All Forum Posts by: Joshua Fulenwider

@Michael Perry  I think @Chris Martin did a great job explaining the GSE information.  I wanted to address one of your other questions.

By doing commercial loans rather than GSE loans you can avoid having these loans show up on your credit report.  The majority of commercial lenders DO NOT report commercial loans to the credit agencies.  Currently, I believe you can only have 4 traditional mortgages per FNMA rules (but it's been a while since I checked on that).  With commercial lending you can have unlimited.

For your starting strategy it may be easier to qualify for a traditional mortgage (GSE) than a commercial loan just because you don't have a history (I am assuming) of property investment.  Your first one establishes you and you can then point to that when you approach commercial lenders later.

Hope this helps.  Let me know if I can be of further assistance.

Talk to lots of lenders.  Don't limit yourself to just credit unions.  Find out terms from a variety of lenders.  I would at least approach 3.  Here are some points I recommend you identify with each lender you talk to:

• Down Payment %
• PMI Requirement? This is sometimes required on low down payment deals (PMI=Private Mortgage Insurance)
• Interest rate
• Term (length of the loan)
• Fixed or adjustable rate
• If it is adjustable, how often and what by what amount?
• If it is adjustable is there a floor rate or ceiling rate
• Balloon (this is not typical for owner occupied but may be on a multifamily deal)
• Prepayment penalty

As far as Debt to Income it is going to depend on how they underwrite it. If it is a 1-4 family they could attempt to underwrite it using conventional financing and the DTI requirement will be much lower (33-36% I believe). If it is underwritten as a commercial loan the DTI requirement may be higher and they may consider income generated at the property itself.

My expertise tends towards commercial loans so keep asking around if you are seeking conventional financing.  If you have any questions about obtaining a commercial loan feel free to ask me and I wil help where I can.

25% is a fairly consistent number.  As you establish yourself with more properties and continue to network you may find lenders that will do 20% or even 15% down.  They are rare but not uncommon.  The company I work for will go to 15% but our standards are pretty strict.  In fact, while we have it as an option I have not yet approved anybody at this low of a down payment.   In order to get considered for such a low down payment you have to qualify as an A+ borrower, the property needs to have more than the 15% equity in it, and we want you to move your business accounts to us to name just a few.  

@Richard Williams you sound very emotionally attached to the new place.   There is a lot to be said for "Happy Wife, Happy Life."

That being said, when looking at the new place are you going to qualify for a new mortgage while continuing to keep your existing place as a rental?  If you currently have a mortgage on your existing house most mortgage lenders will not allow rental projections only a seasoned history.  Therefore you may have issues carrying showing you can pay for two mortgage payments.

If it were me, I wouldn't be looking at the new place as an investment.  It is a personal home that you and your family will probably derive a lot of pleasure from.

Also, you may want to do some digging as to why they are offering discounts, upgrades, closing costs, and a TV.  Is the builder having problems moving inventory?  Why?  The answers may give you some additional leverage in your negotiations.

@Kyle Lewis the bridge financing is a good bet.  I would look at doing a construction loan and you have to find a bank that is willing to be creative with you.  Most people look at construction loans as being from the ground up.  However, you can get a construction loan on an existing building as well. 

This is set up as a draw line of credit with the first draw being used for the purchase.  You can then draw additional funds as you work on the project.  This has the benefit of you only paying interest (and it is set up as an interest only note) on the amount borrowed.  A lender will require good construction/rehab estimates prior to funding the deal though.

Also consider your time frame and work with your lender.  A single family home construction loan is typically for a year.  Get a lender that will match your timeline with the length of the loan.  On the back end sometimes you can get them to automatically roll into a permanent financing but more than likely you will have to refinance out of it.

@Ryan Keenan it would be worth your time to avoid this by looking at portfolio lenders (typically community banks) that will do your loan on commercial terms.  When I look at properties from a lender standpoint I am looking more at Debt-To-Income Ratio than reserves.  That being said, commercial analysis also incorporates Current Ratio which effectively replaces a reserve analysis.  So keep cash and other quick assets available.

As a lender and investor I want to acknowledge that their officially 2 sets of books for any business or property.  There is what you give to your accountant that gets reported to the IRS on a tax return and then there is an actual Profit/Loss Statement.  

I would encourage you to turn in an actual profit\loss statement along with your tax returns and a memo explaining the differences.  People go look at properties where their relatives live a lot.  That gets reported as an expense to the IRS, but it might have really been paid for out of a person's day-job wages.

Find a lender that does a lot of this and they can help guide you.  Send me a message if you need clarification or have other questions.

The short answer is no, not all banks have the 1 year seasoning requirement.  However, this is a fairly common practice.  It is also a stipulation that can sometimes be waived if their are mitigating factors.  Some things that I would do to help justify doing this are if the borrower already has accounts, loans, and a general positive history with my bank.  Depending on the situation I may also justify it by taking a second mortgage on their primary residence or another piece of property.  My advice is keep talking to lenders until you find one that is driven because a lot of us have sales goals and our job performance is directly tied to loan growth.

Community banks are more likely going to be able to work with you than larger banks and I personally wouldn't waste my time looking at credit unions.  Banks also have strict ADC (Acquisition, Development, & Construction) guidelines which yours would more than likely fall into.  If a bank is at their limit it won't matter how much they want to work with you they can't.

Keep looking around.  Networking with other local investors is a good way to find banks that understand what you are doing.  Send me a message if you've got any questions.

If you are wanting to keep the one or both places you can talk to a community bank.  I would not recommend a big bank because a lot of times they don't understand this sort of thing.  Community banks also have more flexibility.  Talk to several different banks and make sure you are talking to a banker that has experience with commercial real estate (rentals, construction loans, etc.).  If a banker wants to get you into a traditional 30 year mortgage more than likely they don't know what you are doing and won't be able to get the deal done.  

Hope this helps.  Let me know if you have questions.