Help finding funding for a San Diego Duplex or SFR w/ ADU

San Diego, California
Multi-Family and Apartment Investing
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Help finding funding for a San Diego Duplex or SFR w/ ADU

Robert Michelen
Member since 2022 · 3 posts · 0 votes

Looking for advice or recommendations on finding best funding for our situation in San Diego. 

Goal: Purchase a duplex or SFR w/ ADU for sub-1MM in La Mesa or surrounding rentable areas.

Us: 750 + 800 credit married couple. 200k combined annual salaries and 150k (or 15%) ready for down payment. Clean backgrounds but confused first time homebuyers looking to owner-occupy and supplement with rental income.

Current lending experiences:

1) NFCU (not a vet) . Hooked with low rates and no PMI. Loan officer was on vacay for first 1.5 weeks. Told we couldn't do a jumbo conventional duplex but could do a 5/5 ARM or a non-jumbo conventional (under 647K) both no PMI. My realtor says they are slow and could lose the deal for us given this climate.

2) Direct lender recommended by realtor. Gave us a 15% down, 5.875% interest rate plus PMI. I was a bit thrown back at the rate, but maybe this is where were are for late-April 2022?

It's' tough to watch our buying power wither away weekly. We were eye-balling 1.3MM places a couple months ago. Hence why I'm here trying to figure out the best path given our experiences. Thanks in advance. 

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Thom MacFarlane
Lender · San Diego, CA · Member since 2012 · 54 posts · 34 votes
4y

Presently, if locking today for 30 days, you could expect a rate in the range for 5.50% (1.25 pts) to 5.875% (1/2 pt) for a 30 year fixed for an owner occupied 2 unit purchase. The high balance conforming limit is San Diego for 2 units is $879,750 so at 85% loan-to-value (15% down) you could purchase $1,035,000 2 unit. Above that price you’d need more down. Market rates are ticking up daily so you're subject to market rates until the property is indentified and you lock the rate.

Yes, you'd be required to get pmi but it is inexpensive on an 85% LTV at just .10% of the loan as a premium. That's just $73.31 monthly on a $879,750 loan amount.

This particular type of loan is considered high balance conforming and thus is preliminary underwritten via the automatic underwriting systems of Fannie Mae and Freddie Mac. It is possible to get automated loan pre-approval in advance of home shopping.

Yes, mortgage brokers, my profession,  are the best source of financing for consumers.

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  • William Spekhardt
    Investor · San Diego, CA · Member since 2021 · 28 posts · 11 votes
    4y

    Love the house hack idea.  Did you already submit an offer and are scrambling for funding?  I'm not too educated on Jumbo loans but I have a lender that would know some more info.  If you're working with just NFCU then that limits the net you're casting.  Lenders typically will search around for the best fit.  I have a lender I can refer if interested.  Keep your search open.  I initially lost funding on my last deal only to scramble and find a new lender just to close on the last day of escrow.  

    0Reply
  • Percy N.
    Developer · Philadelphia, PA · Member since 2015 · 2k+ posts · 904 votes
    4y

    Can’t be 100% sure but it seems like your realtor is getting a cut from the mortgage broker.

    if this is a primary residence, go on the online sites and see who can give you the best rate. You should be able to find something a lot cheaper.

    If you are afraid of loosing the deal, look at getting a loan the quickest and then refinancing into cheaper loan. Yes, it will cost more overall but if the deal is worth it…..

    0Reply
  • Robert Michelen
    OP
    Member since 2022 · 3 posts · 0 votes
    4y
    Quote from @William Spekhardt:

    Love the house hack idea.  Did you already submit an offer and are scrambling for funding?  I'm not too educated on Jumbo loans but I have a lender that would know some more info.  If you're working with just NFCU then that limits the net you're casting.  Lenders typically will search around for the best fit.  I have a lender I can refer if interested.  Keep your search open.  I initially lost funding on my last deal only to scramble and find a new lender just to close on the last day of escrow.  


    No offer yet, so we're not scrambling, but San Diego is really hot and getting inspections/appraisals timed right is pretty important (I'm told). We want the best rate but also someone who won't delay the closing process and I'm wondering if I should working with a broker for this.

    0Reply
  • Robert Michelen
    OP
    Member since 2022 · 3 posts · 0 votes
    4y
    Quote from @Percy N.:

    Can’t be 100% sure but it seems like your realtor is getting a cut from the mortgage broker.

    if this is a primary residence, go on the online sites and see who can give you the best rate. You should be able to find something a lot cheaper.

    If you are afraid of loosing the deal, look at getting a loan the quickest and then refinancing into cheaper loan. Yes, it will cost more overall but if the deal is worth it…..


    That's very possible, something that I've wondered myself. Could you DM me any online sites you recommend?

    Wife & I have applied to 2 lenders now, now sure how many dings are acceptable but I'm willing to take a third for someone that will shop around.

    0Reply
  • Emy Bernardo
    Investor · San Diego, CA · Member since 2017 · 112 posts · 92 votes
    4y

    There are lenders that offer cash buyer programs that are available on investment properties/second homes that could give you a leg up in this competitive market.  Most realtors have several lenders they work with so you can shop loans. That may be the going rate for investment properties - typically 25% down is needed for a duplex to get the best rate.  You might look into flyhomes for the cash buyer program.  

    0Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    4y
    Quote from @Robert Michelen:
    Quote from @William Spekhardt:

    Love the house hack idea.  Did you already submit an offer and are scrambling for funding?  I'm not too educated on Jumbo loans but I have a lender that would know some more info.  If you're working with just NFCU then that limits the net you're casting.  Lenders typically will search around for the best fit.  I have a lender I can refer if interested.  Keep your search open.  I initially lost funding on my last deal only to scramble and find a new lender just to close on the last day of escrow.  


    No offer yet, so we're not scrambling, but San Diego is really hot and getting inspections/appraisals timed right is pretty important (I'm told). We want the best rate but also someone who won't delay the closing process and I'm wondering if I should working with a broker for this.


     >I'm wondering if I should working with a broker for this.

    My view on use of a mortgage broker is that it is definitely worth building this relationship if you plan on you are chasing more than a couple of properties.  If you are doing one or two deals and potentially want to save a little money you could find your own loan.  Note the word “potentially” because you will save the brokers fees, but the savings are also dependent on finding a loan as favorable as the broker would have found for you.  They have relationships and know what loans are available.

    We have used our mortgage broker a lot.  We once did 8 loans in one day.  We have likely used him over 20 times.  So we get great service that likely he would not do all of these items for a newer client.  Here is the list of things he has done for us: 1) he has always close.  This is very important.  We once tried to use someone advertising better terms.  At the 11th hour, after having our documentation for over a week, she informed us she could not get us the loan. 2) always returns our calls/emails timely 3) has provided us access to an automated comp tool. 4) has provided us access to a skip trace service.  5) has offered to be escrow so we could enter contract on a Sunday.  5) has used his contacts to obtain us free preliminary title checks. 

    He has made a fair amount of money off us over the years, but his level of service depicts this.  He is one of the few members of our team that I consider a forever member (meaning he can make multiple honest mistakes before I would consider using someone else).

    A good mortgage broker earns their fees and can get you the best loan without you having to find that loan.  They can also provide additional services that can be helpful.  

    Good luck



    2Reply
  • Alec Reano
    Real Estate Agent · San Diego California · Member since 2021 · 9 posts · 5 votes
    4y

    Yea todays market can be tough for buyers. Personally, I think it is going to be very difficult to find a duplex on the market for less than 1 Mil in La Mesa. You will most certainly be better off searching for a SFR at that price point.

    That being said financing is going to be highly dependent on your debt to income ratio. Rates are super volatile right now and are increasing, which means the longer you wait the more likely you will be priced out of your budget (since as rates go up , the more it costs to borrow money). 

    Mission fed currently has a couple of adjustable rate mortgage loan products ( 3% down, 5-10 year fixed interest period @ 2.75% interest, Lender covers PMI) that are pretty good. This maybe a good alternative to help avoid getting priced out, but it would be very important for you to refi out of the loan before the fixed interest period elapses, since your rate would be subject to change.

    Other than that though, since you do not have another property to leverage ( I.e, a home which you could pull a HELOC ) It is going to be tough finding lending with lower rates unless you buy them down. I would highly suggest you avoid mortgage brokers if possible because it is going to reduce your leverage as a buyer in todays market.

    Personally, if I see an offer with a mortgage broker, they go to the bottom of the list since brokers typically don't have good underwriting policies prior to giving their borrowers pre-approval letters. So your best bet would be shopping around for a direct lenders or conventional banks. 

    Other alternatives, would be to change your strategy. Purchase smaller property other than SFR, finding one that may need some TLC (but not a complete fixer) and put a couple grand to renovate it while you live in it for a couple of years and then refi cash-out and then begin filling it with tenants and buy another spot. You could also do this and house hack as-well.


    Hopefully this helps.


    Cheers, 

    Alec

    0Reply
  • Twana RasoulBusiness Member
    Real Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes
    4y

    @Robert Michelen What you are trying to accomplish is very reasonable...a duplex in La Mesa sub $1M.  I've probably closed on a dozen duplex/multifamily in La Mesa in the past year or so and currently have a duplex in escrow in La Mesa sub $1M.  

    Working with the right lender is very important (someone who can close and in a timely manner) and figuring out which one is 1/8th of a point lower on rate is not as important.  

    with 15% down on a duplex you shouldn't have a too tough of a time getting a reasonable offer accepted as the last duplex I closed on in La Mesa last month was with an FHA loan putting 3.5% down.


    Use a local lender if you can especially one that has closed on lots of multifamily properties.  I have 2 lenders I use quite often for multifamily properties but I'm sure your agent will have recommendations for you as well. Don't feel too discouraged by the market and interest rates and focus on the goal.  Good luck :)

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  • Kushaal Malde
    Lender · San Francisco · Member since 2019 · 113 posts · 49 votes
    4y

    @Alec Reano I'm a mortgage broker and we always underwrite our applications FULL DOC before writing pre-approval letters. When my agents submit their offers, I'm calling the listing agent and highlighting how strong the borrower is. Full doc is a must because we can't afford any surprises once in escrow/under contract, and on the plus side allows for a quick and smooth closing. 

    @Robert Michelen unfortunately in a rising interest rate environment, buying power reduction is the reality as time goes on. These are more or less the new rates and you absolutely need to comfortable with the payments for the term of your loan, as refinancing into lower rates is not guaranteed. 

    But as @Twana Rasoul mentioned, you want to be working with a lender who can communicate clearly and close in a timely manner.

    1Reply
  • Alec Reano
    Real Estate Agent · San Diego California · Member since 2021 · 9 posts · 5 votes
    4y

    @Kushaal Malde thats great, not all mortgage brokers do. 

    0Reply
  • Robert Comstock
    Member since 2018 · 138 posts · 56 votes
    4y

    Couple questions: 

    1. are you looking for a true multi-family or a primary with an adu.  Many San Diego Duplexes tend to be 2/1 so if you need a bigger primary you should note that.  

    2. Why La Mesa....ie ...are you just targeting property there cause you 'WANT to be there' or that's where you think you can afford and your only living there for a year just to get owner oc financing?....

    3. Are you willing\able to do rehabs....or does it need to be turn key?

    0Reply
  • Kevin Woodard
    Lender · Nationwide · Member since 2021 · 220 posts · 105 votes
    4y

    If you are going to owner-occupy I wouldn’t stress the 2nd property / investment property. As for a loan for business purposes, I haven’t heard of one existing for own-occupied, but non-owner occupied is very viable. I can help you with the latter; however, if you are looking for the former I know someone that is good and familiar with the market (20 years lending on residential properties.) Shoot me a message and I’ll give you his contact information and let you know you’re reaching out. He has been helping my friends with primary mortgages in San Diego and I’m sure he can give you a hand as well. 

    0Reply
  • Jovelyn Punzal
    Rental Property Investor · San Diego, CA · Member since 2020 · 24 posts · 12 votes
    4y

    Hi! Great question - love all the feedback! My ultimate goal starting is very similar in terms of Duplex or SF +ADU. I'm also in the San Diego area. Would love to chat and watch your guys' journey through this! Good luck!

    0Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    4y
    Quote from @Kushaal Malde:

    @Alec Reano I'm a mortgage broker and we always underwrite our applications FULL DOC before writing pre-approval letters. When my agents submit their offers, I'm calling the listing agent and highlighting how strong the borrower is. Full doc is a must because we can't afford any surprises once in escrow/under contract, and on the plus side allows for a quick and smooth closing. 

    @Robert Michelen unfortunately in a rising interest rate environment, buying power reduction is the reality as time goes on. These are more or less the new rates and you absolutely need to comfortable with the payments for the term of your loan, as refinancing into lower rates is not guaranteed. 

    But as @Twana Rasoul mentioned, you want to be working with a lender who can communicate clearly and close in a timely manner.


     >I'm a mortgage broker and we always underwrite our applications FULL DOC before writing pre-approval letters. When my agents submit their offers, I'm calling the listing agent and highlighting how strong the borrower is. Full doc is amust because we can't afford any surprises once in escrow/under contract, and on the plus side allows for a quick and smooth closing.

    I am on record in this thread stating how great my mortgage broker has been and how important he has been to our team.  I will go so far as to indicate he has been the most critical member of our team (in part because I have never used a rockstar RE agent).

    However, I tried a different mortgage broker once who after having all of our docs for quite some time informed us at the 11th hour that they could not get us the advertised loan.  I also suspect she waited to the 11th hour intentionally in hopes we would still use her with worse terms.  Fortunately for us we had our rockstar mortgage broker who came to the rescue.

    Like many professions there are great mortgage brokers and sub par mortgage brokers.  If I was an RE agent, I would want to know the mortgage broker before I used their pre-approval letters as gospel.  it seems like you do your homework and your approval letter is probably rock solid.  Unfortunately there are some mortgage brokers who advertise products they cannot deliver on.  A late notification that they cannot obtain the loan can impact both the buyer and the seller.  It is also why the first criteria I have for a decent mortgage broker is that they always deliver on their advertised loan.

    0Reply
  • Thom MacFarlane
    Lender · San Diego, CA · Member since 2012 · 54 posts · 34 votes
    4y

    Presently, if locking today for 30 days, you could expect a rate in the range for 5.50% (1.25 pts) to 5.875% (1/2 pt) for a 30 year fixed for an owner occupied 2 unit purchase. The high balance conforming limit is San Diego for 2 units is $879,750 so at 85% loan-to-value (15% down) you could purchase $1,035,000 2 unit. Above that price you’d need more down. Market rates are ticking up daily so you're subject to market rates until the property is indentified and you lock the rate.

    Yes, you'd be required to get pmi but it is inexpensive on an 85% LTV at just .10% of the loan as a premium. That's just $73.31 monthly on a $879,750 loan amount.

    This particular type of loan is considered high balance conforming and thus is preliminary underwritten via the automatic underwriting systems of Fannie Mae and Freddie Mac. It is possible to get automated loan pre-approval in advance of home shopping.

    Yes, mortgage brokers, my profession,  are the best source of financing for consumers.

    3Reply
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