How to get a real estate loan?

Question

I'm currently a college student looking to start my real estate career at an early age. How exactly would I go about securing money from the bank if I have about 10% of the down payment on a property, let's say a condo? I know they're many different choices but I have no idea what type of loan to get etc. Do I also need to be licensed to rent out a property in the state of Massachusetts? Thanks.

Hattie Dizmond · Answer

The viability of Condos as investments is entirely dependent on your market.  You need to consider the HOA/Condo Board fees and make sure that organization is good to work with and working for the best interests of the property owners & tenants.  Talk to other tenants &/or Google it to figure that out.  I believe Condos in good areas have strong demand in Boston, so it may work for you as a long-term buy & hold option.  Just make sure you know your numbers.

As for getting your loan...you're going to have to go the FHA route, so there's no benefit in going with a local lender.  Do you have a job with income that will qualify you for a mortgage?  If you don't, you're not getting funding through any conventional lender.  If you do, then use Quicken Loans or Lending Tree.  It will take you about 5 min to input your information and see all the lenders who would make the kind of loan you're looking for.  You'll also see terms & rates.

Also, remember that all inquiries made during a 45 day period for a singular type of credit product - i.e. a real estate loan - will count as a single inquiry on your credit report.  So...don't spread the process out too much.  You don't want your credit report to get hammered, just because you screw around for a year.

Account Closed · Answer

Hi Ori,

I'm pretty new to real estate investing.  But I do have to say your first purchase should be something that has more potential.  I've not heard great things about purchasing condos as an investment.

As for  securing finances, it's great you have 10%!  I suggest finding a local mortgage broker you trust (or referred to you) to run the numbers for you.  I bought my first home on FHA with only 3.5% down.  The less you can put down, the more you have to move onto the next thing.  Obviously the more you put down, the lower your monthly payments.  But first thing is first... Mortgage broker.  Find out what you can get preapproved for.

Raj Tirur · Answer

I went the house-hack route and love it!  My first investment is a Somerville 3 br condo where I actually make $100/month to live in my condo.  Now every dime I make at my job is saving for the next investment.  Good Luck!!

Shaun Reilly · Answer

Hi Ori, welcome to BP.

This is a great place to learn. Make sure to listen to all the BP podcasts, read the articles on the main blog and be active in these forums to learn a ton very quickly about any topic in real estate you want to know more about.

This is also a great place to meet people that can be assets to your business. Lots of great connections all over but we also have a very strong and active contingent here in MA on here so make sure to find them (Set up some keyword alerts to find out about local topics) and get connected.

Besides doing that on here make sure to get out to some of the many local investor events we have.  Do you have a car or are you limited by being able to get around on the T?  Even if that is the case there are a few I am pretty sure will be fairly easy to get to.  The Boston AREIA is in Medford and should be just a short walk from the Red Line (Might be on a bus route too).  The Black Diamond event in Waltham is off of Moody St. which I has several MBTA bus lines.  If you have access to a car that are many more good places north and south of the city.

As for condos Hattie is right that in the greater Boston area they are not anything to shy away from.  To get started you might want to try to "house hack" as has become a popular term on BP.  My guess is that 10% isn't 10% on a multifamily any place close to Boston so going the full on 2-3 family might not really be viable.  You might be able to buy a 2-3br condo though and rent out the other bedroom(s) to school mates and they will cover most (probably not all) the costs of owning and you will have your own place to live.

You can do FHA 3.5% loans on condos, but the complex has to be approved for it.  The information isn't hard to come by but just be aware that not every condo will work.  If you are living there then 5% conventional seems to be coming back so that is a possibility if you find a great unit and the complex isn't FHA approved.

Ori Nahum · Answer

I'm studying finance and will not have any incurring debt once I've finished college; so that's off to a good start.

Mike Hurney · Answer

@Ori Nahum  One of the biggest "mistakes" or road blocks to Real Estate success I see is College students studying a Major that's not lucrative or too crowded and piling up huge student debt that cripples their DTI (debt to income ratio).

State Colleges and Scholarships are great!

Ori Nahum · Answer

Thank you so much for the advice. I think I'm going to go that route. So basically an LLC and an FHA are incompatible.

Shaun Reilly · Answer

You can't buy the place in an LLC and get a residential loan.

If you do you will probably pay 1-2% higher interest, have higher closing costs, need to put 25-30% down, shorter amortization of the loan (Probably something like 15-20yr) and a balloon payment in the 5-10 year range.  That is if you can even get someone to make a commercial loan on a small residential condo.  Oh and you will pay $500/year for the privilege of having an LLC in MA.

Anyway quick answer is NO.  :)

FYI since you plan on living there you are afforded a lot of rights and protections that someone just buying a rental property in their own name are not (Which is when the LLC is worth considering).  Just make sure that if you buy a condo that even though you get the "Master Insurance" that you also buy an individual HO-6 policy for your unit, and if you are worried up the liability coverage on it.

Ori Nahum · Answer

Thanks @eric and @raj. Do you suggest I go about the LLC route of buying an apartment or no because it is too small of an investment?

Eric Taylor · Answer

Congrats on your decision to enter the world of REI.  If you intend to pay your portion of the rent, then it might be possible to purchase cash flow properties in Allston or Brighton.  You may have to purchase a house since condo HOA fees are 300 to 550 plus in order to make the deal work.  Use the Biggerpockets calculators judiciously as you scout out your properties.  Good luck.

How to get a real estate loan?

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