Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
8y
Ya, these are nifty. Given Bay Area loan limits local to me, we can go up to ~$975k in price w/ 5% down and all fixed rate financing.
$50k down
$679k 1st mortgage <-- Fannie 'high balance' loan
$250k 2nd mortgage <-- fixed, 5 to 20 year term.
$979k total purchase price
The homebuyers will need to be higher income than if they had 10% or 15% down (since they're qualifying for a second mortgage with <30 yr term), decent credit too. So it's mostly Silicon Valley techies that graduated a year or two prior buying a 45 minute commute, or investors trying to preserve capital:
^ Pay the 2nd off if you don't find that fourplex you were looking for. ^
Overall, for those worried about systemic risk, these are significantly less risky than FHA 3.5% down on a $1.3m fourplex with a 644 FICO and using the rental income to qualify the homebuyer with zero landlord experience and a 54% DTI, which biggerpockets.com tends to be a huge fan of.
Lender · Tampa, FL · Member since 2014 · 543 posts · 168 votes
8y
@Bill F. I do both residential and investment/rental/ comm. loans, but given the over regulation and crushing effects of the Dodd Frank Act has been inflicted on American borrowers, like many Mortgage Brokers, I am doing a lot more investment / rental loans.
Plus, if the loan is for a rental property, most lenders don't treat them the same as the big banks who cast a broad net over all their programs and treat them like a Fannie Mae type loan.
Mesa, AZ · Member since 2015 · 74 posts · 47 votes
8y
“Tax write off savings of buying a home” ok you’ve lost me. Only someone incapable of simple math and even the most basic understanding of the tax code would get a mortgage in an attempt to “save” on the interest deduction
O Fallon, MO · Member since 2017 · 59 posts · 21 votes
8y
There were some great points by people much smarter and more experienced than me regarding risk of the 3.5% FHA versus this 80/15/5 structure - that said here's my two cents.
Full Disclosure: I have a duplex right now under an FHA loan.
I think the risk is more than just the money in these scenarios. I think the true biggest difference is the fact the owner is occupying the property. SFH it's very likely that FHA note payer is staying for quite some time. FHA note payers, like myself, in 2-4 unit buildings have more risk because it's more expensive with more units generally - and vacancy can cause distress or default. Also, like I plan to, people owner-occupying 2-4 unit buildings on average would move in a shorter time period.
So the big point with all that is that if someone does go underwater on a property and they live in it they'll likely just stay and ride it out until the market recovers because they need to live somewhere and want to get their equity back. An investor not living in a property that experiences a vacancy at the wrong time might have to sell and take a huge loss or get foreclosed on to keep other assets. That said, I think the investor in that scenario is likely someone not too far along in their investing career because if they have other performing properties they can absorb that hit.
Minneapolis, MN · Member since 2017 · 353 posts · 223 votes
8y
I'm not sure how this really is big news today.
Credit Unions and some banks are already starting to do 100% LTV home equity loans again without PMI. You pay an inflated rate for the product so as some have said, they are getting the money one way or another. The trick is finding a place that does them on non owner occupied investment properties.
Does this work for non-owner occupied properties @Account Closed? I could see being excited as a lender as it increases your product base and can lead to more deals, but I am not sure I can think of a scenario where I would like to finance investment deals on these terms. Seems like it would be hard to make money given the deals I look at.
When people go to the store, they can choose out of many different products. If you choose sugary, fatty junk food, you're gonna get fat, but we never blame the store for fat people. A bank also offers many different products and we cant blame the financial health of an individual on the offerings of other people! If you ruin your financial future because you were irresponsible and did not do research, that's not the banks fault.
Not to say people don't bare some level of personal responsibility because surely they do, but lets not overlook the other side of things with such confidence.
Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
8y
We're a long way away from the reckless lending days of 2006. But the 5% down for investment properties is something I have not seen. This type of lending will result in more foreclosures.
I think these are dangerous loans. It is not dangerous if you have adequate reserves, but just elect to take a higher leveraged loan. There are many things that can go wrong when owning rental units, so you need some extra cash.
Investor · Salt Lake City, UT · Member since 2016 · 287 posts · 270 votes
8y
David Weintraub side note: if you are an adult you bare 100% responsibility for your choices in what you eat. Not just “some”. I think this principle pretty much applies across the board for our adult decisions.
We're a long way away from the reckless lending days of 2006. But the 5% down for investment properties is something I have not seen. This type of lending will result in more foreclosures.
I think these are dangerous loans. It is not dangerous if you have adequate reserves, but just elect to take a higher leveraged loan. There are many things that can go wrong when owning rental units, so you need some extra cash.
op said 85 % LTV so 15% down for non occupied investment properties
When people go to the store, they can choose out of many different products. If you choose sugary, fatty junk food, you're gonna get fat, but we never blame the store for fat people. A bank also offers many different products and we cant blame the financial health of an individual on the offerings of other people! If you ruin your financial future because you were irresponsible and did not do research, that's not the banks fault.
Well said, we, as investors, should take responsibility when making financial decisions on our projects!
Austin, TX · Member since 2018 · 51 posts · 48 votes
8y
85% leverage? Would only do that if I had substantial reserves. And if I had substantial reserves, why would I give the lender more of my money every month, plus allowing them to have my reserve funds work for them?
Lender · Tampa, FL · Member since 2014 · 543 posts · 168 votes
8y
@John Umphress, you would want to consider sinking less money into Dead Equity for a thousand reasons, especially if you are over 45yrs of age with less than 300k in retirement savings.
But if you're worried about it, 2 or 3 months after you close on a property, if that time you still feel the need to put more down, then do a simple reduction of principle & loan re-cast.
2 months After closing, if you still can't think of better use of your funds and still want to re-cast, tell us know.
I'll bet you won't even make 2 extra payments on the loan while you have it.
Good luck and do yourself a favor and take my advise because I'm right.
85% leverage? Would only do that if I had substantial reserves. And if I had substantial reserves, why would I give the lender more of my money every month, plus allowing them to have my reserve funds work for them?
Because if you're a wise investor, you'd already have a lot more than 15% equity from day one anyway, and, borrowing extra means that your remaining reserves can be put to work earning a lot more than the interest your extra borrowings will cost you!
But ok, if you're not an astute investor, sure, put every spare dollar you have into one deposit!
I think I should quit the mortgage business and take my show on the road and do seminars!
Its funny how so many live like there's no tomorrow, spend money like crazy, don't have jack #$% for retirement savings, marginal to to BTR (Born To Rent)credit, but the second they go to buy a home and try to get a mortgage....
POOF!! suddenly act like they are their 840 perfect credit, wealthy & successful parents!
Or those same 840 perfect credit, wealthy & successful parents get all upset at their Credit Criminal kid's mortgage quotes, unaware that at the bottom of the Mortgage Credit Report it says ..."Hold Applicant For Cash Reward!" ha
Hey mom and dad, you wanna co-sign for your little Johnny to get a better rate?
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
8y
@Account Closed, yeah, it's funny because I usually preach: Don't borrow more than 75% LTV, even if they let you! I now think that the main reason I do that is because most folk here on BP who post their desperation to borrow 80%+ (because they haven't bothered or can't save money to save their lives) have shown within their posts that they do fall in that category of non-astute wannabe Investors, wanting quick-fix, silver bullet answers.
Of course, John might have other reasons for high deposits, but the "why would I give the lender more of my money every month" excuse seems very lame during these low interest times...