SoCal Buy and hold lenders - couple of quick questions...

10 Replies

Hey BP,

I have been making tons of phone calls with local banks, over 15 now and have yet to run into someone that is lending non-conventional residential non-owner occupied "portfolio loans".  I did run into a guy that said they were a portfolio lender, then after starting their loan packet I realized they had the same guidelines as fanny/freddy... I have my MLO endorsement and have originated millions in mortgages but even this guy almost pulled the wool over me.  I can't image how much harder it would be for some of the newer members that don't know what to look out for!

Does anyone have a referral for a SoCal local lender that does portfolio lenders?  If so, what kind of terms are they looking for?
- LTV

- Rate range

- Fixed, ARM, fully amortized, interest only?

- Points charged up front?

I really appreciate your help and I am looking to BRRR some properties in SoCal, either SFR or Multifamily and this information would help me greatly.

I'd like to discuss this with you.  There is a strategy I think will serve you best for this .

Hi @P.J. Bremner ,

The answers to your questions should make it clear why I personally don't focus on any of the portfolio products, and focus on trying to find a way to shove everything into fannie/freddie.

- LTV

It depends. I need a full credit package, completed appraisal, and two weeks, to get back to you with an answer on that.

- Rate range

It depends. I need a full credit package, completed appraisal, and two weeks, to get back to you with an answer on that.

- Fixed, ARM, fully amortized, interest only?

It depends. I need a full credit package, completed appraisal, and two weeks, to get back to you with an answer on that.

- Points charged up front?

It depends. I need a full credit package, completed appraisal, and two weeks, to get back to you with an answer on that.


Those really are the best answers I can give you, if I'm not blowing smoke. All portfolio loans are case-by-case basis and human judgement calls. Now, ask yourself, how many listing agents, buyer's agents, sellers, or buyers, want to wait for all that, before even being told what the down payment, interest rate, points, time to close escrow, or loan terms, are? None. 

Thus, because most consumers will feel it is a waste of their time, I feel that it is a waste of mine because ultimately consumers are the boss. And we actually offer a bunch of portfolio products - on the RARE occasion that I do one, I take the exact same paperwork and submit it to a bunch of portfolio investors. 

There's simply no point in me promoting these, however.

@P.J. Bremner  Sure there are several lenders offering non QM products and portfolio products.  Some will use bank statements (either business or personal) to qualify instead of traditional full income documentation.  In most cases you will still need consistent income and self-employment history.  

Other lenders offer asset depletion, for those who have substantial net worth but still prefer to take a loan instead of paying cash.

There are lenders that offer one or two variations on the regular Fannie Mae/Freddie Mac guidelines in exchange for higher rate and lower LTV. I just saw one yesterday that had no ownership seasoning for cash out and cash out can be used as reserves. They want 680 or better credit and at least 20% - 30% equity depending on occupancy and credit score.

There are others that help people purchase a primary residence. They have no seasoning for a foreclosure / bankruptcy / short sale, higher DTI's, unlimited number of financed properties.

There's another lender that does focuses on non-owner occupied properties and offers no income documentation. Again, LTV's are limited to 70-75%.

It really just depends on what you're looking for specifically.  What are your one or two main criteria preventing you from getting traditional financing? 

@Stephanie Irto

Thank you for the response!

My issue with traditional financing is that my personal income would not qualify just yet.  I have very little debt other than the mortgages i currently have for the rentals (which are offset by rent) but since going full-time self employement, my income dipped from around $120k per year down to $45k per year after all write-offs.  This year will be much higher since I have an Amazon store bringing in over $1M in sales but it only did $250k last year and I know that when the underwriter looks at it, they will take the lower of the two years for self employed (at least that was how the underwriter worked at my mortgage job).  Plus, I won't have this year's taxes done until 2nd quarter of 2017, hence why I am looking for a portfolio lender.

Also, I would like to go this route in order to avoid the mortgage cap limit once I get to that point.

Here are some basic stats on me and you tell me what you think my best options are:

- 810 FICO with several mortgages on record, all paid on time since 2012

- Bank balance fluctuates from $100k - $160k each month, so plenty of cash on hand and reserves and saving roughly $10k/month net

- $90k business line of credit with 0 balance but ready to use (3.99% from Wells Fargo)

- $45k net income 2015 on taxes, 2016 on track for over $100k

Thank you for looking into this! : )

@P.J. Bremner  It sounds like qualifying with bank statements might be difficult if you don't have a full 24 month history with your business, but you also have the option of skipping the hassle of all that documentation and qualifying solely on the cash flow of the property.  

Rates are in the 6's to qualify on cash flow for a 30 year fixed, or slightly lower for a shorter term or an ARM. You can go to 80% LTV for a purchase with a loan amount up to $750,000. Higher loan amounts are available for lower LTV's. You can have unlimited financed properties. While there is no ownership seasoning for cash out, there is a 2 year prepayment penalty, so buying with this loan and then trying to rehab and refinance to take cash out based on increased value probably wouldn't work too well. It would be good for buying and holding.

You also must have a history of owning and managing investment property.  If not, I know of another lender but their rates are a bit higher.

@Stephanie Irto

I bought the first house in 2012 and have self managed since then.  Second house end of 2012, third by end of 2013 and 4th in the middle of 2014.  I stalled out after that because I quit my W-2 and couldn't get loans anymore so I worked on other businesses instead.

The problem is that for tax purposes, the rentals make a small spread over the expenses. The Amazon business is the one that isn't a full 2 years yet, but I have bank deposits showing about $650k this year ($1M in sales minus all the Amazon fees, they really take their share lol). My main concern is the LTV and at 80%, I would be a happy camper. Now, when you say 80%, is that ARV? The reason I ask is that my goal is to buy a house cash (personal equity, business line of credit and HML for the balance) and then rehab, put tenants in and refi the cash out. Standard BRRR strategy. If I can keep my personal equity out of the deal, I would have 0 issues getting the cash flow to cover the bills and then some. What kind of terms would we be looking at for a 30 year fixed, assuming I can qualify?

Originally posted by @P.J. Bremner :

@Stephanie Irto

I bought the first house in 2012 and have self managed since then.  Second house end of 2012, third by end of 2013 and 4th in the middle of 2014.  I stalled out after that because I quit my W-2 and couldn't get loans anymore so I worked on other businesses instead.

The problem is that for tax purposes, the rentals make a small spread over the expenses. The Amazon business is the one that isn't a full 2 years yet, but I have bank deposits showing about $650k this year ($1M in sales minus all the Amazon fees, they really take their share lol). My main concern is the LTV and at 80%, I would be a happy camper. Now, when you say 80%, is that ARV? The reason I ask is that my goal is to buy a house cash (personal equity, business line of credit and HML for the balance) and then rehab, put tenants in and refi the cash out. Standard BRRR strategy. If I can keep my personal equity out of the deal, I would have 0 issues getting the cash flow to cover the bills and then some. What kind of terms would we be looking at for a 30 year fixed, assuming I can qualify?

 HI P.J,

Using a HML records a lien + a deed of trust against the property which is not buying with "cash." Now that there is a recorded lien you'll need a min 6 months to do a cash out refinance if its fannie/freddie but like Stephanie mention you could pay a premium in rate/points/etc to get a portfolio lender who will side step the fannie/freddie guidelines but the question you'll have to ask your self is, pro's and con's, will it be worth it for the given time you'll be in the loan and whether the loan will be a long term strategy, bridge money to more perm money, or perm for long term hold. These factors all affect the mortgage planning process.

I would recommend not getting all excited when a lender says "no seasoning!" "ficos down to 650," or other catch phrases because the market is pretty efficient when it comes to pricing risk/reward. There is usually a price to be paid for each benefit and sometimes it makes sense and other times it does not.

When you mean 45k net in 2015 is there any non cash deductions or phantom deductions you may have not add back? the IRS allows and accounting rules allow you to deduct many things beyond the actual cash expense of the business that might make your "net income," look less favorable and adding these back (if applicable) can increase your ability to show more qualifying income.

You could also get your books reconciled for 2016 up to date so that when the earliest date to file in 2017 (usually late feb beginng Mar) is and you can file your personal and business returns for 2016. Then you could use 1 year tax return self employment with freddie mac and there you go you're now qualified into the conventional bucket and saved your self probably 1-2% in rate, 1-2 points, and all those adverse terms from the portfolio loans.

Theres lots of ways to structure things to make it work the above is just the tip of the ice berg, but something to consider.

@Albert Bui

That's an excellent point about the lien and deed of trust, I had not considered that.  At the very least, going conventional would save me a few bucks on a couple more properties, but at some point I will hit that fanny/freddy limit and will have to use portfolio loans regardless, so at least I'll have a backup plan ready either way.  Thank you for your insight!

Originally posted by @P.J. Bremner :

@Albert Bui

That's an excellent point about the lien and deed of trust, I had not considered that.  At the very least, going conventional would save me a few bucks on a couple more properties, but at some point I will hit that fanny/freddy limit and will have to use portfolio loans regardless, so at least I'll have a backup plan ready either way.  Thank you for your insight!

 Welcome, there are also true portfolio banks and commercial lenders around the so cal area that will be able to do portfolio loans for you once you hit your 10 on fannie or freddie.

I have some portfolio options up to 35 financed properties as well. 

Some local options are chino commercial, malaga bank, farmers and merchants bank, and a few others.

Let me know if you have any questions.

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