All Forum Posts by: Bryan Maddex

Really doesn't matter where your lender is, what matters more is the lender's experience in the type of financing that you are seeking. Some states do have special guidelines or customs that differ from state to state, but this is a minority of situations.  I am able to lend in 45 states and even when lending in NC, i do not meet with clients in person. The internet and video calls make the world pretty small! 

Quote from @Manish Kumar:

Wow, I am overwhelmed with the responses. 

I knew the community was great, but this is awesome. Instead of replying individually, thank everyone for the responses.

A few of the great questions that are asked and that I should have already included in my post are here.

1. This is my first time doing hard money loans

2. I am looking for at least 95% of the property value, if not 100%

3. This is not a fix-and-flip. I want to buy the property, stabilize the income, and refi (or cash-out refi) the property later on with a conventional loan, hopefully in 12 months.

4. I am looking forward to closing the deal in the next 30 days

5. There is no rehab needed on the property

6. The property is a mix of residential and commercial (to some extent)

7. The loan amount I am looking for is 700-800K

8. I got a 730+ FICO score.

Again, thank you, everyone, for the fantastic and knowledgeable responses. I will send personal messages for further discussion.

These forums are a great place for investors of all experience! Glad you found them  :)   See notes to your recent post:

1. Welcome!

2. There are lenders that will finance 100% of the purchase price and 100% of the rehab cost, I have at least 2 partners that offer 100% financing, first time investors are ok. ARV (after repair value) will be determined by your credit score and experience.  680-700 they do 65% ARV, 700+ and new they do 70% ARV, 700+ and experienced they do 75% ARV.

3. You will not find 95% or 100% financing from any institutional lenders. Private lenders (people who have lots of cash, or self directed IRAs) may offer 100% financing but guessing this is extremely rare AND would likely be extremely expensive (like 20% rate with a few points).  Everyone wants you to have "skin in the game".  If it is easy to walk way, and things do not work out the way you thought they would, no lender wants to be stuck taking back a property with no equity.  You are really looking for a DSCR loan, not a Hard Money Loan.  DSCR loans use the properties income instead of your personal income for income qualifications. Hard Money Loans (institutionally anyways) refer to loans for Rehabbing a property and are Short Term debt vehicles (usually 6 to 12 months depending on the lender).  

You may be able to find an "equity partner" that can give you 15% or 20% of the purchase price, and you give up part ownership of your business. Getting 75 or 80% of the profits is better than getting 100% of no deal. 

4. DSCR loans generally take 3-4 weeks to close.  I have closed DSCR loans in 2 weeks but that is not super common.  Hard Money loans can close in a couple of days depending on the lender and the project. 

5. You can "create" your equity and down payment with properties that need work, or come up with down payment money yourself. There are not 95% or 100% financing options for investors.  If you were to live in the property and finance it with traditional financing (FHA, USDA, Conventional Loans thru Fannie/Freddie), you can find 0% down, 3% down, 3.5% down, and 5% down options as an owner occupied buyer. These programs will all be full doc or fully underwritten loans using your Tax Returns, W2s, Paystubs and verifying all of your deposits. 

Investment purchases for rental income can be done with Fannie/Freddie doing 15-25% down (depending if it is a Single Family or 2-4 Unit property), or with NonQM financing (NonQM loans are anything outside of Fannie/Freddie and "agency" loans). Most will require 15% to 20% down. 

6. Fannie/Freddie allow this if you live in the upstairs units as an owner occupied property. Many NonQM lenders and DSCR loans will allow this. 

7. If your purchase price is $800k, you will need to find $120k minimum for financing in your situation. If you do not have that, i would look to split this deal with an equity partner who can bring assets to the table for closing. 

8. This should be good for all NonQM/DSCR lenders and some lenders would consider this perfect credit. 760 is also a common "perfect" score for long term financing. Short term financing (hard money), usually needs a 680 or 700+ score. 

Good luck with your opportunity! I hope you can find a funding source to take it down!

3rd option, you can work with a mortgage broker who has relationships with over a dozen hard money lenders. There is not a "best" hard money lender out there, only one that is best for your situation.

Some lenders will do 100% of the purchase price + rehab cost, but only in select counties in select states. Most will do 90% of the purchase price and 100% of the rehab costs, but some lenders will only do 65% ARV based on experiance or credit scores, some will go as high as 85% on the ARV with the right experiance.

Your broker should ask you a number of questions about your experience, credit, the property situation (purchase price, rehab budget, ARV, location), and finally if you are selling or refinancing this for rental. All of those factors will help me place your file with the best lender for your situation!

Many lenders give brokers better pricing than if you go directly to that lender. It is a misconception that you will pay more with a broker. In fact, you will probably pay less and let your broker do the heavy lifting and research for you!

Shoot me a message and I can share my calendar link with you, these forums do not allow it directly.

You are welcome @Joseph Nguyen! DSCR is great, especially now. For traveling medical professionals, Fannie/Freddie usually will look at a 2 year history of income as long as you are actively earning and have a history of contract jobs for the last two years. It can be a mix of W2 and 1099 placements. DSCR no worries about any of that lol.

Quote from @Mike Klarman:

I just closed 6.77% for a client with 680 credit.

Assuming that was for no points? As a lender, we know how many variables go into getting specific rates. Non lenders do not. Can you share what the loan size was, credit score, loan to value, , what the prepayment penalty was, and how many points were charged to the client?   Just a rate does not show what options people can find on the market place.

I just locked a loan at 5.99% with 1.15 points and no prepayment penalty for an investor. Was conventional loan on a non owner occupied property at 60% ltv on a cash out refinance.  Credit score was 783. 

There is never one way to invest and never a "best program"", only what is Best for your situation. My goal for clients is to bring additional information to light to let you think thru your options!  If you cannot qualify for HomeReady, SECU is a fine option and as i said before, rates should be headed down and you should have plenty of time to refi into a 30 year fixed rate so long as you are able/willing to stay in the home for an additional 12 months after the refi. You can always refi as investment property in the future and then you are not limited to the 12 month occupancy rule, but investment rates are usually higher than owner occupied rates, so just need to re-evaluate your plans once you start considering your refi options. 

With 70% loan to value you can be in the low 7s with no points currently, 60% loan to value you can be in the high 5s with as little as 2 points currently. Many DSCR options are cheaper on the rate side than Conventional investment loans are, and often times lower points than conventional with higher loan to values (80 and 85% options). You just have prepayment penalties (PPP) on the DSCR side vs no PPPs on conventional loans.

The smaller the loan size, the more you should consider paying a few points at closing so you are not looking to do another refi any time soon. Pay for your next refi with this current loan and take the longer PPP so you get better rates.  The higher the mortgage balance (could be anywhere from $200-$300k+) you could consider taking slightly higher rates for the shorter PPP as refinancing in the future could make more sense than paying down points now with longer PPPs. 

No right answers!  Questions to ask yourself:
Will I see rates drop enough in the next 2 to 3 years to consider another refi in the future?
Will equity appreciation be great and will I want to do a cash out refi in the future?
How long do I intend to hold this property?
Am I thinking of converting this property for SRO/PadSplit model where refinancing may be harder to do because of property improvements I have made?

Speaking to a lender that helps you think about future plans and thinking about when/if you may do another refi should help you determine if you should pay points on this refi or not.  If you will be doing another refi (to pull out future equity or because you feel rates will get low enough to justify this), you probably want to go with a No Points option.

Not all DSCR lenders offer no point options! Work with a broker who has access to a large variety is going to help you find an appropriate option for your situation vs a direct lender who can only sell you their limited product set. #brokersarebetter ;)

Hey @Yonathan Cabrera!

Congrats at already looking at real estate as an investment vehicle! VA loans can certainly give you an advantage over most investors, $0 down! You can do $0 down on a single family home or multifamily home up to 4 units and still put $0 down. Multi family properties can help you purchase a costlier home that you would qualify on your own with as we can use the rental income from the additional units to help you qualify.

When purchasing a home using your VA benefits, you must occupy the home for the first 12 months. Once you have lived there for 12 months, you can purchase a second property with as little as $0 down. The second property can also be a multi family property up to 4 units. We have to do a calculation to see what your remaining entitlement will be and that will be based on how much your 1st home mortgage balances is as compared to the current Conventional Loan limits in the county that you purchase your second home in. You can only ever have two VA mortgages at a time! After that, you can do an FHA purchase with 3.5% down or conventional loans with as little as 5% down (if you live in those properties). So you could purchase 4 homes in 4 years 0%, 0%, 3.5% then 5% down. All 4 properties could be up to 4 units and you could be looking at as many as 16 "doors" in 4 years if you were to live in each home for only 12 months each.

As far as STR goes, you can house hack the property that you first buy (in a single family home or in your unit of a multifamily property) and potentially do short term rentals in all of the other units or in your exiting property.

STR as a way to invest is getting more challenging currently as supply of new STR inventory has been outpacing the demand for STRs. I would highly encourage you to check out SRO or Single Room Occupancy as a potential alternative or in addition to STR properties.  STRs usually do better when they are at destination locations such as beaches, lake homes, mountain cabins....  I have a couple STRs in metro areas and they do not do nearly as well as the homes on lakes do.  We do a lot of Mid Term Rentals in our metro properties and they do much better as MTRs.  I may convert 1 or 2 of them to SROs. 

Check out PadSplit!  Goal for SRO is parking space and no HOAs.  Do you not have to modify a property such as many do with PadSplit homes but you can and it may be a way to increase your revenue per home. You could try doing SRO for Short Term rentals as well, but that seems like it would be way more hands on and you may deal with headaches more often with people coming and going more often.

Last, lets talk about how income works on STR vs Long Term Rentals (LTR). 

Your STR income does not count unit it hits your tax returns. If you move out of your 1st home today while buying a 2nd home, you would need to qualify for that 2nd home with your existing income and no income from your exiting property as we cannot count STR income until it hits your returns. LTR lease could be used on your exiting property right away to help you qualify for your second home purchase.

You could rent out your exiting property with a Master Lease that is a long term lease. You could find a partner to help establish an LLC that rents out your property long term, then subleases on a short term basis (master lease is one that is designed for subleasing, it is a way many people pick up STRs without actually purchasing any property, they just find owners who are okay with them subleasing on a STR basis). After you have this set up and move into your new home, you could purchase part of that LLC to participate in the income from the STR activity. Just be careful as you do not want to do anything that could look like mortgage fraud (fake master lease that just transitions over to you directly would be mortgage fraud and best to stay away from).

Alternatively, you could just move slower and establish the history of STR that hits tax returns so that you can count that income on your next property. Doing just STRs would mean you need to expand your portfolio a little slower as getting that income to qualify is going to take just a bit longer.

My team can help you in PA if you are looking for a good mortgage broker to work with who understands both investors and VA mortgages!

Quote from @Amir Khan:

Quote from @Miranda G.:

Before you say 'you should have the money to get into a contract' I normally wouldn't be in this situation but I've just closed on a property that was all cash 2 weeks ago and a friend calls me on a property that's truly an amazing deal that I want to get into contract (has stable tenants renewing contracts above market, I can get for under market). I'm in process of selling another property with no mortgage now and have the financing lined up for the next purchase as I'll have ample equity in a few weeks. But to get into contract I need a EMD (which at the size of the new purchase is not small).

What are my options? I don't want to take out a personal loan if I can help it. And besides bridge loans, which I'm already looking into, are there any other creative ways to hack this? 

 You may want to consider transactional funding. There are lending specialist (also private lenders) who will lend you funds for EMD etc for short-term only. Charges are high, but if you don't want a personal loan to cover EMD, then this could be an option for you. Good luck!

 I love when aged posts get resurfaced with a recent update sometimes!  Can offer potential learning for others. 

OP @Miranda G. I am fairly certain no longer needs funding, but for any others that stumble across this post since it has been resurfaced, you need to know that Unsecured Borrowing is not allowed by any traditional loan options (fannie, freddie, USDA, FHA, VA). Those funds cannot be used to help you with down payment or closing costs.

Also, please do not get "gift funds" from a family member if you plan to repay that gift. That is considered mortgage fraud and is probably one of the highest forms of mortgage fraud that happen.  Instead, have your family record a private note on your existing property. Those funds are valid if you supply the note and mortgage/D.O.T. 

Valid options would be:
-Cash Out Refinance on a vehicle.
-Heloc on exiting property.
-Bridge Loan on exiting property.
Some lenders will do 1 loan on both properties and allow you to payoff part of that loan once you sell the exiting property. This is called Cross Collateralization loans. Way underused! 
-Private Money loan on exiting property, make sure you get the mortgage/deed of trust recorded. Lender will want to see a copy of the NOTE as well to use your payment in debt to income on your new purchase. 
-401k Loans are a fantastic place to get access to short term funds. It is not taxes, does not report to credit, does not affect your debt to income! Many 401ks will allow you to borrow up to 50% of the value of your 401k or $50k, which ever is less. Has to be with your current employer. 
-Someone stated a margin account against your investments. Also does not report to credit or affect debt to income.

Risky option - do a IRA or 401k rollover to your checking account. You have 60 days before you have to put this money back into a qualified plan. Miss by a day and you are paying a hefty tax bill (income taxes plus early withdraw penalty if you are younger than 59.5 years old). Talk to your CPA / Financial planner about this option as it does carry risk!

If you are purchasing an investment property, consider bringing on a partner to your LLC. Many DSCR lenders do not care where your deposits come from, just that you have funds to close.

Happy viewing of an old post!

Hey Casey, 

No real way to tap into the equity on your home until you have completed it. No traditional lender or heloc provider will offer financing on a home that is not move in ready, and has a Certificate of Occupancy. You can possibly find hard money lenders that will step in while a property is being built, but not if you are intending to use the home as your primary residence.  You could find construction loans that will step in and offer financing for the remainder of your project, but not cash out. There are lenders that will be willing to lend to you building your own home, but this will be a minority of lenders. 

Best bet is to establish a heloc if you intend to borrow funds short term. Helocs are not great long term debt vehicles. If you intend to pull money out long term, I would do a 30 year fixed rate 1st mortgage as it will offer the lowest interest rate out of all lending options on the market. If you stay at 60% or below of your homes, you can get into the 5s pretty easily with a point or two, even with credit scores as low as 680. 

If you need to tap into equity before institutional options are available, i would turn to private money and see if someone is willing to lend you their idol funds or self directed IRA funds. You could refi out of that loan once you have your C/O.

Last, there are a ton of unsecured loan options for you if you have decent credit (usually 700+) and low credit card utilization (under 30%).  I cannot post a link, but if you add "businesscredit" where you would normally type "www" it will take you to my Business Credit application.   They will charge you 10%-%15% of the credit limits they get for you, but it is unsecured lines of credit that typically come with 0% interest for the first 12 months and can be used multiple times. No tax returns are needed. 

Please reach out if you would like to talk thru any of these strategies and good luck with the rest of your build!