All Forum Posts by: Bryan Maddex

Hey Casey!

One of the largest growing buyer pool demographics is unrelated/unmarried "couples" (that are not dating). You do not need to overthink the partnership question at this point beyond coming to an agreement with each other. If you are splitting the costs to get into the home, you can think about splitting the equity and income from the property. Or you can decide on a 60/40 or 70/30 split of some sort. You can place the home into an LLC that is controlled by both of you after closing for most lenders and come up with terms and an operating agreement post closing.

FHA 203k would allow you to purchase a 1-4 family property with just 3.5% down of the Purchase Price + Renovation Costs. So if the property is $250,000 and it needs $50,000 worth of work, you would need $10,500 as your down payment (technically $10,675 as there would be "contingency reserves" baked into the renovation budget).

If you purchase with a HomeStyle Renovation loan you can do as little as 3% down. I need to check if you can do 3% down on multi family as the multi family rules changed recently and I have not tried on since the rule change. 

Job for less than a year should not matter as long as he has prior work history, or school history, and we are using just base pay.

Let me know if you would like to schedule a call to go over options!

I recommend you work with a mortgage broker that works with 220+ lenders to help you shop for the best lender for your situation!  I know a guy  ;)

Quote from @Dillan Gomez:

Following up, will this affect my ability to re-fi or do a HELOC/Cash-out re-fi?

 Hey Dillan!

One thing to consider that I did not see mentioned by anyone is your plans on living in the property. An ARM product can be a great way to save now, but if you are not planning on living in the property beyond 1 or 2 years, it may not be ideal.

When you refinance a property as an owner occupied property, you are signing a new 12 month occupancy clause which means you need to live in the home as your primary residence for 12 months after you do the refi.

Rates are on a downward trend and likely will continue to do so for the next 12 months so you may have time to refinance your loan in the next year or two into a fixed rate while you are still living in the property so if you planned on living in the home for 3 years, you could wait 2 years for rates to drop and then refi as owner occupied into a new 30 year fixed rate.

Alternatively, you could get into a fixed rate now at at 5.875% on a 30 year fixed rate if you qualify for the "HomeReady" program (HomeReady is an income limited program that gives buyers a fantastic rate). There is PMI when doing this program, but many times it is discounted as a part of HomeReady. To really know options, we would need to look at your income, area you are purchasing, and credit score. SECU is easier to qualify for with lower scores, but comes with a 1% origination fee. If I charged you a 1% origination fee, you could do a 30 year fixed mortgage with only 3% down at rates as low as 5.5% today! These rates could be better after Sept 18th when the Fed starts to cut rates.

PMI can be dropped once you have made 2 years worth of payments and your home has appreciated to give you 20% equity. Homes have been appreciating in most parts of NC at about 8% for the last 2 years, you could potentially drop your PMI in 2.5 years or so if appreciation  continues at the same pace.  Doing quick math, lets say you are purchasing a home for $200k. 1% origination fee is $2000. PMI could be in the $80-$100/month range if you have fairly good credit so lets use $90/month. You could pay PMI for 21 months before the PMI cost more than the origination fee so you may not be paying much of a premium on PMI vs the origination fee charged by SECU.

If you get this house up and running, you could be looking to purchase your 2nd home in just over a year with 3 to 5% down (depending on your income and the income limits for HomeReady once you are looking to purchase your 2nd property). 5% is always allowed if you make more than the HomeReady income limit. 

Rates should be on the decline for the next few years, 5 years out is way too far to know if we will still have rates as low as they may get, or if they could potentially be higher than they are now. Keep in mind that 2022 we saw rates go from 3% to 8% in about 1.5 years! 5 years is a lot of time for markets to shift and shift again. 

I am in NC if you would like to talk more about 30 year fixed rate options and see if you qualify for HomeReady and rates under 6% as of today!

Depending on loan size and what the DSCR ratio is, I have a lender that would be 6.88 to 6.99% with no points with a 680+ credit score and 20% down.  This lender needs a 1.2 ratio to get that, so may need to put more than 20% down to be in the 6s with no points. 

Depending on the loan size, you could get a 6% rate with as little as 1.5 to 2 points.

There are a bunch of lenders than can get you into the 6s with little or no points depending on credit score and loan to value. You need to be talking with a broker who has access to a bunch of lenders vs a lender who only has a couple of DSCR outlets. 

I would need more details about what you are looking to purchase and credit scores to be able to properly price this out for you!

Side note, I am in NC  :)

They are one of our lending partners and are very well known in the investment space!  They can fund very quickly on Fix & Flip loans as well.

i typically do not use them for long term DSCR deals as they are not always the most competitive on pricing. I would recommend them for Ground Up or Fix & Flip transactions!

Hello Joseph!

This is mostly correct. Fannie Mae will allow you to count Boarder Income if you are purchasing a new Primary home, have had renters living with you for at least 13 months, have proof of receiving rental income for at least 9 out of the last 12 months, if you qualify for Fannie Mae's HomeReady program (which is an income limited program, you do not have to be a 1st time homebuyer to qualify for this program). In that instance, you can only count up to 30% of your income as boarder income. 

As far as purchasing a new home as investment, you are allowed to rent that house as Longer Term whole house, Rent By The Room (usually called SRO for Single Room Occupancy, CoLiving, or PadSplit model), Mid Term (30+ day rentals), or Short Term rentals.  Fannie Mae will use 75% of the Projected Rental income based on a long term rent model when purchasing that home to help you qualify for this new mortgage. Until this property is on taxes for 12 months, Fannie will continue to use just 75% of the lease agreement to help you qualify for future purchases.  

Purchasing a new home with seller financing does not change how Fannie Mae would qualify your income on the next application. 75% of your long term lease agreements (to a single family or to individual renters in your property). Some lenders may have an "overlay" or may not be comfortable with SRO rental income on a newly acquired property, but I have done transactions using SRO lease agreements.

Typically speaking, if you qualified to purchase your primary residence, and you have not increased your debts or had a decrease in income, you should qualify for an investment purchase assuming you have a 25% margin on projected rental income vs the mortgage payment. Sometimes you may need to put more than the minimum of 15% down, or buy your rate down to help get numbers to qualify depending on what your debt to income is. 

As far as DSCR loans go, many lenders do not like to work with 1st time investors but many lenders have no problem with this!  Working with a Broker who represents a wide variety of lenders will allow your Broker to find a lending partner that fits your situation. You can do as little as 15% down on a conventional or DSCR loan, but rates/fees will always be higher than when you put 20 or 25% down.  Multifamily (2-4 units) properties often times require additional down payment (Fannie/Freddie require 25% down), but there are a few DSCR lenders that will allow 15% down on 2-4 unit properties as well. If your lender told you that you need 2 years of experience, you are certainly working with the wrong lender!

Last, for your 2nd question, DTI works the same as described above but wanted to clarify that true seller financing, the seller would typically NOT maintain title or name on the mortgage. True seller financing would be provided by a seller that owns the property outright. 

When you purchase a property under a "contract for deed" (sometimes known as installment land contract, a land contract, or a land sales contract), that is when your name does not go on title. Be careful with these transactions and get advise from a knowledgeable real estate attorney who works with these to make sure all steps are taken to property protect yourself. 

When you purchase a home "subject to" the existing financing, that is when a mortgage stays in the sellers name. You are going to take over the payments of their mortgage. It is best to establish a 3rd party servicing company to oversee these payments as you do not want to send this money directly to the seller as they may not actually make the payment and then you could see your house foreclosed on by the lender. Having a 3rd party servicing company handle these payments can be a way to help ensure payments are made directly to the mortgage company and provide proof to both you and the seller of the property. 

You can combine "subject to" transactions along with "contracts for deed" transactions to have the title and mortgage remain in the sellers name. 

If you are doing either subject to or contract for deed transactions, please make sure you have your own representation in those transactions to protect yourself!

Let me know if you have any other questions, or if you want to talk further about traditional or DSCR lending!

There are so so many DSCR lenders and DSCR loans can be cheaper than Fannie/Freddie investment rates currently!

Credit score, Loan To Value, Loan Size, and the term of your PPP (prepayment penalty) all go into the rate.  If you want to message me some details I can search for options for you. I work with 220+ lenders and many of them are being very aggressive currently on rate options!

I can lend in 45 states for DSCR loans. 

Hello Davian!

I am a broker with access to over 220+ lenders so know we can find lending partners to fit your situation. There is not a "best" loan out there, only what is Best for your situation!

Give me a call and lets go over details and I can present to you a few options to move forward with. 

Additionally, many lenders will limit your rehab budget with lack of experience. Many lenders want to see 3 or 5 exits before being wide open to financing for you. An exit is either a sale or refinance and rental, both count. Typically lenders want to see activity in the last 2 to 3 years. 

I do have a lender that will finance 100% of your purchase price + 100% of your rehab budget if you have a 700+ credit score. With no experience they will only finance 70% ARV (after repair value) and with experience they will finance 75% of the ARV. If you have a 680-699, they will only finance 65% ARV.

Here is a reason to go STR to start, then flip to something else. Financing. STR (if more than 50/100 miles from your home, or at a destination like lake house or beach house), allows you to put 10% down vs 15/20% down for conventional financing. When you close on a mortgage you are signing a 1 year occupancy clause, meaning that you will use the property as intended for the 1st 12 months of ownership.

I would rather have 2 appreciating/cash flowing properties than 1. Buying as Short Term (or possibly mid term rentals) would allow you to put 10% down and get two homes for the same down payment money potentially. You do have to furnish the homes and stay there "some" of the year, but after the 1st year you could convert into long term rental or SRO (Single Room Occupancy or PadSplit model). 

Backup plan for STRs should be that you can go LTR if city or county ordinances change, or if the property is under performing. I have a STR that we converted to Mid Term (we still allow short term), but marketing it for mid term (monthly rentals) has been more fruitful for us vs SRT.   I do want to convert that house to a SRO property in the near future!