Upfront Mortgage Lenders - Where To Start When Finding Debt Financing
I had a lengthy conversation with a fellow board member this week about his quest to find the cheapest source of debt financing for his projects. He was trying to navigate the ridiculously-complex world of mortgages and HELOCs in an effort to keep his cost of financing as low as possible. I wrote a long board post about this a while back, must of which is reproduced below.
For those with limited equity to spread around while you are building a portfolio, the following financing strategy may work:
Properties 1-4
For your first four properties you have all of your arrows in your quiver. You have 4 FNMA "bullets" that offer the cheapest level of financing possible. You also have subject-to purchases and private money for short-term financing that you can later refinance using portfolio financing, conventional financing, etc. These products are suitable for holding property long-term because they eliminate the interest rate and refinancing risk for other types of money. They also are not subject to call provisions like subject-to financing is.
Properties 5-10
Once you have used your 4 FNMA bullets there are extra requirements for conforming financing for properties five through ten. You generally need two years of experience and better documentation of income to continue qualifying for loans. You also need the right DTI, which is subject to the vagaries of how both "debt service" and "income" are accounted for on front-end and back-end ratios. Lenders generally count 75%ish of rent as "income" for this calculation from what I am told. I don't think that subject-to purchases are included in the ratio calculation.
An alternative is to use short-term financing with subject-to purchases or private money that can later be refinanced once the constraining factor is removed. This could be either the experience or the DTI constraint.
Properties 10-X
After you pass the 10-property threshold you are really relegated to commercial financing with higher loan constants. In general, the rates will be comparable to conventional financing, but the amortization period will be shorter so that debt service will be higher.
In the course of conversation with the fellow board member I learned that he has done a considerable amount of reserach and ended up working with Aimloan.com. I checked their site and they have the "Upfront Mortgage Lender" status advertised on their front page. This immediately jumped out at me because I frequently recommend Amerisave.com who boasts the same designation. The Mortgage Professor doles out these designations and I am confident that any of the companies listed at his site:
http://www.mtgprofessor.com/A%20-%20UMLs/list_of_upfront_mortgage_lenders.aspx
will be quality lenders to work with. I highly recommend that you check these folks out when shopping for funding. Hopefully this will combat much of the shenanigans that goes on in the industry and will help you get the lowest cost for your funds with someone that is trustworthy.
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