All Forum Posts by: Jeff Shumway

There's a lot to cover here but I'll do my best to give a general overview of each loan type. 

Conventional loans - These loans are sold to the government sponsored entities, Fannie Mae and Freddie Mac so they are generally viewed as a very safe investment. Like anything involved with the government, the documentation requirement can be hefty and it must check all the boxes. Many investors require loans that require less documentation. Conventional loans do have low interest rates but since Fannie/Freddie reduced the size of their portfolio of investment loans to 7%, the rates are pretty comparable to portfolio loans. You must close a conventional loan in your personal name or a trust. No business entities allowed. You can purchase a non-owner occupied SFH investment home for 15% down. A 2-4 unit non owner occupied requires 20% down.

"Commercial loans" - In the lending world a commercial loan can refer to a property with 5+ units, so portfolio or Non QM is a slightly more accurate term. Basically non QM loans are not sold to a government entity, meaning that lenders have a lot more flexibility with the terms/requirements of the loan. Generally, as long as these loans make sense in underwriting and you have adequate credit/assets, that is about all that is needed. For an investment property, the most common type of loan is a debt service coverage loan (DSCR) which qualifies you based off the anticipated rental income of the property. You can be unemployed and still qualify for this loan type as long as you meet the credit/asset requirements. Generally lenders want to see the anticipated rental income covers the mortgage but in many cases you can get approved even if the anticipated rental income is less than the mortgage.

Non QM loans also covers other alternative income documentation, such as P&L, 3-24 month bank statements, etc. Generally you can close non QM loans in a business entity as well. 

A second/vacation home loan requires 10% down for a conventional loan. Generally a conventional second home program will have the best terms. In order to qualify, you must intend to occupy the property at least some portion of the year. If a lender requires you to stay there a certain number of weeks out of the year, that is an additional requirement from that particular lender. Conventional loans cannot force you to go on vacation a certain number of days out of the year. That would be absurd. Additionally, there is no specific distance requirement from your primary residence. It just has to pass the smell test. for example if you try to buy a vacation home across the street from your primary residence, it likely will not get approved. 

You can use the vacation home as a short term rental when you are not using it. After a year of owning the property, you can even put a long term renter in there. 

In order to do 5% down for a conventional loan, you must occupy the property as your primary residence. This is where you get all your mail, have your drivers license registered to, etc. 

For the most part, the down payment requirements for a conventional loan are not lenders discretion. Fannie Mae dictates the absolute minimum down payment for # of units and occupancy. For example, Fannie Mae has the minimum down payment for a second home at 10%. You will not find a lender who offers a 5% down payment on a second home loan because all conventional loans have to meet the Fannie Mae requirements when the loans are sold on a secondary market. If it doesn't conform to the Fannie Mae requirements then they will not buy it and the lender may be stuck servicing the loan. Lenders may have additional requirements to minimize their risk - i.e. some lenders might require 15% down on a second home. So you may see additional requirements per lender but you will never see less requirements than what Fannie Mae dictates. 

We won't know if Orlando has hit a peak until it declines. The length of time real estate prices in Florida doesn't have much to do with when prices will start to decline- real estate prices aren't on a timer. As long as people still want to move to Florida and create demand for housing in the area, prices will likely continue to increase. Some of the price increase is due to inflation as well so it's a little but artificial. Generally in Florida, the slow months are in the winter for homebuying so start getting your ducks in a row now. I would not recommend waiting for the market to slow down. You'll be waiting forever and the cost of waiting will be far greater than the cost of not having a deal. This ties into the interest rates as well- yes rates are extremely low meaning you can get more house for your money but since rates are low this creates a sellers market. This offsets the amount of house you can get for your money. It's a fine balance and you can argue every point of it, but having a deal is better than not having a deal. It doesn't matter if the rate is 2% or 20% so long as you are making money and building equity in the property to access at a later date for future investments. 

If it's only a few miles then it sounds like it may be better suited as an investment property. So long as it's one unit, you should be able to do a 15% down payment and look into buying the rate down as much as possible to lower your payment.

I'm an air force veteran and happy to answer any questions you might have about the VA home loan. It's a great tool to get started with building your portfolio.

What state are you in? We have 30 year fixed asset depletion programs that might work for your client. 

If you are purchasing your properties on a conventional loan for an investment property the lender should be using the rental income from the properties you own. Have you declared the income on your taxes yet? If not, the lender should use 75% of the rental income on the lease. For example if you purchase a property March 2021 and rent it out for $1000/month, the lender will give you $750 in income. However if you purchased a property March 2020 and it's on your taxes, then the lender will use whatever is on the taxes so if you wish to keep using conventional loans, be mindful of how much you are writing off.

Personally, I think debt service coverage ratio loans are much better suited for investment properties. Instead of looking at your personal debt to income ratio, it looks only at the anticipated rental income for the property. Conventional loans can get hairy once you own a couple properties. An appraiser will verify the market rent. Usually lenders want to see the anticipated rent will cover the mortgage payment but it does not have to. For the most part, the terms tend to be fairly similar to conventional (30 year fixed, similar rates, etc.). You usually have to have a credit score about 680 and be ready to put down 15-20%. In some cases you may need a couple months of mortgage payments in reserves as well. 

Why not do a cash out refinance on your primary residence? If you do 75-80% loan to value plus the 10K you have saved, you'll have around 70-80K to play with plus the cash you are accumulating on a monthly basis. What price point are you looking at and what kind of property? (i.e. commercial, SFH, 2-4 unit...)

@Moaaz Malik you're welcome! Not sure what kind of property you're looking for, but if you are looking to buy a single family home you can usually do 15% down. If you end up going out of state and find a property you would use as a vacation home in addition to i.e. AirBnB, you may want to look into a vacation home loan for 10% down. 

When you take out a loan for a primary residence, you agree to intend to occupy it for at least one year. However, if life circumstances change and you need to move (i.e. for family, job, health, etc.) you can certainly move out into a new primary residence and do what you wish with the current primary.