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

70 Replies

Originally posted by @Stephanie P. :
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

 @Stephanie P That sounds like a good plan. I'm trying to learn as much as I can while waiting to go back to work so I'm trying to get the ball rolling while I have some time in between homeschooling the kids. Thank you !

 

Whoa whoa whoa. Let’s start from the beginning. Have you read the book rich dad poor dad?

You’re saying, “it’s too expensive to get started investing.” When really you should...

Aw crap...

You should ask your self “how can I afford it..” but not in a whiny way. And figure out the solution.

Then. You need should look at your savings rate. Do you listen to the bigger pockets money podcast? 40k in 5 years IMO not a lot when houses you’re trying to buy a rental for 200k. Do both of you work? Is there any area you can save up more money? Don’t tell yourself there’s nowhere else to save money. Figure out how.

Do you have equity in your home that you currently live in? If so you can do a cash out refi and use the money for the down payment.

My two cents worth is if you are not willing to come up with the 25% that banks require to purchase a rental property through saving the money or pulling equity out of your house then you dont want to get into the rental business bad enough.

If it was easy to just walk into the bank and say "I want a loan on rental property" and it happen there would be alot more people in this business.

Originally posted by @Dale Miller :
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.

 

I think you have a great goal! Now you just need to figure out the implementation. 

There's no question it's scary risking the money you took several years to save up. Here's some words of comfort:

1. As long as you have a mortgage that doesn't put you under water, you should be able to hold on to property forever. So you can always wait for a good market if you need to sell.

2. Real estate tends to increase in value given enough time. Even considering recessions, etc.

3. Banks (especially today) will generally not let you get into a loan that is a dog. Appraisers are a lot harder than they were 10-12 years ago; lending standards are a lot tighter. If the bank approves your loan, that generally means they have confidence in your plan, and since they are on the hook for 75-80% of your loan that's a pretty high mark of confidence.

This isn't to say you don't need a plan or that the bank is omniscient; it just means that there are a bunch of safeguards in place that help keep you from driving off the cliff. 

Hello Dale, why won’t you rent out your current house, buy a duplex and then house hack it? That would put you in a nice position to get some real estate rolling. You keep saying you can’t do that because you have a small family, is that right? Maybe they wouldn’t mind coming along for the ride. My wife is very hesitant with real estate but once I come up with a solid plan and walk her through it, she’s more at ease. It sounds like you have the right goals in mind and have admitted to lacking confidence, maybe the family senses that and you just need to find that confidence? I know the jump is scary but never making that leap leaves forever “what ifs”. That seems way scarier! Best of luck to you. Keep us posted.

@Dale Miller

Your profile says you're in New York. I don't know if this applies to the entire state, but NY does not have a reputation for cheap real estate.

If you haven't got 25% to invest locally, maybe you have enough to invest out of state. Maybe someplace in the Midwest will fit the bill.

Just research out of state investing. It's a completely different challenge.

@Dale Miller

You could owner occupy it and then house hack. Also talk to your local credit union, they might be more flexible in their terms. You’ll be able to use your downpayment option while still investing. To save you from future pain, get ready to ante up 20-25% next property.

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.

Well said. Knowing what I know now (being an investor for only 8 years).. I would put down 30-35% on a SFH or apartment. For passive investments, I am looking for similar leveraged in the opportunities I invest in if I can help it.

That said OP, I wouldn't spend ALL my savings on a single deal. That can potentially make your RE investing career very short.

@Mike Mendez

Putting less than 20% down on an investment property is an extremely bad idea. Just because every podcast tough guy and Instagram model/ renovator with 50k followers pretends it’s awesome doesn’t mean it is. There’s a reason those people generally end up earning the majority of their income from weekend courses and not actual real estate investing. Just look at the numbers of “omg what do I do my tenant got laid off”. Responsibly leverage the property. That doesn’t mean every dollar.

Originally posted by @Peter Walther :

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.

@Peter Walther I think that is a great idea. It would lower the anxiety going through the first deal and limit some mistakes if I had a mentor or someone to answer questions. Thanks @Peter Walther

 

They say 1 year but in every situation I have experienced after 6 months if have a good reason the lender will OK you buying/moving. A good reason is wanting a bigger place, closer to work, etc. pretty flexible. 

Originally posted by @Todd Dexheimer :

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. 

 @Todd Dexheimer Exactly! That is why I'm trying to get the ball rolling and get prequalified and an agent so I am ready incase there are distressed sellers and foreclosures in the next couple months.

Originally posted by @Steven Ko :

Whoa whoa whoa. Let’s start from the beginning. Have you read the book rich dad poor dad?

You’re saying, “it’s too expensive to get started investing.” When really you should...

Aw crap...

You should ask your self “how can I afford it..” but not in a whiny way. And figure out the solution.

Then. You need should look at your savings rate. Do you listen to the bigger pockets money podcast? 40k in 5 years IMO not a lot when houses you’re trying to buy a rental for 200k. Do both of you work? Is there any area you can save up more money? Don’t tell yourself there’s nowhere else to save money. Figure out how.

@Steven Ko Thanks for your honest reply. I did read that book. Probably the best book ever read. I just am hesitant to drop 30k on a duplex at 150k because its going to need work and there will be additional costs. I'm hoping to pick up a foreclosure or rental at a discount in the next 6months. Maybe I wont have to put that much and it will be half that. Yes your right we can up our savings because we both work but seems like it takes forever. I think there will be some distressed properties in 2020 and should be ready for them.

 

Originally posted by @Michael Jones :

Do you have equity in your home that you currently live in? If so you can do a cash out refi and use the money for the down payment.

My two cents worth is if you are not willing to come up with the 25% that banks require to purchase a rental property through saving the money or pulling equity out of your house then you dont want to get into the rental business bad enough.

If it was easy to just walk into the bank and say "I want a loan on rental property" and it happen there would be alot more people in this business.

@Michael Jones Yes we have equity in our home. 140k all paid off. Looking to take the next step and purchase a rental or two to add additional income for a few years then something to fall back on if I lose my job or become disabled and for retirement also. I agree with you there are rules that you have to be willing to follow to get loans. I know there would be a lot more people.

 

Originally posted by @JD Martin :
Originally posted by @Dale Miller:
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.

 

I think you have a great goal! Now you just need to figure out the implementation. 

There's no question it's scary risking the money you took several years to save up. Here's some words of comfort:

1. As long as you have a mortgage that doesn't put you under water, you should be able to hold on to property forever. So you can always wait for a good market if you need to sell.

2. Real estate tends to increase in value given enough time. Even considering recessions, etc.

3. Banks (especially today) will generally not let you get into a loan that is a dog. Appraisers are a lot harder than they were 10-12 years ago; lending standards are a lot tighter. If the bank approves your loan, that generally means they have confidence in your plan, and since they are on the hook for 75-80% of your loan that's a pretty high mark of confidence.

This isn't to say you don't need a plan or that the bank is omniscient; it just means that there are a bunch of safeguards in place that help keep you from driving off the cliff. 

@JD Martin: Thank you sir! I'm so new that I"m still working on getting prequalified and an agent so I can get the ball rolling for when there are distressed properties in the next couple months. I honestly think I need to be ready for solid opportunities that will be low risk for me and my family. Sounds like it is a slower process and more strict from when I bought first house in 2001.

 

Originally posted by @Franklin Carpenter :

Hello Dale, why won’t you rent out your current house, buy a duplex and then house hack it? That would put you in a nice position to get some real estate rolling. You keep saying you can’t do that because you have a small family, is that right? Maybe they wouldn’t mind coming along for the ride. My wife is very hesitant with real estate but once I come up with a solid plan and walk her through it, she’s more at ease. It sounds like you have the right goals in mind and have admitted to lacking confidence, maybe the family senses that and you just need to find that confidence? I know the jump is scary but never making that leap leaves forever “what ifs”. That seems way scarier! Best of luck to you. Keep us posted.

@Franklin Carpenter Thanks for your reply. That would be a plan to start. My wife is like that too. I have a plan but its difficult to talk about because we havent made our first deal unless you count our house. Yes it is a scary jump and there is a lack of confidence but I'm going to try to do my best because this stock market is a roller coaster that wipes out years of gains in just days. Thanks I keep you posted if anything interesting happens.

 

Originally posted by @Alvin Sylvain :

@Dale Miller

Your profile says you're in New York. I don't know if this applies to the entire state, but NY does not have a reputation for cheap real estate.

If you haven't got 25% to invest locally, maybe you have enough to invest out of state. Maybe someplace in the Midwest will fit the bill.

Just research out of state investing. It's a completely different challenge. 

@Alvin Sylvain: Thank you for your reply. The properties in my area are between 100k-200k. I wouldnt feel comfortable investing more than an hour away from where I live especially for the first 2 or 3 rental property purchases.

Originally posted by @Nick Rutkowski :

@Dale Miller

You could owner occupy it and then house hack. Also talk to your local credit union, they might be more flexible in their terms. You’ll be able to use your downpayment option while still investing. To save you from future pain, get ready to ante up 20-25% next property.

@Nick Rutkowski Thanks for your reply. Those are great ideas. I heard local credit unions are worth a shot. 

 

Down payment requirements on non-owner occupied investment property for most lenders are typically 25% and 6 months reserves PITI or more. Going to vary slightly depending on your debt-to-income, credit scores, etc. Expect higher interest rates as well vs owner-occupied rates.

Reach out to your local credit unions for generally best rates, conditions, etc.  Your paid off home could be an option for helping your current concerns.

I agree with you that the price for entry in real estate is high. I would've never been able to had I needed 20% (the norm in my area). I was able to take out a home equity loan which I used for the down payment on my first rental, then refi that one to buy the second (now known as a house hack). I don't know your situation but options you might have (assuming it's a great deal) would be to use equity in your home and/or a 401K loan. 

But please make sure it's a good deal! That we you can refi/cash out and be on your way to your next deal with more options than you have today. Good luck (and congratulations on getting started)! Don't give up! 

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.

 Best answer. 

Originally posted by @Account Closed :

@Mike Mendez

Putting less than 20% down on an investment property is an extremely bad idea. Just because every podcast tough guy and Instagram model/ renovator with 50k followers pretends it’s awesome doesn’t mean it is. There’s a reason those people generally end up earning the majority of their income from weekend courses and not actual real estate investing. Just look at the numbers of “omg what do I do my tenant got laid off”. Responsibly leverage the property. That doesn’t mean every dollar.

@Kris H Thank for your feedback I appreciate it!

 

Originally posted by @Henry Lazerow :

They say 1 year but in every situation I have experienced after 6 months if have a good reason the lender will OK you buying/moving. A good reason is wanting a bigger place, closer to work, etc. pretty flexible. 



@Henry Lazerow Those are good ideas. I agree thanks !