Freddie Mac Investor Loan

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Freddie Mac Investor Loan

Mark S.Pro Member
Rental Property Investor · KY · Member since 2013 · 1k+ posts · 539 votes

I posted this in another section of the forums, but I'm not sure if it was the right place, so I'm posting it here again:

I spoke with local bank today, and after offering me a 3/3 ARM with 15% down to which I told them I much prefer a fixed loan, I was told that they could likely do a Freddie Mac investor loan for 1-4 units. I was advised that they could probably get the down payment to between 5-10% down on a fixed rate loan. The catch, they told me, is that there would be about a 3.5% fee (of the loan amount) by Freddie Mac to do such a loan. This would be in addition to all other closing costs. Mortgage insurance would also apply until I had 20% equity in the property, and would then fall off. I am told that this loan could likely be done on a foreclosure as well. Finally, the bank said they could probably get me out of some of the normal closing costs with a slightly higher interest rate. My situation is limited cash, sizeable retirement accounts (for my age), and wanting to minimize having to touch retirement accounts (ie, backing out Roth contributions, taking a 401(k) loan, etc.). For this reason, I loan such as this really appeals to me, even with the additional fees, due to the fixed interest rate and low down payment. The alternative is 25% down on a fixed loan, no PMI or 15% down on an ARM. I guess my main question is: Do these loans really exist?

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  • Daniel DietzPro Member
    Rental Property Investor · Reedsburg, WI · Member since 2011 · 1k+ posts · 857 votes
    12y

    Mark,

    I can't answer your question about 'if these loans exist', but I am in a very similar situation as to the low cash but healthy IRAs, so am interested in hearing what others have to say.

    On another note, have you considered using your IRA assets through doing a SDIRA (Self Directed IRA) in which you can invest your IRA funds directly instead of withdrawing them?

    I ask this because that is how I recently got my start..... I, along with my brother and father, converted part of our IRAs to SDIRAs (about 1/3 of it in my case), and went into a three way partnership and bought our first duplex with all cash from that partnership. We were hoping to do a 'non-recourse loan' (the only kind typically allowed within a SDIRA - and a max of 50% LTV), but our property did not 'qualify' as it is next to impossible to get a Non-recourse Loan from a traditional lender as they do not like to do them on properties older than 1940, less than 100K purchase price, or those that are 'stacked' - meaning converted houses. Are flunked on all three criteria. The only other options for borrowing in SDIRAs in finding 'Private Lenders' which I am currently working on.

    In my own case, I would like to buy at least one more property within my SDIRA (more if I can find the right lending) and also buy some with non IRA funds. In my case, I currently have very little liquid cash, but have a property that is for sale which eventually will generate hopefully about 80K+ of cash when all said and done.

    If the SDIRA interest you at all, there is a specific forum on here to discuss that in more detail.

    Dan Dietz

    [email protected]608-524-4899
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  • Daniel DietzPro Member
    Rental Property Investor · Reedsburg, WI · Member since 2011 · 1k+ posts · 857 votes
    12y

    Mark,

    One other thought as to which loan to do, points paid, etc.... is to run the numbers through a calculator such as this to see what the results are.

    http://dinkytown.com/java/InvestmentProperty.html

    To me, I am mostly investing for a retirement plan as opposed to current income, so I mostly look at long term ROI.

    Dan Dietz

    [email protected]608-524-4899
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  • David Beard
    Investor · Cincinnati, OH · Member since 2010 · 1k+ posts · 928 votes
    12y

    I'm very skeptical of your getting a 30 year fixed rate investment property loan through a govt lending program at 5 to 10 percent down. I'd want to get that as a written commitment from the lender. 20 percent is the standard minimum except a Fannie program that permits 10 percent on their REO properties. Please post back with an update on where things land.

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  • Mark S.Pro Member
    OP
    Rental Property Investor · KY · Member since 2013 · 1k+ posts · 539 votes
    12y

    @Daniel Dietz

    Thanks for the calculator link. I'm familiar with the site, but not this particular calculator. I'll be sure to play around with it a bit. As for the SDIRA stuff, my retirement assets are spread pretty well among traditional IRA, Roth IRA, and 401(k) assets (both traditional and Roth 401k). This makes it a bit more difficult for me. Additionally, I like the tax benefits, want to use leverage, and want to get in for as little down as possible (don't we all?!). Anyway, I'm not sure this strategy would work best in my situation. I am investing for cashflow and general wealth building - and may very well use real estate to help with retirement income - although I'd like to keep it all separate, if possible.

    @David Beard

    Yes, I thought it was quite strange as well. The lender seemed somewhat confident, but also a bit hesitant. My guess is he may have been thinking of rules applying to owner-occupants versus investors (although, he clearly knows what my goal is and absolutely said 1-4 units). I asked him to work up some numbers for me next week and get back to me. The only reason I think this COULD hold, is the 3.5% upfront fee he mentioned. We'll see what happens.

    IF this does NOT work, and you were me with extremely limited down payment funds, would you:

    - Go 15% down on a 3/3 ARM just to get into the property and re-fi out later?

    OR

    - Go 25% down on a fixed rate loan and scrap every penny to rebuild savings as quickly as possible?

    Thanks, guys!

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  • Mark S.Pro Member
    OP
    Rental Property Investor · KY · Member since 2013 · 1k+ posts · 539 votes
    12y
    David Beard I heard back from the local bank today. The loan officer said that, "there has been a recent amendment that prohibits that transaction." I knew it sounded a bit too good to be true. It looks like my options are 15% down on 3/3 ARM or 25% down on 30 yr fixed. Cash is tight. What would you do?
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  • David Beard
    Investor · Cincinnati, OH · Member since 2010 · 1k+ posts · 928 votes
    12y

    Mark, anytime you're dealing with an ARM, you want to "stress" the interest rate to the max it can reset to over a long investment horizon of perhaps 15 years. If your ARM has typical terms of 2% max increase at each reset date, and max 6% increase over the life, then you can easily compute where the rate could move to after year 3, then year 6, etc. Then model out the results of deploying your capital in your two scenarios, just make sure to use vacancy/expenses/reserves of 50% of gross rents, or possibly 45% if you intend to self manage.

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