Portfolio lender vs conforming conventional mortgage (New Jersey)

[Eric White]

Hi Everyone,

I'm very new to REI and have a few questions about the best types and ways to obtain financing.

I have yet to invest in any properties, but I am planning to invest in single-family or small multi-family homes with a buy and hold/rent strategy. I am from New Jersey where home prices are fairly high, which obviously translates to higher down payments on conventional mortgages. Here are my questions, any thoughts and advice would be greatly appreciated!

1. Besides potentially higher interest rates, are there any other down sides to using a portfolio loan vs a conventional mortgage? The main reason I ask is because of the down payment. While I do have a fair amount of money saved up, I am concerned about having it all tied up in one property/investment. I almost feel a lower down payment with higher interest rates may be favorable so long as the property is still positive cash flow. 

I know there are the conventional mortgages with less than 20% down with PMI, but I doesn't sound like you get a tax deduction on the PMI premiums. It also sounds like it might be worth building a relationship with a portfolio lender for future investments.

I checked out this article from Brandon, which was helpful - although he primarily used them to acquire more properties: https://www.biggerpockets.com/renewsblog/2015/04/06/portfolio-lender-loan/

I am wondering if there is anything that he didn't cover that would be worth considering.

2. Are there any major pros / cons for going with a smaller community bank vs a "big bank"? Do I have to live an that area in order get a loan from a community bank. I currently live in New York, but have roots and family in NJ - will that matter?

Thanks everyone!

Eric

[Upen Patel]

@Eric White The key advantage of conventional mortgage is the lower rate, higher LTV and 30 yr fixed rate. With a commercial portfolio loan, you are looking at a higher rate and only 5-7 yr balloon rate. The LTV is going to be inline with conventional mortgage.

The main reason folks go to commercial portfolio is because they have exhausted their conventional mortgage options. Not as their 1st option.

BTW, you only pay PMI if you put less then 20 % down. This will not be an option if you are buying it as an investment property.