Investment property (PMI, loan, real estate, premium)

[Anu2]

Since lending rules are a little more stringent these days, I'm wondering if there are new rules on investment properties. Am I able to do an 80/10/10 on an investment property? Is the rate add on still 1 1/2 points?

Thanks!

[Daddys///M3]

I don't believe that anyone is going to 90% combined loan to value on investment properties anymore. You're probably looking at 75% loan to value (maybe 80%). I don't believe that anyone would be willing to write that second mortgage either.

[Anu2]

Originally Posted by Daddys///M3

I don't believe that anyone is going to 90% combined loan to value on investment properties anymore. You're probably looking at 75% loan to value (maybe 80%). I don't believe that anyone would be willing to write that second mortgage either.

Crap--that's a problem! I have a couple of potentially great real estate deals that I was considering but I don't want to drain every bit of cash I have on a down payment! Urgh.

[baggiegenes]

at least in texas, if you have credit scores above 720 and the property will cashflow well, there are still some 90% loans out there. But, you'll have to shop around and i think the rate 'premium' on investment properties has gone up a little bit. How much cash you have in reserves also makes a difference on whether banks will take 10% down. You can also look at some of the private lending groups.

[Investment Loans]

Today's mortgage market is tough, no doubt. Conventional lenders
have really tightened up on all fronts. Some of the most recent
changes include reduction of maximum financed properties held to 4
from 10 and 6 months of seasoning time for cash out. Larger down
payments are typically required as well since PMI is no longer
available on investment properties.

So this leaves investors with several options.

1. use commercial/bank loans which dont get sold off into the
secondary market. no limit on the # of properties owned and financed
and no limitation on seasoning. Max ltvs are usually 70-80% but
really depend on how well the property cash flows. These lenders
look at the debt service ratio of the subject property. Since these
are usually amortized over 20yrs with a 3-5yr balloon the loan
amounts might be lower than expected to satisfy the lenders debt
service requirement. Rates and cost are pretty decent on these types
of deals.

2. Purchasing with less than 20% down can be accomplished in several methods if the investor is buying under market value. Seller finance then use a conventional lender to do a rate/term refi should they meet the requirements (there's no seasoning period to refi an existing purchase mortgage, so the higher value is used to create the ltv rather than the lower sales price). Same thing but use hard/private money rather than
seller financing. Some local private lenders may be cheaper than the
national sources. In the first option I address using
commercial/business loans. This applies to purchases as well but
most of these sources will want their ltvs at 75-80%. Once the
borrower has established relationships with the lenders they will
start looking at these deals with less risk and can fund based upon
the higher value instead of the purchase price. Cross
collateralization is a great way to get investors into properties with
less money of their pocket too.

3. Portfolio lenders are similar to commercial lenders and may even
offer 30yr loans. However, rates and cost may be higher than
traditional loans.

4. Owner financing was mentioned previously but I wanted to point
out a program that helps buyers and sells come together for those
tough to get done transactions. With this program sellers can sell
at almost full retail while still working with borrowers having less
than desirable qualifying criteria.

Previous to the subprime market opening several years ago, note
buyers had a large market for helping finance deals that most banks
couldn't get done. Their business slowed though over the years
because of the hot subprime market. Since this market, along with
even some "golden investor" markets have disappeared note buyers are
back and looking to help structure deals.

The basic concept is that a seller would sell a property for full
retail and offer owner financing. The key buyers for this type of
financing would be "golden investors" or non traditional home
buyers. When a seller has found a prospective buyer they introduce
the buyer to the note buying investor (actual financing source). The
note buying investor will have qualifications for the buyer but with
lower standards that banks just aren't touching right now. If the
note buyer is satisfied with the buyer's qualifications then the deal
moves on.

At closing, the buyers puts down 5-10% and then sign a note with the
seller for the remaining funds. The seller doesnt get stuck with
this note though; so they wont have to service the note and collect
payments for years out. The note is actually sold at closing to the
note buying investor who has already reviewed the buyer's info.

Keep in mind though that the note buyer is not going to pay full
value for the note. There would be no benefit in that for them. So
they will discount the purchase of the note by 10-15%. So if the
note was for $100,000 the note buyer would pay $85,000-$90,000. The
seller gets those funds at closing along with the initial down
payment that the buyer brought in.

Full retail with about 10-15% off the structured note could have much
better results for all parties seeing that the alternatives could be
longer listings and/or no deal at all.

5. For those investors wholesaling I suggest to use a "1 day" closing loan. These are for doubling closings where the state or title company doesnt allow dry closings. Wholesalers can receive 100% of the purchase price and closing costs. There's no application, no verifications, no credit check, no appraisal. The end buyer's finacing must be lined up and all parties must close at the same title company.


Ben Carmona