REO property - 10% down?

Question

I've spoken with a couple of lenders in my area and they all require 20% on investment properties. My current cash situation leaves me short. Does anyone know of any online lenders that will do 10% down?

Bill Gulley · Answer

Hi, good point David. Those starting out can buy owner occupied, especially with the credit, move in and improve then sell it a move up! You don't always have to buy a house for someone else to make money. I know a guy who did very well at that, probably made him 20 loans! He said "I never fall in love with a house"! Bill

David Breitzmann · Answer

A 5.5% 30 YR would amortize at $342.54 per month.  Simple 50/50 means expenses will be around $350 (vacancies, infrastructure).

You are making instant equity at closing which is good but asking about being "short" funded and potentially pressing on due to the "convenience" of having the property next door.

Living in the next door over can also be quite a liability.  Any novice can locate your information via the county tax assessor website.  Please don't assume not "telling" makes any difference.

(Unless it's purchased in the name of an LLC with a different hub).

Why not use the same strategy and purchase a duplex live in it for a year and use owner occupied financing?  
Sell and use a 1099 to roll all proceeds (which addresses the shallow capital pool) into the multiplex (usually 4 units or less).

Directly answers your needs because it's a means to use less upfront capital, secure owning interest and control greater amounts of "instant" equity if you duplicate the REO status.

It depends on whether you are able, or willing, to make such a "move."

At core, it must be driven by a business plan.  Nationwidepi brought up those great questions that only such a document would answer.

Danny Noonan · Answer

Jon - I will dig a bit deeper on the closing costs. I believe all the prepaid are included in that, but I will double check.He gave me my out of pocket expesne which was the 20% + 3 months into escrow. I told him I didn't want an escrow account so its the 20% down + a small fee ($100) to forgo the escrow account.

I have a insurance agent that I trust so I should be good there.

Nationwidepi - its right next door to my house, it listed in 2008 for 125,500, but obviously didn;t sell for that. The last transaction I see on the property is $60,000 when Freddie Mac took ownership. I hope to obtain it for about 60k and turn it into a rental. The house was in great shape in 2008, but obviously I need to do an inspection to evaluate any money needed for upgrade/repairs.

The cost of the acquiistion is 20% of the loan amount + any holding costs that we occur while finding a renter. PITI is ~ $550 a month and I pan to rent it out at $750 a month. Its a 3 bedroom, 1 bath, approx 13000 sq feet, 1 car detached.

Thanks!

Will Barnard · Answer

Even more impprtant than the loan, what is the details of the pruchase and your strategy?
What is the cost of the acquisition? Are you renting it out or rehab flipping?

Jon Holdman · Answer

Yes, rates on NOO (investor) loans are about a point higher than OO loans.

The loan terms look OK.  Closing costs look a bit high, but hard to say why without a breakdown.  Be sure they're not putting costs typically paid be the seller (e.g., the owner's title policy) in there then giving you a sellers contribution.  If the prepaids are included in the $2700 it might be OK.

Also be sure you're buying landlord, vacant house, or builders risk insurance, not homeowners.

Danny Noonan · Answer

Thanks guys, one more question:

Do interest rates on investment properties tend to be higher than owner occupied? Please evaluate this loan offer:

amount - $62,700
closing costs - $2700
seller contribution (2%) - $1200
interest rate â€“ 6.125%
term â€“ 30 year 
down payment â€“ 20%

Thanks!

Joseph M. · Answer

Yet it's still possible to buy a personal residence with 3.5% down through FHA , even though the "theory" that homeowners are extremely unlikely to default on their primary residence has obviously turned out to be a bunch of B.S . I think it is moronic that they will still lend to someone on a OO w/ 3.5 down , but requiring over 700% more downpayment for an investment property..and it doesn't seem like they are taking into account how much a property cash flows,etc.

Josh Green · Answer

lenders are now requiring 20%+ down due to no company writing PMI policies on NOO properties anymore.

many lenders are now requiring 25%+.

REO property - 10% down?

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