All Forum Posts by: Julee Felsman

Hi @Devan Sprayberry,

A lot of credit unions offer portfolio loans (and a few banks) with no MI -- some even with zero down. 

MI covers some of a lender's losses in the event of a default and foreclosure. When a lender offers a no MI program, they're taking on this risk/potential costs, with no safety net. Therefore these programs tend to have higher interest rates. 

I talked with a client earlier this week who was offered a zero down loan from her credit union with a rate in the mid-4's. If she pays 3% down using the more traditional program she and I discussed, her rate will be in the very low 3's (maybe even just under 3). Of course she'll have to pay MI... and a down payment. 

She has great credit, so her MI cost + the lower rate will be close to 1% lower (in aggregate) than the cost of the zero down/no MI option.

But in exchange the lower rate and lower loan amount will net her an overall lower payment to start. And the bonus of having separate MI is that it can be canceled at a later date (something to look forward to).

Worth mentioning, MI can be paid in monthly installments (the traditional method), but there is also an option to rip the band-aid off and pay it in a single premium. 

Single premium MI can be a great deal (less overall cost than monthly would be over time). "Borrower paid" single MI can be paid in cash (adding to closing costs) or (sometimes) can be financed into the loan. 

"Lender paid" single MI is paid (as you'd guess) by your lender. This sounds pretty awesome -- I mean why not make your lender pay, right? But the lender has to get the money from someplace... and that someplace is from increasing your rate so that your loan generates more revenue over time. 

So, there's a chance that Navy Fed's "no MI" program actually does have MI... it's just that they've elected to purchase the MI behind the scenes and built the cost into an increased rate. 

I recommend comparing no MI options with others to make sure you are getting a loan that best fits your overall plans and needs.

Cheers!

Julee

@Karen Plyler, I've got referral to a great private lender who works in Oregon and Washington (only). Happy to share his info with anybody who would like it. 

Hi @Mike Willis,

How soon are you planning on buying house #4? If you're getting somewhat close to that purchase, I might suggest hanging onto the cash until after you've applied for pre-approval for the new loan.

I love a recast option -- but even more than that, I love maintaining flexibility as you move toward another transaction. There are a lot of things you can do with $20k... if you pay the loans down and recast, you loose all the other options. 

Cash is infinitely versatile.

Tax-wise, paying the principal down and recasting will be nearly identical. Either way, you'll immediately be paying interest on $10k less loan. So that's not a real consideration.

And don't get me wrong... I love a recast option. If  you decide to pay the loan down, go ahead and pop for the $250 and recast. 

Cheers!

Julee

HI @Tyler Smith!

You sure can! In fact the option to get a low down/high LTV loan is one of the big reasons behind house-hacking. Buy with a low down payment, satisfy the owner-occupancy requirement, repeat.

Cheers!

Julee

Hi @Robert Larue! You're more than welcome. I'm super-puzzled by their threat to call your note. I'd ask them to point to the clause you've violated. You're not permitted to damage the property ("lay waste" it usually says... which I find funny for some reason) and you're not permitted to do things that lessen the value... but alterations and improvements are permitted. I'd be interested to hear what they tell you!

@Robert Larue!

Really interesting question, as the MI cancellation rules are different for multi-unit versus SFR.

One of the MI companies with whom I work has a pretty user-friendly resource here, that lays out the rules.

https://www.nationalmi.com/wp-content/uploads/2017/03/MI-Cancellation-flyer.pdf

If you want to do some recon, you may want to go read the actual text of the Homeowner Protection Act, which is where these rules live.

But it may be easier to just call your loan servicer and ask. 

One thing I can say for sure: your loan will not be called because you converted the property to a duplex. The wildcard is whether they will apply the LTV/rules for SFR or plex.

Cheers!

Julee

@Jessica Jay-Maleski, glad I could help! :)

Holler if you have any other questions!

And as an aside, in case you didn't know. You don't have to do a commercial loan to have the option to transfer title to an LLC. Residential loans, if set up correctly, offer this flexibility now too.

But getting the loans out of your personal name should clear the decks for the up-to-10 residential loans you can have at any one time. (If you want to add to your collection.)

Hi @Ramon Sorto!

An FHA 203k (or Fannie Mae's companion program "HomeStyle") are (IMHO) great options for buying a fixer.

You can write an as-is offer (which may give you some negotiating leverage on a fixer) and finance all of the renovation costs in with the purchase.

Your down payment is based on the "acquisition cost", which is the aggregate of the hard and soft construction costs (actual bids + permits + engineering + design +renovation related loan fees).

These loans do take some extra leg-work on the front end. The lender is financing the property in an as-improved state, so you need to provide detailed information about the work to be done before you can order an appraisal.

Closing generally occurs 30 to 40 days after the appraisal is ordered.

So plan on hustling early on to find a contractor, make decisions about the work to be done and get the contractor working on a detailed bid. If you'll be doing any structural work or your bid exceeds $30k, you'll also need to work with a HUD consultant who will prepare a report for the lender that outlines the scope of work and costs.

In short... a little extra leg-work up front, but then you get an all-in-one loan for a property that might otherwise not be financeable and/or you don't have to scrounge around after closing to find the money to fix up your fixer.

Cheers!
Julee

HI @Jessica Jay-Maleski!

You're not doing anything underhanded by making this shift. 

if the properties are financed in the name of your LLC and owned by your LLC and the LLC files a separate tax return (say, form 1065 as a partnership), then then standard (Fannie Mae) rules would mean these would not be included as an asset on your loan application.

If the LLC is single-member and you show the properties on your personal tax return, a lender will still consider them "yours" and they'll be on your personal application.

A few further considerations, if the properties showed up on your personal tax returns in prior years, you may be asked to show the new loan documents to evidence you don't have liability for the loan. More than likely the bank will have you guarantee the loan... if the LLC defaults they will probably have the right to come after you.

So there could be a murky year or two when an underwriter may follow a breadcrumb trail that will pull the properties back into the mix.

And of course, your ownership interest in the LLC will be something a lender will see as well. Your partnership will spin out a K-1 statement that shows income/loss from the properties and passes it through to you. So you'll need to provide the business tax returns and they'll be analyzed as part of your financial picture.

If you have W-2 income that is sufficient to qualify for whatever loan you've requested and your lender doesn't request/need tax returns your LLC is still pretty unlikely to fly under the radar.

Lenders pull all kinds of reports behind the scenes and the LLC and/or some of the real estate will likely come up on these searches, prompting the underwriter to ask about them, pulling them back into the mix.

My advice, as both a lender and a person with an LLC that holds all of my own rentals -- just disclose it up front.

1. You'll avoid the chance that a request will come up later in the process and delay closing.

2. Underwriters get really suspicious if the "find" something they think you're trying to hide. What else might you be hiding? You will have a lot of extra explaining to do and likely more paperwork in the end.

Cheers!

Julee

Hi @Dana Powell! I work for Guaranteed Rate.  

Julee