Super confused on 30-year mortgages . . . ?

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Super confused on 30-year mortgages . . . ?

Kyle Shepherd
Centreville, AL · Member since 2020 · 32 posts · 4 votes

Hey folks - I am a noob, and I am confused. I have not done my first deal, but I am always looking at properties and crunching numbers. (I have not done my first deal yet because I am behind the game when it comes to a credit score/history - discussion for another day.) Somewhere along the way since I heard about BiggerPockets several months ago and begin reading/listening to BP stuff, I picked up the habit of using 30 years when calculating mortgages on properties. New SFR on the market? Crank out the amortization-calc.com and find out what the monthly payment would be over 30 years.

However, it would appear that this is wrong - it would seem, based on my conversations with banks and mortgage companies, that I can't purchase an investment property with a 30-year fixed rate mortgage. This keeps coming back to bite me - I am looking at a piece of property that would make a great trailer park, and another piece adjacent to it that already has several on it, but I keep forgetting that the monthly payment is WAY higher than I initially think due to my habit of using 30 years at first.

So 2 questions -

1.) Why do Brandon and friends use 30 years in their mortgage/BRRRR refinance calculation examples and books if you can't do a 30-year mortgage on an investment property?

2.) How would I secure a rental property (SFR) in such a way that I COULD take advantage of a 30-year fixed rate mortgage?

Thanks folks!

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Darius Ogloza
Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
6y

It sounds to me like you are being fed bad advice and/or there is serious miscommunication. I have purchased many investment properties SFR and duplexes using conventional 30 year financing. The interest rate is typically a little higher than on owner-occupied properties.

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  • Kenneth GarrettPro Member
    Investor · Florida Panhandle/Illinois · Member since 2016 · 4k+ posts · 3k+ votes
    6y

    @Kyle Shepherd

    Buying SFR you can take out a thirty year mortgage in your name. Brandon is correct. Buying mobile home park or other types of similar properties requires commercial financing which is 20 or 25 amortizations. Yes if you secure a Fannie or Freddie multifamily loan you can get 30 years with many stipulations. Minimum loan 1,000,000.

    2Reply
  • Kyle Shepherd
    OP
    Centreville, AL · Member since 2020 · 32 posts · 4 votes
    6y
    Originally posted by @Kenneth Garrett:

    @Kyle Shepherd

    Buying SFR you can take out a thirty year mortgage in your name. Brandon is correct.

    OK, but isn't this true only if this is going to be my primary residence? I have been told on multiple occasions that if I plan to rent it out, it moves to commercial status.

    0Reply
  • Darius Ogloza
    Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
    6y

    It sounds to me like you are being fed bad advice and/or there is serious miscommunication. I have purchased many investment properties SFR and duplexes using conventional 30 year financing. The interest rate is typically a little higher than on owner-occupied properties.

    6Reply
  • Kenneth GarrettPro Member
    Investor · Florida Panhandle/Illinois · Member since 2016 · 4k+ posts · 3k+ votes
    6y

    @Kyle Shepherd

    If this is a SFH rental and you own it in your personal name then it is a residential mortgage. Yes you can get a 30 year mortgage, 15 year many options. If you own it in an entity such as a LLC or other entity then you will need commercial financing.

    3Reply
  • Damaso Bautista
    Rental Property Investor · Hawthorne, CA · Member since 2018 · 655 posts · 900 votes
    6y

    @Kyle Shepherd

    I think your issue is that you are looking to buy a piece of property with nothing on it and develop it.  I believe the terms on straight land are different.  

    If you are trying to buy and house or up to a 4plex, 25% down and 30 year fixed mortgage are typical.

    1Reply
  • Joe Scaparra
    Investor · Austin, TX · Member since 2013 · 662 posts · 1k+ votes
    6y

    @Kyle Shepherd and @Damaso Bautista, Damaso is right if it is raw land or a mobile home your financing will differ from buying a SFH or duplex. Also if you buy using an LLC it may require some adjustments. But you can absolutely use a 30 yr mortgage on brick and mortar properties. Remember a mobile home is a depreciating asset not appreciating. Banks are not fond of loaning for mobile homes. You will probably need to seek out a specific lender for mobile home purchases. Good luck on your first purchase. Cheers.

    1Reply
  • Brian G.
    Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    @Kyle Shepherd you should have no trouble getting a 30 year conventional fixed loan with 20-25% down on an investment property. It’s done all the time. If it’s a commercial loan then the terms are different, ie 20 or 25 year amortization with 5-7 year balloon (ie it readjusts every 5-7 years), 30% down, etc.

    0Reply
  • Mark Welch
    Member since 2019 · 19 posts · 9 votes
    6y

    In the non-banking sector, income producing/investment properties (SFH and 2-4 units) are treated as commercial transactions because title to property is held in the name of the entity and the investor is the guarantor. Thirty year terms and 30 year amortization is available. For commercial properties (multifamily, office, self storage, retail and etc) that go small balance commercial financing,20, 25,and 30 year amortization is available.

    1Reply
  • Brady Johnson
    Specialist · Richmond, VA · Member since 2020 · 13 posts · 8 votes
    6y

    @Kyle Shepherd I do land flipping and the banks I work with always require 20% down and a 20 year loan for raw land. If you have plans to build a residence at the same time (for yourself), it can go to 24 years sometimes. Once it’s built you can refinance to 30 years. For Commercial lending the terms are different too, and as mentioned, the 30 year term is when you get a residential mortgage (4 or less units) in your own name and you live there.  Good luck!

    0Reply
  • Daniel Brandt
    Investor · Centreville, VA · Member since 2019 · 26 posts · 7 votes
    6y

    @Kyle Shepherd

    I've been able to get 30 year fixed on SFR in areas away from my primary residence, which the bank views as a 2nd home vs. Investment property.

    I was leery, but my banker practically insisted as long as my non-rental income could cover the mortgage.

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    6y

    @Kyle Shepherd you are confusing two different things. Land for a mobile home park would be a commercial investment. A single family home or even small multifamly up to four units would qualify for a 30 year conventional mortgage. The main difference for investors who are not owner occupying is first time home buyer assistance and higher interest rate. There are also commercial loan programs available to get 30 year fixed for larger multifamily. That is probably not where you are going to start out due to dollar amounts involved.

    0Reply
  • Kyle Shepherd
    OP
    Centreville, AL · Member since 2020 · 32 posts · 4 votes
    6y
    (As a side note, one of the properties I referenced in my original post is strictly land, and I understand that being commercial. However one of the properties is a brick-and-mortar 3br 2ba home that happens to have several acres with it. It is definitely a residential SFR right now, regardless of what I do down the road.)

    Wow, so then my understanding must be really off. I've understood it, from the couple of conversations I've had, that if I am renting the property out, then it becomes investment/commercial property. Very straightforward. The conversations go like this:

    Loan officer: "Will this be your primary residence?"
    Me: "No, I'm going to turn this into a rental property."
    Loan officer: "Ok, well, in that case, that makes it investment property and you will need a commercial loan on that. Our loans generally require 20-25% down, with 15-20 year blah blah blah"

    Is this just incorrect and I don't have a very good loan officer?
    0Reply
  • James Allen
    Member since 2018 · 40 posts · 40 votes
    6y

    Kyle, It sounds like they are wanting to do an portfolio loan at your local bank. It is an investment property, but it doesn't need to be commercial. You can definitely do the SFH under a noncommercial loan. Go to another lender if this one will not work with you.

    0Reply
  • Kyle Shepherd
    OP
    Centreville, AL · Member since 2020 · 32 posts · 4 votes
    6y

    @James Allen - so to be clear: it is totally legal, doable, and standard for me to purchase a SFH as a rental property, that is not my primary residence, with a conventional residential loan where I only put 3.5% or whatever down, for a 30-year mortgage. Is that accurate?

    0Reply
  • James Allen
    Member since 2018 · 40 posts · 40 votes
    6y

    All of the above is correct, outside of the 3.5%. Normally, you will need 25% down on the investment property. You can definitely get it for a 30 year amortization. 

    2Reply
  • Nicholas U.Pro Member
    Member since 2020 · 65 posts · 44 votes
    6y
    Originally posted by @Kyle Shepherd:

    @James Allen - so to be clear: it is totally legal, doable, and standard for me to purchase a SFH as a rental property, that is not my primary residence, with a conventional residential loan where I only put 3.5% or whatever down, for a 30-year mortgage. Is that accurate?

     Single family homes in my area require at 20% down payment.  Generally I can get 20% down up to a TriPlex but once I get to Four Units it is 25%.  This differs sometimes on bank requirements.  

    0Reply
  • Kyle Shepherd
    OP
    Centreville, AL · Member since 2020 · 32 posts · 4 votes
    6y

    @James Allen@Nicholas U.

    OK, noted re 3.5% vs 20-25%. But the big point is 30year amortization.

    Then why is my loan officer saying this is not possible/common/etc.? Is it because I'm asking about it in a commercial loan context?

    0Reply
  • James Allen
    Member since 2018 · 40 posts · 40 votes
    6y

    It varies by bank, but you can definitely do a 30. 

    0Reply
  • Kyle Shepherd
    OP
    Centreville, AL · Member since 2020 · 32 posts · 4 votes
    6y
    If I were to talk to a bank about this would this be a 30 year commercial, or a 30 year residential?
    0Reply
  • James Allen
    Member since 2018 · 40 posts · 40 votes
    6y

    The 30 year would be a personal conventional mortgage. It isn't commercial. 

    0Reply
  • Kyle Shepherd
    OP
    Centreville, AL · Member since 2020 · 32 posts · 4 votes
    6y
    OK. But the "30 year personal conventional mortgage" could purchase a SFH that would be rented out right from the gate, is that correct? Sorry for asking the same thing probably 5-6 times. Really trying to wrap my head around this and overcome bad information / bad communication / conflated definitions / etc.

    0Reply
  • James Allen
    Member since 2018 · 40 posts · 40 votes
    6y

    Yes, that is correct. You could rent it right out of the gate. 

    0Reply
  • Kyle Shepherd
    OP
    Centreville, AL · Member since 2020 · 32 posts · 4 votes
    6y
    OK. If I wanted to partner with somebody for the 25% since I don't have the 25% myself, how would that impact the equation?
    0Reply
  • Nicholas U.Pro Member
    Member since 2020 · 65 posts · 44 votes
    6y
    Originally posted by @Kyle Shepherd:

    @James Allen@Nicholas U.

    OK, noted re 3.5% vs 20-25%. But the big point is 30year amortization.

    Then why is my loan officer saying this is not possible/common/etc.? Is it because I'm asking about it in a commercial loan context?

    Yes sorry that is what it sounds like...

    So some banks don't do multi-family loans.  These are investment properties that are 1-4 units under your social security number.  They can do a commercial loan but that requires an EIN number and has less favorable terms.  

    So what you want to do is make sure you are talking to a residential loan officer.  What they are probably trying to do is give you a 10 year loan that is amortized over 30 years.  This will keep same general payment as a 30 year loan but at year 10 the entire balance is due.

    0Reply
  • Nicholas U.Pro Member
    Member since 2020 · 65 posts · 44 votes
    6y
    Originally posted by @Kyle Shepherd:
    OK. If I wanted to partner with somebody for the 25% since I don't have the 25% myself, how would that impact the equation?

    Simple answer I think you want is that they need to be on the mortgage and they would use their credit, debt to income, and such as a validation.  

    I would also be cautious if you doing this with anyone other than family.  If you do then make sure you hire a lawyer and setup terms before signing the loan.

    0Reply
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