All Forum Posts by: Jason Wray

If your rate goes up to say 6.75% thats a 4.25% increase on the overall loan.  Depending on how much you pull out your Heloc the rate will be between 9.75% to 12% on a 15-20 year loan.  It all depends on what you owe on the first mortgage to calculate the difference payments.  In most cases even with the increase in rate its worth the refinance.  It's shown that over 85% of investors who take out a Heloc refinance to consolidate the heloc into their mortgage in 3-5 years.

As a Banker I tell people every day "Do not" let a low first rate stop you from buying more properties to build more doors, which builds more passive income.  That first rate increasing is allowing you to grow your wealth it will always balance out in the long run, but can be speed up with a few tricks.  

Have you looked at the difference with DSCR versus Heloc?

There is a simple solution - just do a cash out refinance. Rates have dropped a bit and then went back up last week due to some junky CPI index data but will start to come back down based on upcoming market reports. You will more than likely get a higher rate then what you have now but its a simple short term loan that you can refinance in 12 months to lower the rate when rate drop next year (which they will).

Use the cash for the DP but I would also advise taking out just a little more as a "What if factor" to cover any unforeseen issues or last minute repairs. If you do not use it simply make larger payments over 6-12 months to lower the overall interest and loan balance.

There is always the Heloc path but those can gett you into trouble and have restrictions like shoter amortization, Prepayment penalties, interest only, (Can create bad habits of low payments) which causes a standstill balance. Cannot use a HELOC for assets and cannot be used as PITI reserves.

Julio - Have you priced out a DSCR cash out versus a Heloc yet?

Betty,

One thing to consider before you try and report a renter late from a bureau level is their overall credit. If the credit is destroyed the renter may have no reason to pay rent beyond that point and may just stretch out their legal stay out of spite. I would try and make contact and let them know what you’re considering and how it will destroy their credit. Let them know they will not be able to buy a home, get a mortgage, rent in another community, and could jeopardize their current credit card limits.

If you are at your wits end and you know they do not care about credit and are ducking you then report the lates.  Just make sure you send a proper late notice, offer a quit notice with amount and final due date.  The a 30 day notice before you file late with Bureaus and know there are (3) bureaus Equifax, Experian and Transunion.  You have to be registered with all (3) to be a client to report.

Andrew,

Miami is a very expensive place to build/renovate in some cases it's worth looking at the total funds expected to be used and regroup. Have you thought about buying more 2-4 units just North of Miami like Cape Coral, Venice, Pinellas, Lee, or Citrus Counties? I ask because I am up here in Pinellas by the Gulf Beaches and our 2-4 Units run between $300K to $650K.

Miami 2-4 Units run between $850K to $1.8Million and the Taxes and Insurance premiums are higher. Plus the cost to renovate or build is almost 2-3 times more than other counties due to "Miami Money" costs. We have also been hit by huge insurance premium hikes due to the recent hurricanes and major losses.

Those premium hikes have caused a lot of investors to sell and when there is scared or stressed sellers it can cause a value drop to the market. I mention this because last thing you want to do as an investor is put money into a property and the values drop. Maybe buying more properties at a better price point is worth consideration.

Unless your properties are free and clear or mortgaged so low that the rents will recoup your building costs in 12-24 months by adding more sqft...

DJ,

Although the home has a lady bird deed it would still require you to assume the loan as a "Primary Home" in order to qualify under FHA. You cannot assume the loan under FHA with the intention to "rent" the home. If you can occupy the home as a primary you would not be able to buy another home under FHA.

You would either have to refinance the lady bird home into a conventional loan or buy the next home under Fannie Mae/Freddie Mac - if primary. FHA will also not allow you to close in a revocable trust as most lenders will enforce a "Due on Sale" clause.

FHA has a "100 mile rule" so you cannot use another FHA loan to house hack. Unless you can purchase the first home as primary and show you will be buying the next FHA home closer to work, or out of state.

There is also something called a "Gift of Equity" where you do not have to assume the loan you can use gifted equity for a down payment and closing costs. It's essentially the same as doing a refinance where you take over the family home and the equity acts as cash. The whole Lady bird/FHA thing can have some hiccups and going FHA for your parent's home will cause issues with you getting the next FHA home.

Instead do a gift of Equity going Fannie Mae 5% down (use the gift of equity) to cover and for any closing costs. You will have purchased the home under conventional guide lines and then have "No restrictions" on going FHA to buy the next home. You could also use the current home to pull out a HELOC for the DP of the next FHA home.

Make sure you are talking to an experienced Banker or Loan officer who has handled multiple "Gift of Equity" type transactions to avoid drawn out process or issues in underwriting.  Also I wanted to congratulate you on asking these questions up front to avoid issues.  I have seen many of buyers/investors "Not ask" and then look for help after a lender denied them or caused them lost time and money!

Mixed-use fairly simple need to ensure the percentage % of the commercial space versus residential is within guide lines.  Other than than if you have excellent credit its 25% down.

If it needs rehab work it will open up a can of worms if its "Subject to" and cannot pass appraisal/inspection.  Some renovations loans out there but the rates and prepays can be painful.  

 Good question, It does not say that specifically I am giving a better solution to the ability to use the loan program without issues.  There is a mileage requirement (typically 50 miles) and the  "Underwriters" use common sense that can and will question the intention of the second Home.  We can see the loans that you close on credit and the date it closed.  Most investors try and take advantage of the Primary Home, Secondary home program without concern.

When you buy too close in proximity and too soon in terms of sale date you trigger red flags.  If you purchased a second home in an a state like Florida on the East Coast, there is a reasonable explanation to buy on the West Coast or Jacksonville and then Cape Coral (Distance is key) but you need a reasonable explanation.  Typically the UW will ask for a letter of Explanation written to explain the reason.  

That letter will be placed in the file in case the file gets pulled for a QC or a Pre or Post Audit to detect mortgage fraud.  If you are trying to use the Second Home loophole you need to make sure you and your Banker/Loan Officer are on the same page.  You also have to make sure you do not use a loan officer that is new and has no seasoning.  That can cause you a denial and lost money on appraisals and other fee's if the loan is denied or cancelled.

If you have good credit above 740 and have 25%-30% to put down it's really not a difficult loan process. 8 Units typically will offer a 1.25% DSCR ratio which is required in most cases but the approval is going to be based on the rents. Buying out of state is fine you will only have an issue if you go with a lender with overlays or requires landlord seasoning.

They may question your ability to manage the property if you are out of state in terms of excessive mileage away. The fact that you travel for line work could satisfy a the UW's concerns or supply a letter of explanation.