[Orange County California] Do you know a good Portfolio Lender?

Question

Hello BP!

I recently met with a local real estate investor and learned about the importance of forming relationships with banks.  I'm wondering if people could tell me about how they finance their deals and who they use as their lender.

Stephanie Medellin · Answer

@Akash Sky  Yes, FHA loans generally have lower interest rates but if you put the minimum down of 3.5%, you'll also have mortgage insurance on top of that for the life of the loan, so it's a good idea to compare each type of loan based on your credit.  FHA is great if you have less than perfect credit, higher debt to income ratios, and need a very low down payment.

There is a program through Freddie Mac called Home Possible that will allow 5% down on 2-4 units with a conventional loan.  There are income restrictions unless you're in certain areas, but this is another great option for low down payment financing for either first time buyers or anyone that doesn't own any other property.  Conventional loans require better credit history, and will also have mortgage insurance with less than 20% down.

Stephanie Medellin · Answer

@Akash Sky  Do you own your own home yet?  Or will a multifamily that you'll also live in be your first investment?  Honestly if you're just getting started I would focus on qualifying for that first loan.  I'd be happy to go over your options with you, based on your specific situation.

Portfolio lenders are generally good when you can't qualify for conventional or FHA for one reason or another.  The rates are generally a bit higher and down payment requirements are the same or higher.  Most people want the best possible loan they can get.  Just because you do one loan with a lender does not guarantee they will lend to you in the future if you don't meet their guidelines.

Stephanie Medellin · Answer

Hi Akash,

There are numerous options for portfolio programs but the main requirement is equity, or large down payment, not a relationship with the lender.  Yes maybe after you've done a few loans with them they can be more favorable toward your deals but they will generally still need to meet guidelines.

What is it specifically that you need a portfolio lender for that can't be done conventionally?  That would help determine whether a program is available for what you want.

For example are you self employed and write off too much income?  Do you want to borrow strictly based on the income of the property?

Dustin Lauer · Answer

Great thread Akash.  I think it is very valuable having a strong relationship with a lender.  In today's day and age there are always many options online, but when you're talking about investing your hard earned money a reliable and responsible fiduciary lender relationship is a must have for investors, no matter who you use (I know I'm a lender, but there's a lot of value in what this other investor shared with you to make sure you form a relationship where you are financing your investments).

Akash Sky · Answer

In my case, would you recommend simply going with conventional financing if I have enough capital for a solid down-payment and a decent FICO score (720-740)?  Are there better options?

Stephanie Medellin · Answer

@Akash Sky  Great question, and the answer is a bit surprising.  Regardless of whether you put more down on FHA, you will still have mortgage insurance.  If you put more than 10% down, your minimum term of having mortgage insurance on the loan is 11 years.  Meaning you cannot get rid of the mortgage insurance for 11 years.  Even if you put 20% down, you still have mortgage insurance for a minimum of 11 years.  So, why would someone get an FHA loan if they have this much to put down?  They might have a lower FICO score than needed to qualify for conventional, or had a more recent short sale or foreclosure (FHA has a shorter waiting period), or have some other situation that conventional loans would not allow.

With Home Possible, yes,  you would avoid the mortgage insurance by putting 20% down.  If you do have that much of a down payment, you wouldn't necessarily need that program.

As for which is best, it all depends on your credit history, savings, etc.  1.5% might not seem like that much of a different but when you get into the higher purchase prices, $600,000 or so, 1.5% is $9000.00.

Akash Sky · Answer

Is it possible to get an FHA loan and put down 20% to avoid PMI and get a good interest rate? (What about the home possible program?)  Basically I want to acquire financing at favorable terms to minimize both my down-payment and monthly mortgage payment.

What kind of financing would best match that situation?  Also thank you so much for answering my questions!  I really appreciate it!

Akash Sky · Answer

I'm just getting started with a multifamily that I'll live in.  I'm thinking about going with conventional, although I heard FHA has better interest rates because its subsidized or something.

Akash Sky · Answer

I met with a local real estate investor and he recommended going with a portfolio lender for my first deal because if I plan on doing subsequent deals, the past history from the first deal would prove valuable.

Basically, I wanted to see if there was portfolio lender that also does traditional loans, (as I think that I'll want to start at regular residential and move towards a portfolio loan later on).

[Orange County California] Do you know a good Portfolio Lender?

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