Evaluate Financing

9 Replies

Hi,

Trying to evaluate my financing offer from my bank and also sharing a bit my experience if it helps others.

1) I am working with a local bank and seems that getting a loan with the property in my personal name is easier than my LLC. The interesting thing is the bank asked if this was going to be my primary home and if so would need me to move into it within 30 days. If it is going to be a rental then it can still be in my name but the rate goes up almost 1% pt.

Question:

- What would happen if I did say it was primary but then rented it out.  I imagine the bank could recall the loan, but wonder if that actually happens ?

2) Would love to know if there are better financing deals out there, since this is my first financing deal. My bank is currently offering :  

15 yr Fixed

3.85 % with a .05% buydown

20% down.

Closing costs with Bank and Title around $2500.

Question:

-  Does anyone know of better financing deals or is this pretty standard ?

Thanks

@Chuck A.

Mortgages work differently if the home is meant as your primary residence or as an investment property. Usually you are required to live in a property for 6-12 months after purchase for it to be considered a primary residence. Check with your lender what their particular requirements are. 

If you don't move in, you'll be in breach of your loan agreement. Just don't go there.

2nd, always get a 30 year loan, even if you intend to pay it down in less. This way you keep your DTI (Debt to Income) ratio down and available for additional purchases.

Talking to my loan officer the other day, we were both surprised to discover that the secondary market is now supporting as little as 15% down payment on an SFH investment property.

Ask your loan officer to check if he can get such a loan approved. This particular local bank may have a different overlay on loans and not approve what the market is allowing.

Thanks Bram - Appreciate the feedback

Second what Bram said.... DO NOT LIE about your intentions with regard to the use of the property!! The terms for the 15-yr loan sound pretty good actually, but a 30-yr would provide lower monthly payments and give you more breathing room in case of vacancy. Be prepared for a higher interest rate with a 30-yr amortized loan, though, probably mid-4. 

Thanks Patsy - Good advice

@Chuck A.

1)  I believe you need to live in the home for some specified period of time.  I agree with the others, I wouldn't lie but I would ask them what that timeline is.  Is it an option for you to move-in to the house before you rent it?  If so and you can secure a lower rate then it may be worth it.  If not, just opt for the higher rate and do it the right way.

2)  Those sound like pretty decent terms.  I've noticed that a lot of banks like to only carry 15-year notes on investment properties especially if they're a portfolio lender (they keep the loans instead of selling them to a big bank).  I would still consider doing some shopping around.  I've called 10 banks in one day before and have received drastically different terms from all of them.  Ranging from "30 year fixed with 10% down" to "no way we're financing you".  So, I'd suggest you shop around.

Thanks James

It is not just a little white lie, it is considered mortgage fraud to obtain an owner occupant loan for the purpose of renting the property. 

A 30 year loan will come with lower payments than a 15 year loan, so that might be the best option for you here. 

The pennies you save calling it an owner occupant loan when it isn't is not worth the risk of a felony conviction.

@Chuck A. Buying a property with owner occupy loan when you have no intention of moving in is Mortgage Fraud. Its a Federal offence. You really don't want to go there.

The 15yr fixed rate with 20% that your lender is giving you is atrocious, especially if its owner occupy. Find someone else.

I agree with the others. Get a 30 yr fixed loan, so you can keep your DTI low in case you want to buy an another property in the future.

Thanks Mindy and Upen 

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