Lending options beyond FHA and 25% Conventional?

Question

It seems that my only non-private mortgage options are FHA and a conventional loan at 25% down. I apparently make too much to take advantage of state / agency-backed loans that allow for lower than 25% down.

I’m 25 with no existing real estate equity to leverage and relying on savings / liquid investments (e.g, stocks) to fund myself. Are there more financing options out there for me that allow less than 25% down??

Daniel Hennek · Answer

States don't back loans.

"Agency" products refer to conventional, FHA, VA, and USDA loans.  The "agencies" being Ginnie Mae, Fannie Mae, and Freddie Mac.  FHA, VA, and USDA don't allow investment properties except in the case of FHA if it's a multi unit that you're going to also occupy.  Conventional loans are the only agency loans you can use to buy an "investment" property without an owner occupancy requirement.

You do not "make too much money", it has nothing to do with how much money you make.  There are no agency loans with income limits for investment properties so I'm wondering where you got this idea and why you would say something like this.

As for investment properties with less than 25% down there are Non-QM loans in the market that allow for 15% down on an investment property.  They come with higher rates than agency loans but can get you in sooner.

"Private" money is a term consumers use to describe are certain subset of loans, but it's a not really an accurate term.  The industry refers to these loans as Non-QM which stands for Non Qualified Mortgage, meaning it doesn't have to conform to the Qualified Mortgage Rule.  The government doesn't lend money except in the case of the Direct USDA program; so generally speaking all lenders are "private" companies so what do you mean by "private"?  That's why we use Agency or Non-QM as the 2 big categories and all loans that are referred to as "private" by consumers fit into the Non-QM category.

Talk to a local mortgage broker about 15% down DSCR loans.  DSCR stands for Debt Service Coverage Ratio.

Nick Belsky · Answer

@Dimitri Savidis

I have a few lenders who do conventional purchases for a SFR at 80% LTV.  2-4 Units are 75% LTV.  Both are as investment properties.  Unfortunately, I don't lend in MA.

I've never heard of making too much to get less than 25% down.  The only income limits are AMI, but those are for lower income programs such as Home Possible and Home Ready.  Even then, those are 3.5% or 5% down programs, typically.

As @Daniel Hennek points out, there are also DSCR loans at 80% LTV all day long.  If your middle FICO is over 760, you could get 85% LTV.  We look at your Credit Worthiness and the property cash flow.  No income, DTI, or employment needed.  These loans typically come with 2-3 year of PPP and 6 month seasoning for REFI. I've been quoting rates between 4.5%-5.5% on these the past few weeks.  This is not a commercial or agency loan.

@Tom S. is also correct, seller financing is an option as well.  Takes a bit more work upfront to get to agreeable terms, but it is a viable option.

Good luck in your search!

Daniel Hennek · Answer

I mentioned a DSCR loan because you can get them with 15% down and the lender will NOT qualify you along with the property as stated above.  With a DSCR loan they will only qualify the property, if it cash flows then you're good without worrying about your overall DTI.

Tom S. · Answer

@Dimitri Savidis  You can also look at seller financing options.  A little harder to find and takes some effort, but I've purchased a number of places of the years with 10 or 15% down.

Michael Glist · Answer

So if you are looking to purchase a property strictly as an investment property as opposed to live in and eventually house hack or a 2-4 unit and rent out the additional units then you will likely need 20-25% down. You can always check with local banks and credit unions to see if they have any programs that will allow you to purchase with less down which may work since they are local and typically like to invest locally.

You also need to take into consideration that since you are a new investor that banks will make sure that you qualify for not only the new mortgage and expenses but your personal expenses as well which as a first time investor can be more difficult.

If you are looking to get into a property with less cash into the deal I would say you may want to look into the BRRRR method. This will allow you more opportunity to end up with no cash in the deal and scale a bit faster.

Is there a particular reason you are not wanting to go with private money?

Ryan Zamora · Answer

@Dimitri Savidis

Not sure if a local bank is considered private, but a local bank in your area may do portfolio loans. Call around. I spoke with my mortgage company because my private lender fell through and they are going to hook me up with a lender for a BRRRR and I’ll refinance through my mortgage company when done. Call around, maybe you’ll find someone or some recommendations.

Lending options beyond FHA and 25% Conventional?

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