Just how far can good credit get you?

Question

Hi Everyone! I am in the market to purchase my first duplex/ multifamily and use it as a buy/hold investment. I plan to rent out all units and not live in myself. I have looked into loans with a local credit union I am apart of, and I just have so many questions. I was hoping to get some of them answered by the incredibly knowledgable RE investors on BP. Here's the hard part of this endeavor. have no money to put down on this potential property. I've researched hard into wholesaling, and I really didn't want to have to get involved in it to build a down payment, but I will if I have to. I do, however have great credit, 750+. How far will that get me if I wanted to finance through a credit union, or local bank? I have a full time job and would be able to afford any hiccups that came with owning rental units. A/C units going out, fences falling over, unexpected expenses like that. but I don't actually have enough for a down payment on a property. I have read that most lenders require at least a 20% down payment. Is there such a way that I could get in touch with a private lender for the DP, and then finance the loan with a credit union? I guess my actual question is, What would be the best way that I could get financing for a property to create a good cash flow and finally get myself in the door of this real estate business? I might be totally off on my thought process, but I'm hoping to learn from this and grow my entrepreneurial mindset. Any help would be so appreciated. Thanks all!

Rick Pozos · Answer

Traditional financing is out of the question with no money down.You have to be a little creative to get a no money down situation. Seller financing, take over payments, lease with option to buy and many others.But even if you buy it with no money down, you have unexpected problems that come up. You really dont want to be in a situation where an a/c goes out on a tenant and what are you going to tell them in the Houston heat and humidity, "I cant fix your a/c because I dont have any money".You have to cut your everyday expenses or increase your income to get some reserves.

John Gillick · Answer

I was in a similar situation as you and used FHA. One real problem with FHA and one fake problem:Real problem: Very expensive. Get a quote because it's always changing, but after the '08 crash they jacked up the PMI to crazy levels because their trust fund was wiped out. I hate the idea of having to pay for their previous mistakes, but it is what it is.Fake problem: One thing that stinks is that FHA doesn't care about your great credit score (as long as it's over like 620). So you feel like you wasted your great credit score. I found that credit score alone means little to banks. Equity opens the door, credit score is what you talk about once inside. A private lender might let you monetize your excellent credit more than a bank, but they too will be expensive. Good luck.

Jonathan Ranes · Answer

You could possibly BRRRR it (Buy, Rehab, Rent, Refinance, Repeat) with a Hard Money Lender if the property is a good deal. They usually loan up to 70% of the ARV.

Courtney Downtain · Answer

Hi Rick Pozos thanks for your comments. I do have a little cash reserve for problems that will more than likely come up but as far as $15,000-$20,000, I just don't have it at the moment. Thanks again.

Courtney Downtain · Answer

Thanks John Gillick I will keep that in mind when I go to speak with someone about financing.

Courtney Downtain · Answer

Mike Hanneman FHA Is definitely something to look into. I'd be willing to move into the property if it meant I was there rent free, which I would make sure of. Thanks for the info.

Courtney Downtain · Answer

Hi Robin Wilk I am about to sign up for BP Pro and then I will surely get on the market place and network with private lenders. I don't think I have access right now with a basic account. Thanks so much!

Courtney Downtain · Answer

Hi Jonathan thanks for the tip. I will look more into that.

Mike Hanneman · Answer

A 740 credit score is the bench mark to get the best rates. Anything over that is just for bragging purposes. I have heard that when you get over the 800 score mark there are some loans that certain banks will do, but I think this is just hear-say.Look for owner carry and you can possibly negoiate the down payment. If you are willing to live in the property for 1 year then you can do an FHA loan with 3.5% down. After the year, move into another multifam and get the FHA loan again.

Robin Wilk · Answer

Can you use seller financing or is this a bank owned property? You can also look in the marketplace to see if there are any private money lenders you can work with. If you don't already have an FHA loan you could try that too I believe that they only want 3% -5% of the purchase price of the property. Double check to make sure though I could be wrong on the percentages. Hope this helps you out.