What is the financing and investing options? experienced users?

Question

I feel stuck due to the uncertainty of knowing how to get started with little to no money. My partner and I wanted to go the FHA method, but we wanted to understand what are the estimated amounts (min-max) you are given to work with? Does credit score matter (650-700) or should it be improved before starting?

Zach Rucker · Answer

@Sieanna Ariel

With FHA you can go as low as 3.5% down. But yes your credit will affect the interest rate. I would run scenarios on how much the mortgage payment would be and what cash flow would look like.

Nicholas L. · Answer

Hi @Sieanna Ariel if you haven't already, you can talk to a few lenders and have them run a few different scenarios for you so you can see the monthly outlays and how much cash it would take to close.  Pick a couple of the big banks, and maybe someone local to you as well.  Even if you don't have the cash for a 20% down payment, you can still ask for a quote, so you can compare FHA vs. conventional.  You can also ask the lenders what type of improvement to your credit score would get you a better rate, and then start working toward that.  Good luck!

Carmichael Lewis · Answer

@Sieanna FHA is okay if you want to put little or no money down. However, conventional is ideal. Reason being....FHA you will have to pay MIP for the life of the loan. House hack is a great way to start off with using a 203k loan. Your credit is in the ballpark of what finance institutions look for(620).....

But before you start, think about the end. What kind of property you want? SFH or multi family. Think about if you are flipping the property or you want to buy and hold. Hope this helps. Best of luck!!!

Sieanna Ariel · Answer

@Trent Stone Thank you so much for taking the time out. You have helped me with providing such a informative response. Blessings and success be with you !

Diana Jing · Answer

FHA is only for primary residence.  Good for house hack, but you will need 15% to 20% for a rental property.  Great rates right now!

Sieanna Ariel · Answer

@Trent Stone Thank you so much Trent. Can you elaborate a bit more on a scenario with the appraised value?

Trent Stone · Answer

If you are willing to do the work you can get much better rates and terms by finding a property where you have instant equity or can add equity easily. Go to meetups and network with wholesalers in your area. Lenders really only care about the loan to value ratio (LTV). If you find a deal with a 70% LTV, that's like having a 30% down payment.

As a flipper I won't go above 70% LTV in case I need to refinance the property and hold it as a rental. I just got a deal under contract for $110,000, and only needs $15k in rehab to be worth $180,000. 125/180 = .694. If you find a good deal, have decent credit, and a good debt to income ratio, then you should have no problem finding financing. You also can definitely go the traditional route with 3.5% down and buy of the MLS too, but remember that FHA will only lend on what the property will appraise for, and it very often will come in lower than asking price in a hot market, so be prepared. Let me know if you have anymore questions.

Happy hunting!!

Sieanna Ariel · Answer

@Nicholas L. Appreciate your feedback!

Sieanna Ariel · Answer

@Carmichael Lewis Thank you for your response !

Trent Stone · Answer

@Sieanna Ariel You bet! So very simple example. Let's say you find a property off market that's worth $100k, but you are able to get it for $70k. When you go to your loan officer and ask for a loan he is going to get it appraised and find out that it is indeed worth $100k. He will tell you that you need a "down payment" so they aren't loaning on the full $100k and taking all the risk, with FHA he will want 3.5% "down" or $3.5K. Meaning he is willing to lend you $96.5k on your $100k house, and you have to pay for private mortgage insurance. You tell him, GREAT, I only want to get a loan for $70k on my property worth $100k (Because that's all you bought it for). The $30k you saved by finding a great off-market deal, is acting as a $30k "down payment" even though you put nothing down out of your pocket.

So in this example he was willing to give you 96.5% LTV(loan to value), but since you found a great deal you only need to borrow at 70% LTV, which is all you lender cares about, and in this case your deal was so good that you don't have to pay for PMI either, so your monthly payments will be way cheaper than you originally thought. Hope that makes more sense. Doing some work to find great deals and not just picking stuff off the MLS can essentially "earn" your down payment.

What is the financing and investing options? experienced users?

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