All Forum Posts by: Jeff Shumway

Hi Ben, congrats on completing your first BRRR! For what it's worth, here's my 2 cents on your questions.

1. 15 vs. 30 year? 30 year all day. You can make additional payments to save on the interest over time. If anything ever comes up, you won't be pigeonholed into the higher 15 year payment. Additionally, if you look to finance other properties with a conventional loan (or any loan that looks at your DTI), it's best to have the 30 year payment instead of the higher 15 year payment. It'll increase your purchasing power a bit. Besides, you never know if we may have another eviction moratorium type situation. Wouldn't you rather have a 30 year payment than a 15 year payment? Better yet- take the 30 year amortization and put any monies that you would've used to pay the 15 year payment into some sort of other investment account that will grow over time (best to connect with a good financial planner here). At the end of the 15 years, you will hopefully have enough to pay off the remainder of the mortgage.

2. Depends on your goals. If your goal is to be like Dave Ramsey and pay everything off, then go ahead and put extra towards the mortgage. Remember, you can only access around 70-75% of the value of the property in a refinance so that extra 25-30% of your money is sitting dead unless you decide to sell the home. Personally, I would rather put the money towards expanding and getting additional streams of revenue. 

3. For any bank that won't loan to you if you have more than 4 mortgages, that is an additional requirement that particular bank has and you should go find another lender who deals with investors. The purchase prices/kinds of properties to buy really depends on your goals. Do you want to have a LTR empire? Are you into flipping? STRs? Remember that most SFH investment properties require a minimum of 15% down. Multis are usually 20-25% down.

Hey Colby, do you plan on living in this duplex at all? I would suggest a DSCR loan if it is strictly an investment property. DSCR loans are based solely off the anticipated rental income from the property so you could be unemployed and still qualify. Usually we want to see the rents equal to or greater than the mortgage payment. Most lenders will require you to be on title for 6 months but I've seen programs also that allow you to refinance 75% of the purchase price + documented repairs.

Hi Luke, on a cash out refinance you can take out up to 80% of the value of the home. If your home is worth 235K, the maximum new loan amount would be 188K. When you refinance you are replacing the old loan with a new one, so when you pay off the old loan, set up a new escrow account, and pay closing costs, you'd be bringing money to closing rather than getting cash out of the home. 

Hey Stephanie,

I'm not sure if you plan to force any appreciation on the property but keep in mind that if you purchase a home cash and do a cash out refinance you may be limited by the purchase price of the property on the cash out refinance. This is called delayed financing. For a conventional loan, the max loan amount is 80% of the purchase price. So if you do any repairs on the property, you likely will not get a loan amount that reflects the full ARV. You would have to wait 6 months to to get a loan based on the full ARV. There are programs that will lend around 70-75% of the purchase price + any documented repairs but it can be a bit of a gamble if the purchase price + documented repairs will come back at the ARV.

Hi Clinton, welcome to the forums! 

If you're considering a refinance, now is a great time to do it with rates as low as they are. Not sure what your equity position is or how quickly you want to move on your next property, but a cash out refinance could be a great option. A cash out refinance will be a nice fixed rate loan (possibly even at a lower rate than you're currently paying and you'll have to peace of mind of knowing the rate won't change). It'll give you the cash in hand so you're ready to move on your next property. 

You could also look at doing a rate and term refinance on the property and taking out a HELOC. If you aren't ready to move on your next property immediately, this could be a good option but HELOCs can 45-60 days to close. If you put in an offer on your next property and have to wait 45-60 days for the HELOC to get approved, it may make your offer not be competitive. The HELOC rates are usually variable and HELOCs can be closed by the bank, unlike a refinance. However, the HELOC does have the advantage of you only pay for it if you use it.

How long do you plan on keeping your current properties? I would always advise you to make sure the time to recoup the closing costs/rate buydown makes sense with your plans for how long you'll keep the properties. 

Hi Vanessa, congrats on getting approved! The first step is deciding your goals, short term and long term. And these can change over time, no worries, it's just got to be something to get you started on your path. Do you plan on house hacking or are you looking to buy strictly an investment property? Are you more interested in long term rentals or short term rentals? Once you have a rough idea of answers to these questions, the first step will become a lot more clear. Have you settled on a market yet where you want to buy?

The FHA 203K can be a really great option and it can be used for smaller projects but I wouldn't recommend it as a first option for small projects. Not sure what kind of rehab budget you're looking at, but if possible I would recommend a personal loan over the 203K loan. Renovation loans tend to come with a lot of red tape and requirements (especially since it's backed by the government = extra red tape!).

Usually once the contractor determines the scope of work, the lender provides a draw schedule where they release funds to the contractor after XYZ work is performed. The lender typically sends out an inspector at each stage of the renovation to make sure the work is done correctly (usually this is around $100/inspection). Renovation loans also usually have additional review fees etc. If you are doing major work where a personal loan won't work, then definitely check out the 203K but if you're financing something small, I'd recommend a personal loan or credit card. 

You sure can. You must be in the property for at least 6 months and the loan to value must work. For FHA cash out refinances, the maximum loan amount is 80% of the value of the property. For example, if the property is worth 400K, the maximum loan amount is 320K. When you refinance, the original mortgage on the home is paid off and replaced with the new "cash out" mortgage. This means the mortgage you are replacing must be less than 320K. To get out enough for a 20K down payment, plus escrows and closing costs, the original mortgage would need to be even less than the 320K.

This is where appreciation comes in- as your property goes up in value, that means you have access to more equity. If your home appraised for 500K, the maximum loan amount would be 400K so you would have a lot more wiggle room to take equity out of the home to reinvest in your next property. 

Hope this was helpful!

At least one of you must occupy the property. The other can be a non-occupant coborrower (meaning they can live in a different state). However, in order to get the benefit of the low down payment, the non-occupant coborrower must be a blood relative. If it is just a friend that is not a blood relative, the down payment jumps up to 25%. At that point, you may as well do a conventional loan and avoid the PMI.

Sandi, if you have an executed lease on the property, a lender will count 75% of the income from that lease. For example, if the rent is $1000/month and the mortgage is $750, the lender will give you a credit for $750 (.75 x $1000) so it will basically negate the mortgage debt. 

If a lender is requiring you to have 2 years of rental income on tax returns, that is an additional requirement by that lender but it is not required by Fannie Mae for a conventional loan. Many smaller banks and/or credit unions tend to have these additional requirements. 

If the property is a short term rental then you would have to show the income on your tax returns for 2 years.