All Forum Posts by: Jeff Dulla

Hi Mark,

Second home financing and Investment financing are different, as it depends on your intent with the property.

If you purchase a property as second home, you should have exclusive control over the property, and occupy it for a portion of the year.  You're correct to point out location does matter, as it does have to make "sense".  For example, it can be located in a desirable location, or close to family, etc.

The location of an investment property does not matter.  It can be located next door to you.  What matters is your intent with the property.  So, if you will be renting it out year round, you should purchase it as an investment.

Down payment options differ for both, and are dependent on details like property type, loan size, among others.  In some areas, on a single family home, you can put as little as 15% down on an investment property.  Similarly, in some areas, on a single family home, you can put as little as 10% down on a second home.

Getting to the point, you have two separate issues at hand.  You will need to decide your intent with the property, and you will then be able to select down payment structure.  

@Kevin Mckee - 20% is definitely high. With a two unit, more so than a three or four unit, you have a lot more flexibility with a low down payment. You could go FHA, but you could also go with a Fannie/Freddie loan and still get the down payment to a much lower number.

More than likely you are going to need some capital for any repairs/rehabbing. You also will want to conserve capital if the plan is to do another one in twelve months or so. 

@Account Closed You are spot on. There are a bunch of lenders who basically take 90% of gross rent and approve you based on whether or not that will cover PITI. I wouldn't say there are a ton of those. Like private/hard money stuff, there are only going to be a small percentage of lenders willing to do so. With that being said, rates will be higher.

I have seen the same rate structures - 5/1 and 7/1 ARMs that start in low 6's. 30 Year Fixed options in the 8's. All of that assumes paying around a 1.50% to 2.00% point structure.

I would say that is pretty much par for the course in terms of what I have seen. 

@David Jenkins I guess it really depends on your plan/growth strategy. I would probably take the trade off and combine the two for more capital. Because I would like to find three more properties this year. I cannot speak on the California market at all but your cash flow sounds pretty similar to my last Chicago, single unit property. I would do the structure you are proposing all day because I would be shooting for MFH that have higher cash flow figures. 

All of this swings on your next investment and what the figures look like. You have cash flow of $700/month but if you can add a property that has the same flow or higher, wouldn't it be worth it to reduce your current property cash flow to add another property that gives you an aggregate cash flow that is higher?

@Timothy Jacobson - I cannot handle loans in Connecticut but would absolutely love to give you as much advice as possible. What is the time table on this? I can even help review any loan offers and Loan Estimates you receive from lenders. 

@David Jenkins - sorry, one more thing, loan/line sizes would help as well. Also, are you targeting something that you would BRRR?

What are the current rates on all of the debt? Do you know what rates you could get on the next property assuming you take out a loan? What kind of return are you forecasting for the new property? It is all very relative, not trying to be vague with you. 

Ditto what @Natalie Schanne said. If your score isn't close to any thresholds - 740, 720, and especially 700 or 680, then just have it re-pulled by someone else. But you need to make sure if you are going to get quotes from someone else you are getting detailed quotes and you are doing it in a short window. I am a lender and I am pretty damn confident in the rates we offer. Nothing drives me crazier than spending a month, six months, whatever, consulting a client and then have them go off a spreadsheet I gave them a month previous, compare me to someone else's rates now and then drop me for someone else without a call. Very few people do something like that but a terrible feeling.

Long story short, rates are VERY time sensitive. So make sure you are comparing in a small window of time and that you are getting enough detail and not simply a quote over the phone. 

A mortgage. Residential, Fannie/Freddie mortgage. It will be the most stable product you can find for the longest term. And since you paid cash, you can get money out ASAP. You can use something called delayed financing through your local lender. You can take out the normal amount for a cash out, up to 80% realistically, and you do not have to wait six months. Since you paid $165,000 cash, with delayed financing, $165,000 will be the max you can take out unless you can prove with very detailed support the amount of money that you put into the home. 

Cash. Hard money. Private loan. Nothing with a bank's involvement. Outside of a full boat construction loan, every lender is going to want the piece of collateral in working order with no structural or safety issues.