All Forum Posts by: Bryan Maddex

@Jacob Hrip congrats on taking steps to hitting your investing goals!

1st, lets talk about equity in your homes. You have some, but not as much as you think. 

Primary Homes - most banks will easily do 80% of the value of your home, some will go up to 89.9% loan to value (LTV). Some credit unions will go to 85%-95%, but there are just a few that will do 100% loan to value! Check out Tower Credit Union as one option for 100% loan to value. Rates will range from Prime (currently at 7.5%) to Prime + 4% (11.5%). The higher you go on the LTV, the worse the rate will get. Also, some helocs will offer Interest Only payments, some that go above 90% LTV may ask for 1% of the outstanding balance or 1.5% of the outstanding balance. These payment options can get up there! Shop LTV (or cLTV which is combined Loan To Value, basically your first mortgage and 2nd mortgage combined loan to value), rates, payment terms, time to close, and draw period (how long you can go into and out of your heloc).

Investment Property - Most banks and credit unions will tell you that a heloc on investment property is not possible. TD bank is the only major bank that I know of that does helocs on investment properties, and last I checked they would only go up to 65% of the value of your home. As a broker, I do have access to about 15 companies that do helocs on investments!  Most will go to 80% of the value of your property, some limit to 70% max. Rates on i
Heloc is a great way to come up with down payment money, but i would not do your rehab out of a heloc. You want this to be your backup plan if things take longer than anticipated, you do not want to dip into personal credit cards so i would use a heloc to help with down payment but try to keep a nice available balance on a heloc as your insurance policy. 
Rates will usually be in the Prime + 3-4% range if you are trying to max out how much of a line you can get.  

Private Money vs Hard Money:
Primate money is negotiable. Hard money is usually "take it or leave it". Hard Money Loans are generally speaking institutional money so they make the rules and you either like it and take it, or move on to another lender. You generally cannot negotiate. 
Hard Money will usually finance 90% of your purchase price and 100% of your repair cost up to 70 or 75% ARV (after repair value). Many hard money lenders will offer the best terms once you get 5 "completions" or "exits" from hard money loans (sell the property or refinance out). Most hard money lenders do not have prepayment penalties and most will be in the rate range of 10-13% with 2-4 points as upfront cost.

Private Money is whatever you can work out!  100% financing, no payments, financing in extra "cash out" money upfront so you can do a rate/term refi once you pay them off...  equity splits, no experience... whatever you can work out!

Because private money can be so flexible, it is often times better than hard money loans but not always. Private money may be cheaper, but may be more expensive if they are doing something that most hard money lenders wont do. 

BRRRR out of your flips is great way to keep some of your properties! Many lenders will allow you to do a BRRRR and take cash out, even without owning the property for 6 to 12 months. Setting up your purchase money loan to allow better refinancing is advised when possible. (Get 100% financing plus cash out from your 1st lender would allow almost all lenders to do a rate/term refi once your rehab is completed. You can go up to 80% LTV on rate/term refis with some lenders!).

@Lenny Montesano congrats on starting your journey already!  The average 1st time homebuyer is 37 currently. Even if it takes you a year to pull down your first deal, you are killing it my friend!

Quick tips:
1st - you do not need income to get financing. Ignore those comments. There are tons of loans out there that use just the projected or actual income from a property vs the payment of the property (DSCR loans). Rates can be very similar to those of conventional financing (Fannie/Freddie - full doc loans that you will need to prove income to get), but typically a little higher than conventional financing.

2nd - Networking and partnerships! Learning from others can drastically shorten your learning curve. You do not need to go about this solo! You may need some help with capital, or credit, or both. You may have both but may be able to find someone else who has experience but needs a credit partner or capital partner. Meetup is a fantastic app to find real estate meetings around you, and look for local REIA (real estate investor associations) and attend a bunch of meetings. The bigger REIAs out there have many sub groups that may specialize in fix and flips, landlords, notes, or somewhere in between. The subgroups are usually smaller and easier to get to know people. Volunteer! Offer to intern, find a way to get involved.

3rd - If you find a deal, you can then find financing! Kick the tires of a couple of homes. Work thru what you would bid on the house, what you think repairs would be, what you think your ARV would be. Then, speak to a lender or two and ask them to help evaluate your deal! Hard money lenders are going to want you to have success and will often times help you see if your numbers are close or way off.

CREDIT - You need this!  If you don't have it, work on it.  If you do, work to protect it!  Ideally, you want a 700+ score. Goal is to have credit cards that you do not use more than 10% of. Credit cards make up 65% of your credit score!  If you don't have at least 2, work towards that.
Business Credit - once you have some established credit, you need to protect it!  So often i speak with flippers who put too much money on their personal cards and tank their scores. This limits your refi options when you take your scores down under 660.  Open a business credit card and do your renovations on that (for things that you cannot get financed with a hard money loan). Many business credit cards do not report to personal credit. 

Assets - you need these, or you need partners. You can do as little as 10% down on your purchase price with a little experience, and then get up to 100% of your rehab budget financed! If you have not flipped a home, do not have a rental property, and do not own a primary residence, you may have a hard time getting into lending. Most lenders want to see homeownership and experience with flipping and or holding properties.   You may need an asset partner to help you with a few flips so you have full access to financing. 

Good luck on your journey!

Hello @Jerry A.

Feel free to message me if you have any questions but I would seek out a broker who has access to over 220+ lenders to help do the shopping for you.  A cash out refi should take 2-3 weeks with most lenders, and you should have only an appraisal a credit report fee as upfront costs. 

There are a bunch of ways to do this depending on the property type, usage, and you (income and credit scores).

If this is a primary residence, you can get up to 90% of the value of your home minus any exisitng debt.  Going to 90% is not the cheapest way forward, however.  80% will give you better rate, and 75% will really make an impact on rates. Doing a 75% 1st mortgage and 15% heloc or heloan would likely give you better cost of funds all around.

If this is an investment property, you can do 80% cash out refi using NonQM loans such as DSCR loans, but at a higher cost/rate than if you stick with 75% loan to value. DSCR or Fannie/Freddie loans can go up to 75% on single family homes, multi family homes (2-4 unit) max at 70% if you stick with Fannie/Freddie.

Other things to consider would be:
Paying points for a lower rate vs higher rate with no points
If going DSCR - Prepayment penalty term (0-5 years)

The lower the loan size ($200-250k and lower), you should consider paying up to 2 points and doing a 5 year prepayment penalty if going DSCR. Higher loan balances we would likely see an opportunity in the future to refinance again due to lower rates so consider a 2-3 year prepayment penalty.

Of course if you qualify for Conventional Financing (Fannie/Freddie), there are no prepayment penalties so just calculating out the return of investment timeline on point buy downs.

Good luck shopping and let me know if you want to talk further!

Using a heloc as 1st mortgage really only has a major benefit if you have idol cash sitting around from your paychecks. 

Main goal of All In One heloc or 1st Lien Position Heloc:  Lower your daily average balance.

Main Drawback: Rates are substantially higher than 60% of current 1st mortgage balances.

If you are mostly living paycheck to paycheck and your money leaves your account as soon as it comes in to pay bills, this is not for you. 

If you are thinking about a new purchase with a heloc vs a current 30 year fixed rate, this could be a good alternative.

Basically, helocs are billed based on the average daily balance of the account. If you can get your direct deposit moved against your heloc right away, and then you do not have to pay bills instantly, you are leaving your idol funds offsetting a 7.5-8.5% interest rate. This is a great savings.  Alternatively, if you leave your paycheck in your checking account earning .01% interest, there is no real benefit.  

If you have a savings account earning less than 7.5%, no need to have a savings account when you have extra funds available to you in your heloc. This further offsets your daily minimum balance. 

I would say for most people, the 1st position heloc is no a good bet, especially if you have a 1st mortgage rate of less than 5%.

Using this strategy with a 2nd position heloc can be just as powerful, so you can have your cake and eat it too!

Using the same concept, your goal is to offset daily average balance. Use a 2nd position heloc to absorb your paycheck, once your paycheck is entirely paying off your heloc, then it is safe to advance $3000 or $5000 extra against your heloc to make a principle payment against your 1st position heloc. Do this hoping to keep your heloc balance below this number so you are paying less interest based on your average balance vs the rate of your first mortgage payment.

This could help accelerate how quickly you can payoff your first mortgage while keeping the interest you pay on your heloc at a minimum. 

Quote from @Marcus Auerbach:

Quote from @Bryan Maddex:

Quote from @Marcus Auerbach:

Quote from @Bryan Maddex:

Mortgage rates almost ALWAYS go up after the first Fed rate cut! This is normal!  If you looked at rate projections in the spring and summer, many accurately predicted that rates would fall in 3rd quarter and rise in 4th quarter. The Fed rate cuts will eventually help bring down mortgage rates. On average, we see rates eventually drop to around 37% lower than where they started at the 1st cut by the end of the rate cut cycle. Current prediction is rates will land in the high 4s in 2 to 3 years. Markets, geoglobal conflicts, recession, inflation, jobs can all affect that but time will tell. 

I did not see a forecast for rising rates in Q4? Who is the source? 

The latest forecasts I have seen are from before the election and they were all expectation lower rates. MBA is the Mortgage Banker Association if you are not familiar. This chart does not include the latest increase in rates, but in a couple weeks we should have an update.

I saw several places that showed increased rates:
https://www.verticalbuilders.com/blog/what-to-expect-in-q4-2...

 As seen above, average rates were in the 6.5% range and projections for both MBA and Fannie showed projected higher rates before they came back down. This article was published Aug 22nd...

 That's the same chart/data I posted above. What's your point?

Not the same, look again. This was from August and showed rates going UP from where they were at the time of this post for 4th quarter. You asked for sources, i gave you sources....  sorry if you were not expecting rates to increase after the Fed dropped rates the first time, it is very normal and expected. 

Quote from @Marcus Auerbach:

Quote from @Bryan Maddex:

Mortgage rates almost ALWAYS go up after the first Fed rate cut! This is normal!  If you looked at rate projections in the spring and summer, many accurately predicted that rates would fall in 3rd quarter and rise in 4th quarter. The Fed rate cuts will eventually help bring down mortgage rates. On average, we see rates eventually drop to around 37% lower than where they started at the 1st cut by the end of the rate cut cycle. Current prediction is rates will land in the high 4s in 2 to 3 years. Markets, geoglobal conflicts, recession, inflation, jobs can all affect that but time will tell. 

I did not see a forecast for rising rates in Q4? Who is the source? 

The latest forecasts I have seen are from before the election and they were all expectation lower rates. MBA is the Mortgage Banker Association if you are not familiar. This chart does not include the latest increase in rates, but in a couple weeks we should have an update.

I saw several places that showed increased rates:
https://www.verticalbuilders.com/blog/what-to-expect-in-q4-2...

 As seen above, average rates were in the 6.5% range and projections for both MBA and Fannie showed projected higher rates before they came back down. This article was published Aug 22nd...

Strong jobs reports had a larger effect on the 10 year treasury, followed by strong retail sales numbers, followed by EU inflation numbers, then followed by election results but honestly election results only affected rates for a couple of days.

Lots of pressure on treasuries from the level of debt the US is carrying, but remember the Fed is also still doing quantitative tightening (while cutting rates) which is additional upward pressure on rates. It's possible rates have peaked based on trading flat and taking a downward turn last week! Fingers crossed! 

Quote from @Frank Thomas:

Quote from @Bryan Maddex:

Hey @Frank Thomas

Congrats on your first BRRRR!!

You are about to learn the hard way (if you had not posted in here), that you are making a mistake with your strategy!

The REFINANCE part of the BRRRR strategy is broken with changes that Fannie/Freddie made to their cash out refi policies end of last year. To do a cash out refinance now with conventional financing, you have to wait until the loan being paid off is 12 months old!  You may not want your heloc tapped that long as the rate is generally higher on a heloc than it is on fixed mortgage rates. 

At this loan balance, good news is you do have options with DSCR loans. For loan balances under $200k, you are better off going DSCR with a 5 year prepayment penalty and paying 2 total points on the loan (1 point is 1% of the loan size). With middle 700 credit scores you can push your rate into the mid 6s today. When your rehab is done, hopefully those rates are lower!

As someone else stated, once you own a property in SC your property taxes will be about triple that of an owner occupied person! Double check so you are budgeting correctly.

Last, I would generally NOT recommend you use your Heloc for your repairs. This means you have to do a "Cash Out" refinance once your rehab is done vs a "Rate & Term Refinance".  As stated above, this limits your conventional loan options, and means your rate will be higher with either a Conventional Loan or DSCR loan once you do the refi!  (We do not know if conventional rates or DSCR rates will be better for you once your rehab is completed, so best to protect both options). 

Cash out refinances have a longer seasoning period for most lenders as well!  I do work with some lenders that have no seasoning, or 3 month seasoning options in the DSCR space. There is no best lender, only the best lender for your situation!

I would do your purchase & rehab costs in a hard money loan unless you totally plan to repay your heloc from your income and do not plan on doing a refinance later. If planning a refi, be strategic and do a Hard Money Fix and Flip loan and finance in your repairs. Also, see if you can pad your estimate with some "contingency reserves" as this way you can come do your refi only as rate/term and do not need money in your pocket at all with the rehab! Just draw out any unused funds from your hard money loan before ordering the payoff. 

Benefits of Rate/Term refi:  No seasoning with any lenders to use the full new appraised value, no seasoning of the underlying first mortgage that is getting paid off, better rates vs a cash out refinance!

Let me know if you have any questions!   Also, when picking a lender, make sure you pick one that is very familiar with BRRRR strategies, has access to hundreds of lenders to shop the best Hard Money and Refinance partners for you, and that can give you advise on the front end.  

I know a guy and can connect you to them! :)

Thanks for the valuable insight! I just opened my HELOC and I only have to pay interest for 10 years. Does this change your opinion at all for using HELOC? Thanks! Again, I'm a newbie so appreciate all the advice!

I love using helocs, but you want to be able to pay it off to use again and again. Short term gains using it equals long term cost. I'd then of the end result and back into the best way to do financing upfront. Cash out refis have lower loan to values allowed vs rate/term refis, lower rates, and no seasoning. I think you would save a little while rehabbing, but at what long term cost. 
I think knowing more numbers, heloc limit, plans and objectives for future goals all should play into "what is best". Literally, there is no best option, only what fits your goals based on the info we know now! 

ssent a connection request, let's talk more details offline to help determine "what is best" for your plans! 

Hey @Frank Thomas

Congrats on your first BRRRR!!

You are about to learn the hard way (if you had not posted in here), that you are making a mistake with your strategy!

The REFINANCE part of the BRRRR strategy is broken with changes that Fannie/Freddie made to their cash out refi policies end of last year. To do a cash out refinance now with conventional financing, you have to wait until the loan being paid off is 12 months old!  You may not want your heloc tapped that long as the rate is generally higher on a heloc than it is on fixed mortgage rates. 

At this loan balance, good news is you do have options with DSCR loans. For loan balances under $200k, you are better off going DSCR with a 5 year prepayment penalty and paying 2 total points on the loan (1 point is 1% of the loan size). With middle 700 credit scores you can push your rate into the mid 6s today. When your rehab is done, hopefully those rates are lower!

As someone else stated, once you own a property in SC your property taxes will be about triple that of an owner occupied person! Double check so you are budgeting correctly.

Last, I would generally NOT recommend you use your Heloc for your repairs. This means you have to do a "Cash Out" refinance once your rehab is done vs a "Rate & Term Refinance".  As stated above, this limits your conventional loan options, and means your rate will be higher with either a Conventional Loan or DSCR loan once you do the refi!  (We do not know if conventional rates or DSCR rates will be better for you once your rehab is completed, so best to protect both options). 

Cash out refinances have a longer seasoning period for most lenders as well!  I do work with some lenders that have no seasoning, or 3 month seasoning options in the DSCR space. There is no best lender, only the best lender for your situation!

I would do your purchase & rehab costs in a hard money loan unless you totally plan to repay your heloc from your income and do not plan on doing a refinance later. If planning a refi, be strategic and do a Hard Money Fix and Flip loan and finance in your repairs. Also, see if you can pad your estimate with some "contingency reserves" as this way you can come do your refi only as rate/term and do not need money in your pocket at all with the rehab! Just draw out any unused funds from your hard money loan before ordering the payoff. 

Benefits of Rate/Term refi:  No seasoning with any lenders to use the full new appraised value, no seasoning of the underlying first mortgage that is getting paid off, better rates vs a cash out refinance!

Let me know if you have any questions!   Also, when picking a lender, make sure you pick one that is very familiar with BRRRR strategies, has access to hundreds of lenders to shop the best Hard Money and Refinance partners for you, and that can give you advise on the front end.  

I know a guy and can connect you to them! :)

Mortgage rates almost ALWAYS go up after the first Fed rate cut! This is normal!  If you looked at rate projections in the spring and summer, many accurately predicted that rates would fall in 3rd quarter and rise in 4th quarter. The Fed rate cuts will eventually help bring down mortgage rates. On average, we see rates eventually drop to around 37% lower than where they started at the 1st cut by the end of the rate cut cycle. Current prediction is rates will land in the high 4s in 2 to 3 years. Markets, geoglobal conflicts, recession, inflation, jobs can all affect that but time will tell.