How does this sound?

Question

Got off the phone with the local banker. Inquired about financing a 2-unit building with them (they originate the loans and sell it on the secondary market. I have dealt with them in the past with no problems).
They require 25% down, and will underwrite me, not the property (due to the lack of LL experience (appx 6 months).
They offer 30-yr fixed conventional loan with rate in high 4's (today - 4.875%) rates, no origination points.

Does is sound reasonable in terms of requirements ? (P.S. I'd rather put down less).

Rob Gillespie · Answer

George, 
Not the biggest quesion in the deal. Why are you buyin a 2 unit?
They are harder to keep filled, harder to comp, harder to sell, and you are an adult babysitter!
Why do you not look for a steal on a great single family. you will get a better rate, less down, easier to fill for the long term, plus it is is easier to dump since you are signed personally.

I have had probably around 20-25 small multi units, and I just do not like them at any interest rate. The best deal I ever did on one was I lease optioned the entire house out at 1k per month and let them rent the other side.

I did very well on that one! Just my 2 cents. :mrgreen:

David Beard · Answer

George -- sounds completely typical, and a good rate.  Today's O/O rate is 4.25% on 30yr fixed w/ zero points (US Bank).  Investor loans with zero points are typically .50 to .625% higher, so 4.75 to 4.875% (or alternatively you can take the 4.25% O/O rate and pay 1.75% investor discount points, that decision depends on how long you might hold, usually better for investors to take the higher rate as you're doing).

The fees paid to the lender (processing, underwriting, NOT 3rd party pass-through like appraisal, title work, closing) should be no more than about $500; there can be alot of variability here, and it can be negotiable.  Do your own shopping around for title company/closing agent, and ask for their best rates on title search and closing cost, you can potentially save another $100-200.

You have zero chance of getting a down payment less than 25% on a *conventional* loan, unless you're financing a FNMA REO through the Homepath program.

Because you do not have two years of LL experience, you will get no credit for rental income on this property, or any other rentals you have previously financed.  The PITI (and possibly even maint est and replacement reserve estimate) of this loan (and any other rental property loans) will need to be reflected as debt in your DTI ratios, but you will get no credit for the rental income.  If you have sufficient wage or business income, you should still be OK, but if ratios are tight it can be a huge problem.  Your total debt payments should be no more than 40% of gross income. The PITI of your primary residence should be no more than 30%.  Ideally your FICO is > 740.

I know what you mean, but they're still underwriting the property, as it has to meet guidelines for condition/habitability, appraisal amount, etc.