to cash flow better...which helps us qualify for other loans later. The draw back to these loans is that they are more paperwork heavy than the other "portfolio" types of loans....but if you have ever received a loan on your primary home, it's likely that you will go through the same type of paperwork here with conventional lending. Fannie/Freddie money = Fannie/Freddie rules. NOT the bank's own money.

Portfolio - I'll define these loans as loans that come from the bank's own "portfolio" of money. Sometimes referred to as "commercial" loans. These loans are a lot more flexible than "conventional" loans. Bank's money = Bank's rules. If they like you, then maybe they will lend to you. But since there is a limit to how much money the bank has access to....their rate will be higher...and usually a shorter term. The most common portfolio style loan in Texas is a 20 year adjustable rate loan. These loans are easier to get but the terms are different.

So the Conventional style loans do not lend to companies/entities.  But you would also NOT want to use them in that method anyway.  So just get a portfolio/commercial style loan and you'll be fine.  

Hope all of this makes sense but feel free to post back if you need.  Thanks!