Talked to Rocket Mortgage recently........

70 Replies

Hello Everyone! 

Was recently told that I need to make a 20-25% down payment on a rental property. Told them I was interested in making 3-5% down so I can have funds to make repairs.I asked about FHA. They said FHA isnt available unless you live in the property for one year. Told them not going to live in it just fix and rent out. How am I supposed to invest in my first rental if I have to drop 25% of my savings on just the down payment? (Probably 40k). Don't feel comfortable risking what took me over 5 years to accumulate

Hello Dale

If you don't have a friend or family member to lend you the money to buy and fix the house, then an option for you is a hard money loan.  They will finance the house and the repair as long as you purchased it at the right "low" price.  There are many hard money threads to read and on youtube.  Nice thing about hard money is that the exit loan is considered a refi and no down payment is required in most cases. Good luck  

Question: if you don't feel comfortable risking 25% on your investment, should the bank feel comfortable risking 95%? You don't have any real confidence of your ability to do this but you want the bank to make a bet on you. 

Investing can be scary and maybe it's not for everyone. What do you think is wrong with your plan such that your 25% investment is at major risk? 

You could always house hack a duplex or triplex if you want to go FHA.

Unfortunately, I doubt you'll find anyone that will finance 95% of a non owner occupied house. Even hard money will likely want much more than that if its your first one, even if its a great deal. The lowest I've found is 15%. I'd also imagine in the current climate with the COVID-19 its going to be even harder to get highly leveraged loans for non owner occupied. Anyway you could live in it while you're fixing it up?

@Dale Miller if you get a commercial loan, the lender may allow the seller or a third party to finance all/part of the down payment with a second mortgage to the extent that the numbers still work so long as they get the first position.

Originally posted by @Dale Miller :

Hello Everyone! 

Was recently told that I need to make a 20-25% down payment on a rental property. Told them I was interested in making 3-5% down so I can have funds to make repairs.I asked about FHA. They said FHA isnt available unless you live in the property for one year. Told them not going to live in it just fix and rent out. How am I supposed to invest in my first rental if I have to drop 25% of my savings on just the down payment? (Probably 40k). Don't feel comfortable risking what took me over 5 years to accumulate

If you are writing to vent OK ... But you open yourself to feedback as well -don't take offence to this - I'm going to be blunt. 

Real Estate is a business. It takes money to make money. You need to have "skin on the game". That's why you are asked for 25% downpayment. 

This might not be the business for you. You don't seem motivated. You can put your saving in a 401K or in the stock market .... and you know how that's playing for many folks right now or stash it under a mattress. 

There are many new investors that do what it takes to make it happen. They house hack, work two jobs, borrow money. Call it -VA, FHA, Conventional, Hard Money, HELOC, 401K, friends and family, some pay 3.5% to 10% rates.

But they all have 1 goal & 1 question in common.

Goal: Buy real estate

Question: What do I need to do?

Low down payment loans are for owner occupants. Lowest down payment available for a conventional loan investment property is 15%, but with a very high interest rate.

If you want exposures to real estate you can still buy REITs, stock of real estate related companies, mutual funds, ETF's, or in other people's syndication. To @Guifre Mora 's tough love, if you are not comfortable with the risk then stay out of the kitchen. Find other investments with lower commitment and more liquid.

Originally posted by @Mike Mendez :

Hello Dale

If you don't have a friend or family member to lend you the money to buy and fix the house, then an option for you is a hard money loan.  They will finance the house and the repair as long as you purchased it at the right "low" price.  There are many hard money threads to read and on youtube.  Nice thing about hard money is that the exit loan is considered a refi and no down payment is required in most cases. Good luck  

 

Originally posted by @Mike Mendez :

Hello Dale

If you don't have a friend or family member to lend you the money to buy and fix the house, then an option for you is a hard money loan.  They will finance the house and the repair as long as you purchased it at the right "low" price.  There are many hard money threads to read and on youtube.  Nice thing about hard money is that the exit loan is considered a refi and no down payment is required in most cases. Good luck  

@Mike Mendez Thank you for your honest reply. I am new to this and just hesitant to make wrong decisions. Do you know anyone who used hard money loans? Looking for rental in buffalo ny area less than 150k 2-4 unit. There are going to be a lot of foreclosures soon with unemployment claims breaking records here also.

 

Originally posted by @JD Martin :

Question: if you don't feel comfortable risking 25% on your investment, should the bank feel comfortable risking 95%? You don't have any real confidence of your ability to do this but you want the bank to make a bet on you. 

Investing can be scary and maybe it's not for everyone. What do you think is wrong with your plan such that your 25% investment is at major risk? 

You could always house hack a duplex or triplex if you want to go FHA.

@JD Martin Thank you for your honest reply. You are right I am lacking confidence being a newbie who hasn't made my first deal. I'm sure you were in my shoes at one time. I have been following bigger pockets for years and I just was under the impression that I wouldn't have have to put down 20-25% I had my sights set on FHA or something that allows 3 or 4% down. But Rocket mortgage told me otherwise. Requested 25% down.I'm Probably looking for a foreclosure or 2 unit around 100k or less to repair and rent out. My goal is to have a couple rentals to have extra income for now and enough to survive if I ever lose my job or become disabled.

 

Originally posted by @Stephen Ray :

Unfortunately, I doubt you'll find anyone that will finance 95% of a non owner occupied house. Even hard money will likely want much more than that if its your first one, even if its a great deal. The lowest I've found is 15%. I'd also imagine in the current climate with the COVID-19 its going to be even harder to get highly leveraged loans for non owner occupied. Anyway you could live in it while you're fixing it up?

@Stephen Ray Thank you for your honest reply. I was just disappointed that I couldn't get FHA or put 3-4% down. I can't live in it now because I have a house now and family and job full time. My goal is to buy a couple of rentals to give us extra income for now and equity along with something to fall back on if I lose my job or become disabled in the future.

 

Originally posted by @Jill F. :

@Dale Miller if you get a commercial loan, the lender may allow the seller or a third party to finance all/part of the down payment with a second mortgage to the extent that the numbers still work so long as they get the first position.

@Jill F Thank you for your reply. Don't know if I could get a commercial loan for a foreclosure or duplex under 120k .I'm hoping to buy a few rentals to allow for some extra income for now and to assist in the future incase i lose my job or become disabled.

 

Dale, I recommend you join a local real estate investors group where you can exchange ideas with other investors in your area.  If the deal you have makes sense you might even be able to find someone to partner with or a mentor to walk you through your first deal or two.  I just looked at Meetup for Tonawanda, NY and see about 19 different groups under real estate.  Good luck to you.

Originally posted by @Guifre Mora :
Originally posted by @Dale Miller:

Hello Everyone! 

Was recently told that I need to make a 20-25% down payment on a rental property. Told them I was interested in making 3-5% down so I can have funds to make repairs.I asked about FHA. They said FHA isnt available unless you live in the property for one year. Told them not going to live in it just fix and rent out. How am I supposed to invest in my first rental if I have to drop 25% of my savings on just the down payment? (Probably 40k). Don't feel comfortable risking what took me over 5 years to accumulate

If you are writing to vent OK ... But you open yourself to feedback as well -don't take offence to this - I'm going to be blunt. 

Real Estate is a business. It takes money to make money. You need to have "skin on the game". That's why you are asked for 25% downpayment. 

This might not be the business for you. You don't seem motivated. You can put your saving in a 401K or in the stock market .... and you know how that's playing for many folks right now or stash it under a mattress. 

There are many new investors that do what it takes to make it happen. They house hack, work two jobs, borrow money. Call it -VA, FHA, Conventional, Hard Money, HELOC, 401K, friends and family, some pay 3.5% to 10% rates.

But they all have 1 goal & 1 question in common.

Goal: Buy real estate

Question: What do I need to do?

@Guifre Mora Thank you for your honest reply. I understand this is a business. I was just kind of venting because I really wanted to make a small down payment so I had money to fix up the property. I can't live in the property for one year for FHA when I have a house now with small family and work full time. My goal is to buy a few rentals to have extra income now and something to fall back on if I lose my job or become disabled.

 

Originally posted by @Russell Brazil :

Low down payment loans are for owner occupants. Lowest down payment available for a conventional loan investment property is 15%, but with a very high interest rate.

@Russell Brazil Thanks for your reply. I guess I was just venting. My goal is to put smaller down payment so I have funds to fix up the property. I'm trying to buy a few rentals under 120k to add extra income for my family and most of all have something to fall back on if I lose my job or become disabled and to have for retirement.

 

Originally posted by @Jason Hsiao :

If you want exposures to real estate you can still buy REITs, stock of real estate related companies, mutual funds, ETF's, or in other people's syndication. To @Guifre Mora 's tough love, if you are not comfortable with the risk then stay out of the kitchen. Find other investments with lower commitment and more liquid.

@Jason Hsiao Thanks for your honest reply. I already have REIT's and stocks and Mutual Funds. I have lost 37k in the last 2 months from those. Honestly I am sick of the stock market where my gains from years get erased in days. Looking to invest in a few rental properties where I can have some extra income along with appreciation. Most importantly hopefully those couple rentals will be something to fall back on if I ever lose my job or become disabled. I would like to have something for my retirement as well.

 

Look for seller financing deals, which most will be off market. Also be patient and wait, as there could be some distressed sellers in the near future. Down payments will still be 20%+, but the prices will be less. 

@Dale Miller

Hi Dale,

Is this your first home purchase?

If so, I would recommend the Dream Program with Empower Federal Credit Union. They have a location on Walden Ave. They gave me a pre-qualification for $120k loan, 5% down, 3.75% interest rate with NO PMI. At closing they give you a $10k grant (if funds are available). It is a conventional loan, but for first time home buyers. I am unsure if your wife works as well, but if you already own a home in your name, maybe you could use this loan if your wife qualifies?

Regardless, I would definitely consider talking with some local banks and credit unions, because they have a truly active role in the community. I have not used Rocket Mortgage before, but I would think an online lender would not be the best place to find a loan in your situation.

I have had a great experience with Empower FCU in Syracuse as my bank, and plan to use them in Buffalo on my first duplex.

If you would like to connect once this whole coronavirus quarantine is over, I would be happy to.

@Dale Miller

Dale,

Here's your road map to real estate success for a newbie.

The theory is this: This whole real estate thing is designed for success in the long run meaning years and to minimize risk for one side of the table or the other (sometimes both, not often).  Essentially, it you have cash, you get better deals.  If you don't have cash, you have to live within the rules of those that do.  It's not hard, but you have to be flexible and willing to work within the guidelines.

If you don't have much saved, FHA is the way to go for a multi unit dwelling. Find a nice 4 unit building in Tonawanda or Buffalo or Niagara Falls and live in it. You could even use a 203K to renovate it, but you have to live in it. Rent out the units, learn to manage tenants and have your mortgage paid so you can save for your next property. Treat it like it's on the job training. Take a year or more, maybe two, living and saving for the next play. Then use a Fannie or Freddie product that requires a little more down, but still owner occupied so you have to live in it. If the first house is a 4 unit, make this one a bigger 2 unit close to your work. That way the underwriter will be able to justify giving you a loan that's for an owner occupied property. Live in that one for a year or so, still letting the tenant substantially reduce your living expenses.

Then you go for a modest single family, in the middle of your burgeoning empire.  Take in a roommate or two to keep your living expenses low.  Again, use Fannie Mae money because it's cheap and available.  Then buy more using Fannie money until you reach your limit.

Once you've got a few doors under your belt where you use cheap money, then go for the portfolio or commercial type money.  

Hope this helps.

Stephanie

Originally posted by @Alex Leana :

@Dale Miller

Hi Dale,

Is this your first home purchase?

If so, I would recommend the Dream Program with Empower Federal Credit Union. They have a location on Walden Ave. They gave me a pre-qualification for $120k loan, 5% down, 3.75% interest rate with NO PMI. At closing they give you a $10k grant (if funds are available). It is a conventional loan, but for first time home buyers. I am unsure if your wife works as well, but if you already own a home in your name, maybe you could use this loan if your wife qualifies?

Regardless, I would definitely consider talking with some local banks and credit unions, because they have a truly active role in the community. I have not used Rocket Mortgage before, but I would think an online lender would not be the best place to find a loan in your situation.

I have had a great experience with Empower FCU in Syracuse as my bank, and plan to use them in Buffalo on my first duplex.

If you would like to connect once this whole coronavirus quarantine is over, I would be happy to.

@Alex Leana Thank you for your honest reply. I read your message and boy does that sound what I am looking for. Pre-qual for around 120k around 5% down and no PMI. I get free closing through my employer Law program. So I would like to take advantage of that. My wife and I home is in my name so maybe she would qualify for first time home buyer. Was thinking about that for awhile. I will definitely check with local banks and credit unions and with your recommendation. At the very least I was hoping for 2 or 3 rentals to add extra income now and to back myself for emergencies like losing job or becoming disabled and retirement. This is why I'm trying to get the ball rolling now because after this COVID-19 breakout there will be many foreclosures and opportunities in my area Tonawanda,NY. And I think if I'm going to do this 2020 is the time. Thanks again for the warm welcome. Stay Well.

 

Originally posted by @Stephanie P. :

@Dale Miller

Dale,

Here's your road map to real estate success for a newbie.

The theory is this: This whole real estate thing is designed for success in the long run meaning years and to minimize risk for one side of the table or the other (sometimes both, not often).  Essentially, it you have cash, you get better deals.  If you don't have cash, you have to live within the rules of those that do.  It's not hard, but you have to be flexible and willing to work within the guidelines.

If you don't have much saved, FHA is the way to go for a multi unit dwelling. Find a nice 4 unit building in Tonawanda or Buffalo or Niagara Falls and live in it. You could even use a 203K to renovate it, but you have to live in it. Rent out the units, learn to manage tenants and have your mortgage paid so you can save for your next property. Treat it like it's on the job training. Take a year or more, maybe two, living and saving for the next play. Then use a Fannie or Freddie product that requires a little more down, but still owner occupied so you have to live in it. If the first house is a 4 unit, make this one a bigger 2 unit close to your work. That way the underwriter will be able to justify giving you a loan that's for an owner occupied property. Live in that one for a year or so, still letting the tenant substantially reduce your living expenses.

Then you go for a modest single family, in the middle of your burgeoning empire.  Take in a roommate or two to keep your living expenses low.  Again, use Fannie Mae money because it's cheap and available.  Then buy more using Fannie money until you reach your limit.

Once you've got a few doors under your belt where you use cheap money, then go for the portfolio or commercial type money.  

Hope this helps.

Stephanie

 @Stephanie P Thanks for your reply. I like what your message said. I'm not sure how I would be able to live in the property for a year to get that cheaper loan you described since we have a home already two small children and I work full time. Unless it is legal to live there part time while fixing up and rent out the other units. and also live in the current home? Not sure if that is allowed . I'm looking for a rental or two around 120k or less probably 2-4 units in the Tonawanda, Buffalo, Kenmore NY area. I was not thrilled with Rocket Mortgage telling me I needed 25% down and they would loan 100K max. I'm just so new to this and very cautious because I've been burned before. Thanks for your time

Originally posted by @Kris L. :

@Dale Miller

Have you tried other lenders? I haven’t heard good things about RM.

@Kris L RM was the first one so far. Wasnt a very good experience. Definitely going to try others, Thanks

 

Originally posted by @Dale Miller :
Originally posted by @Stephanie P.:

@Dale Miller

Dale,

Here's your road map to real estate success for a newbie.

The theory is this: This whole real estate thing is designed for success in the long run meaning years and to minimize risk for one side of the table or the other (sometimes both, not often).  Essentially, it you have cash, you get better deals.  If you don't have cash, you have to live within the rules of those that do.  It's not hard, but you have to be flexible and willing to work within the guidelines.

If you don't have much saved, FHA is the way to go for a multi unit dwelling. Find a nice 4 unit building in Tonawanda or Buffalo or Niagara Falls and live in it. You could even use a 203K to renovate it, but you have to live in it. Rent out the units, learn to manage tenants and have your mortgage paid so you can save for your next property. Treat it like it's on the job training. Take a year or more, maybe two, living and saving for the next play. Then use a Fannie or Freddie product that requires a little more down, but still owner occupied so you have to live in it. If the first house is a 4 unit, make this one a bigger 2 unit close to your work. That way the underwriter will be able to justify giving you a loan that's for an owner occupied property. Live in that one for a year or so, still letting the tenant substantially reduce your living expenses.

Then you go for a modest single family, in the middle of your burgeoning empire.  Take in a roommate or two to keep your living expenses low.  Again, use Fannie Mae money because it's cheap and available.  Then buy more using Fannie money until you reach your limit.

Once you've got a few doors under your belt where you use cheap money, then go for the portfolio or commercial type money.  

Hope this helps.

Stephanie

 @Stephanie P Thanks for your reply. I like what your message said. I'm not sure how I would be able to live in the property for a year to get that cheaper loan you described since we have a home already two small children and I work full time. Unless it is legal to live there part time while fixing up and rent out the other units. and also live in the current home? Not sure if that is allowed . I'm looking for a rental or two around 120k or less probably 2-4 units in the Tonawanda, Buffalo, Kenmore NY area. I was not thrilled with Rocket Mortgage telling me I needed 25% down and they would loan 100K max. I'm just so new to this and very cautious because I've been burned before. Thanks for your time

No, unfortunately that won't work.  You have to live in the property full time.

See if you can find a property where the seller will hold the financing.

The online mortgage companies are really pretty good for cookie cutter owner occupied loans, but when it comes to investor loans, you'll be better served with a local community bank or a mortgage broker that does these types of loans. Go to your local REIA or a meetup and you'll meet tons of those guys.

Here's a link to the Fannie Mae eligibility matrix.  It will tell you the standard Fannie Mae loan to values for different types of properties.

https://singlefamily.fanniemae.com/media/6521/display

Best of luck

Stephanie

 

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