I’m trying to understand how people are buying multiple units in a year or so, without their credit score crashing. I would assume after your second mortgage in a few months the ability to get another one, even at exorbitant interest rates, would be minimum to null.
Can anyone shed some light onto this?
Yes, the number of recent inquiries on a credit report can start to bring your scores down? Typically each inquiry is worth 3-10 points potentially? Credit reports are good for 120 days, so if you were buying all the time, theoretically you could get away with 3 credit pulls a year, so long as you worked through the same lender? If required, the lender can do supplements to the credit report for any updates?
If their scores were high enough to start out, 3 inquiries for 3-10 points each over a 12 month period may not lower their scores enough that it keeps them from getting new loans. The best rates and terms are going to be with Fannie Mae and most of those loans can be done down to a 620 credit score.
Beyond Fannie Mae, there is portfolio loans or what is called Non-QM loans. These loans can be bank statement loans or investor cash flow loans in which no income or employment is shown on the 1003 and the property just must rent for equal to or more than the PITI payment on the rental. Those loans can be done in some cases down to a 500 credit score.
Then there is hard money used for the purchase or bridge loan to buy the property and then it will be refinanced out of the hard money into a Fannie Mae or portfolio/Non-QM loan. The hard money may not even pull a credit report or care about your score, so you only dealing with the score on the refinance. The hard money is used as just a bridge loan to close fast, or it can be used to acquire the property and then also to rehab it and create equity so that when you refinance you get all your money back out of the property and yet still cash flow and get the best terms available even though you don't have any money into the deal at that point?
I hope that helps?
Much appreciated. I'm assuming portfolio loans is what corporations use to get loans? For example if I start investing straight from my LLC in the future, that's what the financing would be based on?
Make sure what you are calling a portfolio loan is what you mean. IF you are buying through your llc it will not be available to use freddie or fannie.
Portfolio loans are not blanket loans. Blankets are for more than one property.
@Ignacio Rosenberg A portfolio loan or a Non-QM loan can be done by an individual or it can be done in an LLC's name with a personal guarantee. They are not just for businesses. They are called portfolio loans because they are kept or held and owned for the life of the loan, by the lender.
A conventional loan such as a Fannie Mae / Freddie Mac and others are not portfolio loans, therefore the originating lender of that loan can and most likely will sell off both the ownership and the servicing of that loan. There is a huge secondary market for these types of loans in which they bundle up hundreds of millions of dollars of like type loans, securitize them and sell them off to Wall Street as mortgage backed securities. Then both institutional investors and everyday investors (you and me) buy them as part of our portfolio of stocks.
The main thing to remember is that your target should always be 1) Fannie Mae loans 2) Portfolio or Non-QM loans 3) Hard Money. If that is the order of priority, it keeps you in the loan with the best terms 1st followed by the next best and so on down the line. Some deals are just a hard money kind of deal, so as your learn more, you will be able to see earlier in the game when a deal would fit in each category.
The best thing you can do is to get together with a lender that has all of these loan programs to use. They typically will have more knowledge as to your various options and they also are used to working with real estate investors big and small. Most other lenders limit their loan options to 1 or 2 categories, which may be fine, but its best to work with a lender that can do it all, in most cases.