Best option?

Question

Hello all mortgage brokers, lenders, and financial gurus!

I am looking to buy an investment property in the $90-$145K range. Initial thoughts were to take a HELOC out with a family member on her home which we could get for around $150K max. Figured most could be used for the purchase, and some for the rehab.

With the softening market, a realtor friend has suggested renting the property for at least a year. The area I am searching in has rental potential. He also suggested traditional mortgages as an option, but we would never reside there- that wouldn't be possible; would it?

We could potentially invest  around $10K ourselves although that would be directly out of savings- we would like to avoid that if we can. We have also tried to lean away from taking a loan on our retirement accounts (401K) and anything that would be a poor financial decision. We have several credit cards which could be used for some rehab funding, but that would only be ideal with a flip so we could pay them off with the profits quickly- not a rental situation.

If we were to get a home for $140K, what would be your approach. Any tips/hints we might be missing? We have the money and sources- just don't know what would be the best strategy. If you can provide examples, we would greatly appreciate.

Thanks all!
Deyano

Deyano M. · Answer

Cheers John- thanks for responding....

We have consulted with two large national banks/lenders and were not informed of any penalties in our situation. My wife and I could go after the loan on our own I suppose, although my Mother has better credit than both of us (over 800). Our income is more than adequate to handle the project- I might re-inquire given this new though process you have suggested. Thank you-

Black Wolf

John Worley · Answer

Black Wolf,

I'm coming into this conversation a little late, but I think I can offer you some help here (or at least some advice)....let's recap a minute.

You want to purchase a rental property in NY. 
You and your mom would be the borrowers. She lives in AZ and you in MA.

Ok here's my first question....Do you need your mom on the loan? How about you and your wife on it instead? Do you need mom's income to make DTI work? I ask this because with your mom as the co borrower, you'll be penaltizied slightly. It's referred to as having a non occupate co borrower and it will limit your options as far as what you can do.

Now you say your credit score is around 700. That score is high enough for 100% one lien with No PMI on an investment property (I have a few lenders with these programs). So my recommendation would be this. Unless you have some serious income issues (little income, hard to verify income, etc.), then I would say put you and your wife on the loan, leave mom off of it and look into the 100% financing angle. Then once you have the house purchased, assuming that the house has some equity in it (I assume it does since you are looking to buy it) then you can go back after the closing and do a HELOC for the rehab money (these can be done with as little as one day on title and use the appraised value and done very cheap.)

As for the commercial loan angle, I personally don't see the need to do so. There are many residential loan programs for investment properties that can be done with 10% down or less for everything from a SFR all the way up to a quadplex (4 unit).

Hope the information helps.

Deyano M. · Answer

Thanks Wesley!

Initially I contacted my bank and they said that would be a business loan- which is in line with what you are saying.

But what about a traditional mortgage product under the terms that the property was  a vacation home (2nd home). In some thread someone suggested that a bank wouldn't necessarily check up on your activities or intentions. How true is that?

Would there be prepayment penalties?

Deyano M. · Answer

Thanks Wesley,

We also considered taking out the HELOC for the rehab costs as well.

Good idea. How would the mortgage products be for a secondary home since it would be my Mother and myself on paper for the loan and we both live in separate states from the property. I'm in MA, Mom is in AZ, and property is in NY. Would that be an issues. As mentioned- we have good credit and substantial income, funds etc- just not a lump sum we are comfortable putting down for the down payment.

Wes Tuinstra · Answer

You're the second person today to speak to me about mortgage
money for what amounts to a commercial loan -- it's a single
family residence, but for commercial purposes.

You would need to find someone in NY who can write that kind of
a loan. There just have to be some on this very forum who will
do that for you.

If this thread doesn't bring one or two to the surface in the next few days,
consider putting an ad in the classified section of this forum.

--or-- try

Contact: Michael Haltman 
Location: Garden City, New York 
Phone Number: 516 741 8880 
Email: halthouse1@aol.com

Can't vouch for him, but it's a start.

Wes Tuinstra · Answer

You could take a HELOC for the (20%) downpayment and get
traditional financing for the remainder.

Ask yourself this....

Will the rental payments each month be more than the
mortgage payment? If so, do it.

The rental payments should equal 1.5% of the price you 
paid for the house. Will it?

Deyano M. · Answer

not sure if it helps, but we would be doing this as a family project. I have credit score of around 690-700 and my Mother's is over 800. In addition, my wife has a very good salary history. Collectively- (not sure if the buying power of 3 were an option) we have a yearly income of around $180K. Given that my Mother's mortgage principal is down to $90K and house is valued at $250K. My condo does not have enough equity at this point to really use for much. Hope those specifics help...