All Forum Posts by: Marty Johnston

@Jacob Mistric Most hard money lenders will offer a 12-mo term to ensure a 12-mo seasoning period. Alternatively, there are a lot of commercial/portfolio lenders who only have a 1, 3, or 6-mo seasoning period so that you can exit your HML using it's as-is-value vs an at-cost LTV (if you're creating new value). Otherwise, whatever you buy it for is what your refinance loan will be based off of as well (Original purchase price, or appraised value, whichever is less).

You'll be able to get verbal yes's from lenders on the take out now, but you won't be able to 'secure a term sheet' now on the take out until you're really ready to proceed. One of the most common reason for this is lender's don't want a term sheet sitting out there at certain terms for too long as markets can change overnight, and now they'd be originating that mortgage at a massive (potential) loss.

Hope this helps! Feel free to PM me if you wanna chat more on this.

@Sami Davis what's the property address? Is it in Cook County?

@Scott Spicer there are a lot of lenders in this space! As @Rick Martin referenced above, the best terms would come with Freddie SBL which has a floor of $1M loan amount (not purchase price). You venture into what many refer to as the small-balance space when you dip under that desireable $1M+ loan amount. These lenders can include:

- Local Banks & Credit Unions (typically lowest interest rates, but capped to 25-yr ams and usually 3, 5, or 7-yr balloons)
- The "Secondary Market Lenders" who are going to require a PG usually, but will offer that 30-yr fixed, as well as the ever-so-sought after 5 - 10yr Hybrid loans (I/O during first 5-10 years, then converts to a 20-25 yr fully amortizing loan [no balloon!]). Rates will be available in the 4.49 - 6.49% range depending on the assets and it's cashflow, as well as your credit score.

So many people get hung up on mortgage rates that banks have, however... I always show my clients the real difference between that 3.75% 25-yr amortization payment from the bank (which will require 3-yrs business and personal tax returns, t-12/t-24 financials, balance sheet, paystubs, and do a global DTI etc) vs a "Secondary Market Lender" who will offer the 4.5 - 5.5% (on average) at 30-yr Fixed terms (who will typically NOT require anything regarding income, but focus on appraised value and DSCR).

Taking a $500,000 mortgage:
- 3.75% 25-yr Am (5-yr Balloon) = $2,570.66 P&I
- 5.00% 30-yr Fixed (no balloon) = $2,684.11 ($113.45/mo difference)

Take it further, many lenders offer buy-down options (often a 2:1 buy down, meaning for every pt you pay at close, you reduce your rate 0.50%) 
- 4.50% 30-yr Fixed (no balloon) = $2,533.43

This is LOWER than the bank's monthly P&I Payment for 1 extra point ($5,000), which by the way saves you $150.68/mo from the 5.0% rate. You'll pay yourself back on that buy down in 33.18 Mos ($5,000 / $150.68) So long as you hold the property for 34+ months, you're in the black. Everything after is savings in your pocket.

Which of the above makes most sense? Depends on your long-term goals. I'd say 3 out of 4 investors I consult with like the buy down option on the 30-yr fixed with no balloon as most hold onto their investments longer than 3 years. If you're not, well a 3/1 ARM is probably your best product anyways. It's really not hard to compete with the banks if you really take a good look at the numbers.

Hope this helps! Feel free to PM me with any questions on this!

@Zack Karp aahhh, this makes much more sense. Thank youf or this! 

"Usually though, helocs on investment properties need to be in 1st lien position, and I suspect at a max LTV of around 75%."

@Brandon Terrazas Most commonly, HELOCs are a O/O related loan product. My ears perked up to see @Jody Sperlings post here that there are in fact some banks / CUs who offer this. I've never seen a HELOC available for an Investment property so I'd follow her lead here and reach out to all the local banks and CU's in your area like she said.

Good luck!

@Ben Daniel Lots of good answers here. Everyone's right. In short, I usually recommend the following:

First) 

• Check with local banks and credit unions, they'll usually offer the highest LTVs at the best terms, lowest closing costs (albeit a 25-yr term is most common with these guys)
• If going this route, most will do a Global DTI and require: PFS, 2 Yrs Personal & Business Tax Returns, SREO, Previous Year and YTD Profit & Loss, Balance sheet on entity (if seasoned), 2 Mos Bank Statements, Rent Roll, Pay stubs, T-12 Financials on property

If the above isn't gonna be a fit, then:

• You can pursue the "Secondary Market" lenders. These lenders are closer to Asset Based Lending. No Tax Returns, P&L, Balance Sheet, Pay Stubs etc. All these lenders care about essentially is the asset (good location, Debt-service-coverage-ratio [DSCR], Value per door/unit, value). Much less documentation, but rates in the 4-7% range. Most of the time rates will start at 5% with rate buy down options into the low 4's

Here's what cool about these lenders.. 4-7% may sound high compared the to 3.25% from the local bank or credit union, but here's something most people over-look. Most Bank or CUs cap at a 25-yr amortization. The secondary market lenders almost all offer 30-yr amortizations, so even at a 5% rate, your monthly payments are very comparable (if not less!) With 2:1 rate buy down options, it's a no brainer to buy your rate down into the low 4's if you intend to hold the property for 3-3.5 years (break even point). These lenders close faster, less docs/headaches [usually] and are where many investors prefer to go.

To take it up a notch, if Cash-Flow is your primary concern and the name of the game, then there are also options for Interest-Only, through a 'Hybrid' term product. Interest-Only for the first 5-10 years and the converts to a fully amortizing 25-20 yr Amortized loan (30-yr term, no balloon). This makes for killer cash-flow which allows for faster growth of your portfolio when re-investing the difference.

Hope this helps! Show me a DM if interested in chatting more about this.

@Ohad Waizman there are lenders who will lend to Foreign Nationals, however leverae is typically capped to 65% LTV. Rates and often in the 5% range with buy down options. These are stated income loans with very low documentation, no DTI requirements, fully asset-based. There are a good number of them out there!

@Daniel Dubeck Gap Funding comes in many shapes and sizes. It can come from a personal investor who will negotiate terms, or potentially a piece of the equity. There are also 'mezz' lenders (typically for larger transactions) who will cover up to 90% CLTV and require you to bring the remaining equity to the deal, and additionally there is Gap Funding in the form of unsecured personal debt.

The latter can potentially be the most expensive option, but allows for true 100% financing as there are no restrictions for how to use these funds, as they are unsecured, and generally obtained through personal credit, income etc (since there is no collateral for obtaining these funds). Unsecured personal debt is often from institutional sources, but at rates of 9-20%, fully amortized over 3, 5, or 7 year terms (not interest only). This means sizeable monthly payments, but if utilizing with Value Add you can pay off the loan without a pre payment penalty at any time.

Hope this helps!

Adam,

If looking for a conventional loan (non-FHA), a Duplex is going to require 15% down, and 3-4 unit will require a minimum 20% down. These are the confirming guidelines which you can also find here: http://www.freddiemac.com/sing...

Honestly, if you're looking for a low DP on a house hack for 1-2, we always recommend FHA. It's a no brainer so long as the property won't have any issues passing an appraisal. Yes - you have Lifetime PMI.... But with our 8.5% year over year appreciation in our immediate market, (and probably greater for the upcoming 12-mos based on the ridiculously high over-asking offers we're seeing) you'll be able to refinance conventional or portfolio within 12-24 months at an 85-80% LTV, eliminate the PMI forever, and be in good shape (assuming you still live in the 1 unit when you refinance).

If there are any reasons the property wouldn't qualify FHA, it's like additional assets will be required. Portfolio loans are going to require greater DP and also probably greater closing costs. An all-in-all worse scenario if liquidity is a concern.

Hope this helps!

@Luke J Nelsen - We can chat about Fannie/Freddie as well as some of the options described above. I look forward to connecting with you!