What are my financing options besides conventional loan?

7 Replies

Hi all! I have some extra cash that I want to invest in real estate. I don't have enough to buy all cash, except in some C, D areas. I want to use as much leverage as I can, so I want to explore my financing options. Getting a conventional loan from a large bank is out of the question because I'm recently self-employed and don't have the income they require. I have also two home loans under my name, which doesn't help the case either. 

I would like to get some advice on what other financing options I have out there and what their pros and cons are. I've heard some mentions of the types of loans that use your house equity as collateral. I'm just not sure where to look for those. Hope the investors in this forum can help point me to the right direction.

Thanks in advance!

Best,

Jinyu

Jinyu.

I think that your only other option would be to use a commercial bank.

If you're investing in Memphis, or would like to, I can recommend someone who will be able to help you on that front. 

Hi @Jinyu Shao m

Like @Account Closed said, commercial loans may be viable. They focus on DSCR of the deal, not your personal DTI. The big downside is timing -- commercials loans take several months to close typically.

There are also portfolio residential mortgages that'll focus on the cashflow of the property. 

Commercial will typically have the lower rate, but higher payment due to shorter amortization periods. 

The equity in your home is going to be just as untouchable right now as you buying a new property with a conventional loan because of your newly changed employment status.

You are looking at commercial (like mentioned already) or private money/hard money lenders.  All of these are asset based lending, and don't really look at you much (some may want to pull credit), but rather evaluate the deal.  Many hard money lenders can fund in 7-10 days on average.  There are specialty hard money lenders that can fund within 24 hours.  

The pro is that the money is funded based on the deal and not you.  The con is that the rates are higher, and the terms are shorter.  These loans are meant for short term projects like a fix and flip.

@Jinyu Shao There are many options for you. I work with many commercial lenders who do permanent loans and do not require tax returns or use DTI. They can close withing 45 days (assuming no title issues).

You will typically need 30% of purchase price for down money and closing costs. And a FICO above 660 is helpful.

There are also short term lending options with HML if the property needs rehab or you just need a quick bridge loan.

If you're buying a commercial property (5+ units or pure commercial) then your options are narrower.  If you're looking at 1-4 unit properties, then you have many more lending options.

Point being:  you have options

@Antoine Martel Thanks for the feedback! I'm not currently looking at Memphis (but this might change). When I do, I'll make sure to send you a message, hope that's okay. 

@Chris Mason Thanks that was really helpful! I just did some research on both type of loans you mentioned. It seems like portfolio loan is more suitable for my situation as commercial loans looks to be more for existing businesses and short-term. Do you know where I can find lenders who give out either type of loans? Thanks!

@Cara Lonsdale Thanks for the input! Although I am also interested in flips, but to start, I want to invest in single family for cashflow. Mainly because I don't personally know any contractors. 

@Ryan O'Mara Thanks Ryan. That's reassuring to know that I have options! I don't know much about commercial loans. My research tells me that it's more common for existing businesses and most of them are short term. When you say permanent, does that mean they are long-term loans? I think I can manage the 30% down payment. What's the interest rate like for commercial loans? 

Best,

Jinyu

@Jinyu Shao I have been talking to a nationwide lender that finances investors who can not prove income. The investor just needs the down payment plus a decent credit score. Not hard money rates. you can pm me for contact info. 

@Jinyu Shao having no documented w2 income makes it tough. You can get non agency financing (not Fannie or Freddie) at 5.25% 25 year am and 5 year rate reset for one origination point but that’s at a local bank. There are a few national lenders but their terms are worse.