All Forum Posts by: Jason Potrzeba

Following and adding a question of my own. 

If you assume a loan that has an awful payment history, does that negatively affect your credit in any way?

Quote from @Christopher Mooney:

Thanks everyone for the replies! I spoke with my bank who I have my primary mortgage with (Navy Federal), and they echoed most if not all of what everyone said here. They did say there's no prepayment penalty which is nice, but that's just in terms of paying back anything borrowed. I didnt ask about if I closed it prior to ten years, I dont plan to, unless I run into a DTI issue as you mentioned @Jason Potrzeba

@Jason PotrzebaThe only thing I didnt understand when I talked to a mortgage loan officer is how an IO line could have a lower monthly cost than a P&I line. If I'm using $50K of a $100K HELOC, and the APR on the P&I line is 8.75% but the APR is 9.75% on the IO line, I'm still borrowing $50K and pay interest on that...how can the IO payment be less?@Jason Potrzeba

The HELOC will have a lower payment even though the rate is higher because all that the lender is looking for is the interest payment. I am posting pro HELOC comments because I see a lot of RE investors who have them and use them to help grow their real estate business. Today I do not have the ability to originate HELOC's so my comments aren't designed to generate applications.

When used thoughtfully and as part of your overall plan, a HELOC can be a useful tool.  

Yes, the cost and/or rate may have a slight adjustment because it isn't a purchase mortgage.

Fannie Mae uses the term "Delayed Financing" to describe paying cash for a home and then applying for a mortgage to recapture some of those funds. You should have no issues if you apply and close within the first 6 months of making your new home purchase.

Here is info from Fannies sellers guide...
What is required for a delayed financing exception? (fanniemae.com)

The HELOC will offer you greater flexibility compared to a cash- out refi.

If you go the route of a cash out refi you will most likely be giving up on a nice low fixed rate that you have today. You'll also begin to start making a new payment based on the higher loan amount from the lump sum you've pulled out. What if it takes you a while to find a project to invest in? You could potentially be making payments on that cash which you aren't even using...

A HELOC usually comes with a 10-year draw period that you can use when needed. If it takes you 6 months to find a project, then you'll have credit available to access when needed and you wouldn't have been making payments all those months when you didn't need that cash. You'll also have a set amount to draw from when needed and when you pay towards the balance and bring that balance down, you free up available credit to use again when needed. The versatility a HELOC offers is nice and a good tool to have in your arsenal.

Most HELOC's have an early pre-payment penalty for the first 3 years. The penalty applies if you payoff and close the line. If you pay to zero and keep it open, you wouldn't see a penalty. Also, keeping it in place even if you aren't using it could still be a convenient thing to have especially if you are always looking for potential deals to move on.

Rates are always adjustable and the minimum payment a lender wants is interest only. It's on you to pay extra towards the balance during the draw period. The interest only piece is generally very attractive to investors as well who are focused on monthly cash flow.

One potential downfall could be with DTI. Let's say you have a 100k limit but a zero balance on an existing HELOC. If you are applying for a mortgage for some other future property, a lender may assign a qualifying payment to that HELOC even if you currently do not have a payment, similar to home underwriters handle student loans in deferment. If your ratios are tight, that might be a challenge.

Good luck in your quest for some new BRRRR projects!

Jason

Congrats on your new purchase.

I do home improvement loans that do not require any homeownership seasoning (or equity), if funds are tight and you want to explore a small home improvement loan, please reach out.

Jason

You could consider getting an equity line on this investment property. This way if you are going to get hit w/ a higher rate it will only apply to the smaller balance of the equity line vs getting wacked on the entire amount of the old mortgage plus the cash out.

If you shop around you may have a shot at this. If the neg am mortgage is willing to subordinate, I don't see the harm for the first position lender.

You might be able to hand out flyers to people in your local grocery store parking lot. You'll be able to see who should be a customer of yours by the conditions of their headlights. 

Take before and after pics of headlights you've restored and post them often to your social media accounts. You'll get a lot of mileage from those posts and people will be reaching out to you.

You may end up doing a few free restorations for friends and family first to generate these pics and help your efforts gain some traction and get noticed.

Good luck w/ the hustle!

Bring in a partner who has the down payment funds.