All Forum Posts by: Russell Monson

I've done one of these recently, and if you are trying to get your money out within 6 months based on the appraised value using FNMA guidelines all of the renovation will have to be funded by the hard money lender and included in the payoff or it will be considered cash-out and you'll have to wait until it's seasoned. Having the HML fund the rehab costs as well as the purchase is the only way to get all of the costs FNMA financed within 6 months of closing. That said, you will have to get a smoking deal because you will probably be limited to 70% LTV based on the appraisal since it's a 2 unit. You will need to find a FNMA lender who has no "overlays" meaning they follow exactly the FNMA guidelines and don't add an extra layer of restrictions. The lender I use has no overlays, but plan on providing reams and reams of paperwork to get it done. Hope this helps!

Every FNMA loan I have done in the last year has required this exact same letter. My wife & I have a joint account, and by signing this letter, deposits from her payroll into our joint account qualify as my"seasoned" funds on my loan application even though I am applying for the loan by myself. I.e. her income doesn't help me qualify for the loan, but the asset (cash) generated from her income helps me qualify for the loan as long as she signs the letter. This is very useful if you're close on your FNMA reserve requirement because you have a lot of properties.

I closed on loan # 5 (duplex) with Guild Mortgage in December of last year, and am currently in underwriting on # 6 (also a duplex) with Security National Mortgage. I'm using the same loan officer for both loans, he just switched to primarily working with Security National Mortgage. Both of these lenders are direct to FNMA lenders with no overlays. I'll update once I've actually closed on #6.

I recently closed on my 5th and 6th conventional deals (both duplexes). You are right that it is very difficult to find someone to do it. I found my lender by referral from other investors, and I have been very pleased with his performance on my loans. However, I would be leery about calling a bunch of lenders and asking them if they do investment loans over 4 because most of them who think they do don't end up knowing their own guidelines because they don't do a lot of them. This could easily kill a deal if you find out about some guideline your lender was unaware of late in the game. Also, I pay a lot more in fees to do these loans than I did on my first four, there is a lot more work involved on these and a lot less competition, so it's not so easy to negotiate fees, etc. Plus, I really want to keep my lender well compensated since he's actually getting them done quickly for me.

My personal formula is a little bit more conservative than 6 months PITI, but my down payment funding plan is much more aggressive than average so I need to have additional cash on hand to balance the risk. I keep 5% of the fair market value of each of my rentals in cash. I currently have 5 rentals (3SFR & 2 Duplex). Once my reserve balance hits $50k I will stop adding to it. When I get into doing bigger deals (large multifamily), I won't use a rule of thumb anymore so this little rule will go by the wayside.

I was a mortgage broker pre-crash, and there were several sub-prime lenders who were offering (and closing) 40 & 50 year mortgages. These were all subprime however, and were an attempt to get people's payments as close to interest only as possible without causing a payment shock when the interest only period ends and the loan becomes fully amortizing. They were offered as both adjustable and fixed rate products, but since they were subprime they weren't usually priced competitively with the FNMA FHLMC money. Not sure if the FNMA or FHLMC ever offered these longer amortized terms, but I never saw them or closed any.

Also, just as a heads up I have done two of these Homepath loans as an investor with 10% down, however, after I had my 4th loan and I'm in the 5-10 FNMA loans range, I cannot find a lender who will do these anymore. So use your Homepath loans wisely, or if you find a lender who can do them after four let me know. All of the lenders I have asked indicated it is a FNMA guideline, not an overlay, so I doubt there is one out there, but I'd love to be wrong on this one.

I use Shelter Insurance, Agent Joanne Maestes. If you google shelter you can find the contact info.

Russ

If you're looking for conventional financing, the cash can't come directly from a credit card. You can, however, spend up a credit card so that you have no other cash expenses and use the cash you've saved up from other qualifying sources such as your income as a down-payment. I've done this twice on super low rate cards I have and it has worked out well.

I do this for all of my local tenants. I stop by the first week of December, and hand-deliver a $25 gift card. They all seem to love it and be very appreciative. On the plus side for me, it gives me an extra chance to inspect the property, and I think because my tenants seem to like me they take better care of the property and pay my rent on time. In the three years since I've started purchasing properties (I have three close to home that I self-manage) I've never had a single late payment, and have only ever had $50 in turnover costs for damage (not including vacancy as a turnover cost, although I've actually only ever had about 1 week of vacancy.)