All Forum Posts by: Bryan Maddex

 Taxed assessed values have zero relationship to appraised values and are not looked at by lenders at all. Have you looked at comparable sales to evaluate what you think this house should sell for? That is a much better way to determine how much equity you are moving into.

Also, lenders do not care what the appraised value is, so long as it is at or above purchase price. You could purchase a property that is 50% below market value and still pay PMI on the purchase! Lenders use the LESSER of your appraised value or purchase price when determining your PMI requirements based on your down payment.

You can use the full value only on refinances, not on purchases. 

Lender Paid PMI may be a slightly lower payment vs just paying for monthly PMI. 

I am a broker and can shop both your PMI rate and Lender Paid PMI rate with dozens of lenders in just a few minutes if you want to reach out!

PRO TIP:  Lets talk about "selling your rate up" to have closing costs paid by the lender if you are going to plan a refinance. Not enough people consider this option, but it is literally a way to create money out of thin air!

Message me and lets schedule some time to talk strategy!

There are NO institutional investors that will jump on this kind of deal, but you can maybe find a private lender or do a Joint Venture (equity split?). Owning 75% of a home with no money out of picket is much better than owning 0% of a property :)

Hey @Brody Veilleux

Lets first dismiss some really bad info that was stated by others:

Please, do NOT tell a hard money lender you are buying an investment property and then move into it! This is Occupancy Fraud, a very common type of mortgage fraud.  Hard Money lenders cannot lend to you personally on a home that you intend to occupy. 

203k Loans and HomeStyle Renovation Loans are NOT harder to qualify for. Some lenders do have minimum credit scores to access these loan types, but it is the exact same qualifications for income and assets as non renovation loans. 

Last, you can do an unlimited amount of repairs to a home using a 203k renovation loan (up to the FHA loan limit), including knocking down the house and building a new home! You have to keep the same foundation, but there is no requirement for a home to be "live in" ready to do a 203k loan. In fact, these loans are fantastic for homes that do not pass the appriasal!

Now, lets talk about BRRRR and a primary. You can do this, but need to do it slow. Fannie/Freddie now have a rule that if you are doing a cash out refinance, the loan being paid off has to be at least 12 months old. So renovate this year, cash out refinance end of next year is totally possible! Keep in mind that you can only go up to 80% Loan To Value (LTV) on a cash out refinance. You can put a heloc on after the refi up to 100% with select credit unions that will go up to 100% LTV.

For FHA 203 loans, you are allowed to not live in the property while renovations are being completed, so long as the renovations dictate that you cannot/should not live in the home. If you are just painting and replacing carpet, you still need to move into the home within 60 days of buying. 

Bonus Tip: Find a distressed HUD Home (google Hud Home Store) and you can buy a house for just $100 down! There are not many homes on the hud home store any longer, but they do pop up from time to time!

Hey @Shawn Callan

I sometimes cringe when i see some replies to threads so lets clear up a few things. 

First, do NOT take a heloc out on your current home unless you are planning on living there for another year. Helocs, just like mortgages, have occupancy clauses that state you plan to live in the home for the next 12 months. Doing this and then moving out right away is called Occupancy Fraud, a type of mortgage fraud! 

Next, if you do another VA mortgage, VA allows you to take your lease and offset your mortgage payment. You do not have to take 75% of your lease! That is a conventional and FHA guideline, VA allows 100% of your lease to offset up to all of your mortgage payment. You cannot use rental income above your mortgage payment to help qualify for a larger mortgage, but you can utilize 100% of the lease income to offset so that should help you qualify for more of a mortgage.

VA allows you to have 2 VA mortgages. Your first mortgage uses up your Entitlement or Tier 1 Entitlement. You now can use Bonus Entitlement, or Tier 2 Entitlement.  This is based off of the conventional loan limit where you are buying. If you are buying in a standard loan limit area (most of the country), your current bonus entitlement is $766,550. Take your initial VA mortgage (lets say it is $410k) from $766,550 and you have $356,550 in bonus entitlement. If you are purchasing for $450k, you just have to put 25% of the difference down ($450,000 - $356,550 = $93,450 * .25 = $23,362 would be your down payment. 

Conventional loan would take $22,500 so going VA is a no brainer! Cheaper rate, no PMI, better underwriting for rental income. Down side, your 2nd usage of a VA mortgage will run you 3.3% on the VA Funding fee (but it is financed into the loan), unless you get any disability from VA.

As others stated, selling could be beneficial if you are going into negative cashflow. But, VA is the only "owner occupied" loan type that you can actually refinance after you have converted this to an investment property!  Depending on what your rate is, you may be able to lower your payment with a refi, even after you move out!  Also, rent typically can be increased every year. If you think this property is in an area that will see decent appreciation, I would try to rent it out for 3 years and then consider selling. 

Not giving tax advise, so check with your CPA, but I sold a rental after it was my primary for over 2 years and as long as it was considered my primary residence "2 of the last 5 years", I did not have to pay capital gains on my property sale up to the IRS limit. 

Also, i had replied before, but it was taken down. Going to repost and remove what they called Self Promotion:




Ok, several things to consider but buying the rate down is NOT a way to earn more money for your lender. It is an upfront cost for a lower rate forever. You need to calculate the time to break even on this, and consider if you will live in this home in 1 or 2 years from now. All of those factors will guide you on doing a buy down.

Need numbers on this one to do actual math. Lets just assume a $440k purchase price?

6.125% has P&I of $2625/month.
5.75% has a P&I of $2521/month
This is a $104 benefit.

Paying $4400 more towards principle will reduce your payment to $2598, a $27/month savings.

Math says buying the rate down has a larger net benefit to you up front, but it will take you 42 months to break even. (it will take you 163 months to break even on your cash outlay by paying that extra towards principle).

A refinance later will have extra costs if you maintain FHA, but be cheaper on closing costs converting to conventional later, but conventional loans usually have higher rates. Also, conventional will allow PMI to go away after some time (20% equity).

Will you live in his house for 2 years? if so, you could hope to refi in 12 months, so your break even on the buy down is not long enough to get that money back. If you plan on leaving after a year, rates will be much higher to refinance this as an investment home so doing the buy down probably wins out in that situation.

Hey @Olivia Armstrong

Buy downs are not a scam! You just need to calculate the return of your investment into the rate vs how long you think you will live in the house and if you can/will do a refinance. 

If you plan to live in this home for a few years:
Look at the time it takes to recoup your funds. If it will take you 2 to 3 years, and you can refinance this before you break even, you are better off planning to do a refinance and save your money on the buy down. 

If you do not plan to live here longer than a year, you are better off doing a buy down on your rate. 

When you do a refinance, you are signing a 1 year occupancy clause so you have to plan on staying in the home at least 1 year past a refi.  Once you have moved out, you no longer will get owner occupied rates! Also, Fannie/Freddie will only finance 75% of the value of your duplex once it is considered an investment property. 

No right answers, you just need to think about how long you will be in the home and if you will be able to take advantage of a refi or not. 

Reach out if you have any other questions!

Hey @Richard Pastor

First, lets address some incorrect information that is stated above. HELOCs are NOT sensitive to the 10 year treasury. It has ZERO impact on your heloc rates. Helocs are driven by the Prime Rate which is 3% above the Fed Discount Rate. Prime is currently 7.75% and likely to drop by 1-3% during this fed cut cycle over the next 1-3 years.  The Fed has already cut the Discount Rate twice, and there is over a 60% odds that they will cut again in December. (Google Fed Futures and click on the CME Group tracker). The fed is likely to cut a number of times next year, and possibly the year after as well. Your Heloc rates should fall for the next year or two. 

Next, as stated above, a DSCR loan cannot be in 2nd lien position. You should refinance your long term debt into a DSCR loan and then do a heloc on your property. With 700+ credit you should be able to get mid to high 6s if you pay a couple points and do a 5 year pre payment penalty. If you do a cash out refinance, you may be in the high 6s or low 7s.

Helocs are great for short term debt! Not so great for long term debt as you will pay Prime+4% or so on a heloc on your investment properties. I love having access to capital, that equals access to opportunity. 

Let me know if you want to talk in details about more strategies to utilize your equity and congrats on this property!

Your credit limit on an unused card will not generally affect your scores. Credit scores are made up of many factors, one is the utilization of an account vs its credit limit. Another is your credit utilization vs all credit available to you. 

I would not ask them, but make sure that you do have several cards available to you!

Hey @George Hernandez

You just need to find another lender. I recommend a broker that works with over 220+ lenders so they have more options than just your one bank. There are plent of companies out there that will go up to 80% loan to value (LTV) on investment properties using either full doc underwriting or bank statement underwriting.

Appraisals are not lower for Helocs. BUT, refinance/heloc/2nd mortgage appraisals do not have a contract price to help target the value you are seeking. 

Happy to go into more detail, reach out!

Hey @Austin Cox

If you purchase with a conventional loan you cannot drop PMI for 2 years if you put less than 20% down. Putting 20% down will allow you to avoid PMI. FHA will have PMI for life, no way around PMI when using an FHA deal.

VA - Couple options here. 1st, refi your old loan out of a VA loan to free up your entitlement. 2nd, have you tapped into your Bonus Entitlement (or Tier 2 Entitlement)? Lets pretend you have $300k in entitlement remaining as Bonus Entitlement and you are buying a property for $400k. You only need $25k down on a $400k purchase using bonus entitlement.

REFI Option: while you cannot drop PMI on your purchase using conventional loan for 2 years, you CAN refinance a loan and use the current appraised value when determining your PMI cost. So, if you close with a hard money loan, then refi. If you have 20% equity in the home at the time of the refi, you will have no PMI.

Also, you can always go up on your rate to get "lender paid MI". Yes, this will shift the cost into your rate so your payment will be higher, but usually cheaper than what Monthly PMI will cost. 

Last, PMI is not forever. The industry is predicting rates will be in the high 5s by the end of next year. No matter what rate/pmi you get now, it is likely very temporary (so long as the market pulls back as expected).  Once you refi, you are back to using the full appraised value and as long as your refi is 80% of the value of your home or less, no PMI.

Let me know if you want to quote out any of the scenarios above!