Hey BiggerPockets Members,
First things first, much appreciation and respect for everyone who has shared their real estate endeavors with all, the good, the bad, and the ugly! And of course, many thanks to Josh and Brandon for the hours of entertainment and education in the Podcast library.
It has been about a little over a year since I became aware of BiggerPockets and made my first purchase around the same time. Now looking back, I realize how great a deal we really got from value/purchase price, location (East Boston), and financing. That being said, after revisiting with the mortgage lender that I worked with previously, it is apparently not going to be so "easy" on the second acquisition.
As my wife and I evaluate our options for purchasing another property, we have discussed potentially owner occupying (2/3 family) or a straight up investment property. With 20% or 25% down being likely (would rather not have to deal with PMI), we look to markets outside of Boston to accommodate our price point and lifestyle. Nashua and/or Southern New Hampshire is a consideration that we are evaluating.
Has anyone out there had recent experience in obtaining an investment loan either in those markets or general? I have gone through the owner occupied loan process for a 2 family and am making some assumptions based on that experience and some other information that I have been told. Apparently we will need a minimum of 25% down and the lender that approved us for our current property, used 75% of fair market rental value, further reduced by allowable DTI of about 41%. My assumption is that the underwriter for an investment loan would treat our current rental income and prospective similarly to our previous experience. By the time we identify our next property, we should have 2 years of documented rental income w/very little vacancy. Are investment property loans being funded right now w/25% down or are people having to go 30-35% to get the deal done? I have good credit, 6 months reserve on both properties, a decent salary but, would be needing the rental income to qualify, as my wife is home with our two little ones.
I would appreciate any input that you are willing to give in the way of your perspective/experience with trying to obtain financing for buy and hold investment loans. Also, any input or information you have about the Nashua/Manchester markets, would also be helpful.
@Jonathan Bonney you don't need a two year history of your first property to qualify. A two year history is required with Freddie Mac and a lender that doesn't have the option to choose between Freddie Mac and Fannie Mae.
Fannie Mae requires you to use your tax return if you have owned the property long enough. If it is a new purchase or recently leased and not on your tax returns, you are correct that they will use 75 percent of the rental income.
As for down payment Freddie Mac requires 20 percent down for a multi-family (they require the two year history) Fannie Mae requires 15 percent down for a duplex and 25 percent down for a 3-4 unit multi-family.
As you said, anything less than 20 percent down require PMI.
@Jonathan Bonney from a mortgage perspective, if you are obtaining conventional residential financing, I don't think the location of the property changes the underwriting criteria, other than if the lender is licensed in that state, and the appraisal values will differ from location to location. I just bought two duplexes with residential financing, and if you are looking for a referral, send me a private message and I'll send you his contact info.
From an investing perspective, there is a world of difference between MA and NH. Although my BP profile location is MA, because the larger amount of my business is in MA, I actually live in Nashua. I don't have rental properties here, however, because I'm lazy and don't like the tenant base in the part of town where there are multi-family properties. Same goes for Manchester, but lots of people invest in both very successfully. If you are interested in NH, you might start attending the NHREIA to connect with NH investors. There are also plenty of NH people who attend local MA events as well, see the URL for networking in my signature.
NH landlord laws are very different from MA. Eviction times are far far shorter, and the courts don't look for ways to keep deadbeats in the rental for free the way they do in MA. In your position, I wouldn't exclude either MA or NH, I"d look for a property that works for you. If you owner occupy in NH in a multi, you'll find high property taxes but no income tax and no sales tax. You'll still have to pay MA income tax on MA income. But the commute to Boston if you work a w-2 is a big factor.
Good luck, hope to see you at NHREIA next week, or Black Diamond.
@Jonathan Bonney East a' Bost, I know it well. Great area to invest but high apprecation is a barrier to entry, unless you try marketing a little differently.
You're welcome to join us tomorrow eve, site in my signature below...
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