Repeating a 5% Conventional Loan

6 Replies

Hey BP!

About to make my first investment in the 4-6 months and I'm already thinking about the next deal. I have about 37K saved and will need to utilize a low down payment loan program. Initially I was thinking FHA was the way to go, but after getting to know my market a little better, I am reconsidering, and thinking it may be better for the long run to go with a Conventional 5% down loan. This way my PMI drops off after 20% equity is built and it adds to my cash flow.

My question is, can I keep buying 5% down conventional properties, barring the lender gives me the loans? Or, must I have that 20% equity built, BEFORE reinvesting in another property with the same loan?

This is only my second post and I'm LOVING the feedback from all of you! Thank you so much for your valuable advice in advance!

-NB

Originally posted by @Nick Burkhardt :

Hey BP!

About to make my first investment in the 4-6 months and I'm already thinking about the next deal. I have about 37K saved and will need to utilize a low down payment loan program. Initially I was thinking FHA was the way to go, but after getting to know my market a little better, I am reconsidering, and thinking it may be better for the long run to go with a Conventional 5% down loan. This way my PMI drops off after 20% equity is built and it adds to my cash flow.

My question is, can I keep buying 5% down conventional properties, barring the lender gives me the loans? Or, must I have that 20% equity built, BEFORE reinvesting in another property with the same loan?

This is only my second post and I'm LOVING the feedback from all of you! Thank you so much for your valuable advice in advance!

-NB

 Hi Nick,

It's commonly overlayed, but there is no longer a Fannie requirement that you have X% equity in the departing primary residence. 

Fannie instituted that former requirement due to "buy and bail" schemes during the Recession, where people with underwater houses would buy a similar home for way less than their current loan balance, and immediately stop making payments on the underwater home.

@Nick Burkhardt

If you're doing 5% down then I'm assuming you are doing an owner occupy loan. It is my belief that your next one would have to be 25% down because you will be purchasing it as an investor and not an owner occupant. You may have to wait a couple of years to purchase as an owner occupant and be able to put down a low DP. 

@Nick Burkhardt It really depends on the investor that your loan office is selling the loan to, where I work we can to 5% one unit investment properties, and we do as many of them as your DTI will allow as long as you have the down payment. If they are multifamilies 2-4 unit properties we are between 10-15% down. Good luck!!

@Ceasar Rosas My plan is to buy the first one live in it until I have enough capital built for the next DP, then as long as there’s no rule saying I have to stay in the first residence for X amount of time, I would occupy the second prop and fully rent the first. I would repeat this as long as my lender will allow on conventional 5% loans.

Does that make sense? Would I be better off saving for the 20% conv. and getting rid of the MI off the bat?

@Dean Poff ii thanks for the info! So maybe my lender is the same and I’d have to same the 10%-15% DP. I’m more than ok with that! To me that’s so worth it to lose the MI during the life of the loan rather than FHA which stays with you forever and is more restrictive.

Is there a set point at which the MI comes off the loan? Is it a set percentage of the loan paid? How does that work?

@Nick Burkhardt you can request it to come off at 80% LTV, or it automatically comes off at 78% LTV with a conventional loan. Id also check out if the property you have in mind is USDA eligible, its zero down payment, there is a funding fee but that can be wrapped into the loan, and with seller paid closing cost you can be in a multifamily for nothing. USDA requires you to use this as your principle residence for a year but unlike FHA no one comes to check.

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