All Forum Posts by: Jerry Padilla

FHA is a great product when you are able to use it......

There is a lot of criteria that must be met with FHA that many investors are not aware of.........

Many times, investors find this criteria out the hard way, when the loan is denied.

FHA Financing Allows A Maximum of 4 Financed Properties To qualify (Including investments) & subject!

This is an Owner Occupied Mortgage Product, Requiring You To Live In The Property For 1 Year!

The maximum mortgage amount for 3-4 unit properties is limited, so that the ratio of the monthly mortgage payment, divided by the monthly net rental income does not exceed 100%, regardless of the occupancy status. This is also taking into consideration, a 25% vacancy factor. (This poses a problem especially in high cost areas)

• To overcome this you may have to increase your down payment to allow for this ratio. The down payment will depend on the ratio for market rents and your mortgage.
• In high cost areas, you may only be able to go up to a duplex with an FHA Mortgage as this criteria, only applies to 3-4 units.
• FHA also limits you to a total of 7 units including subject property and all other rental property......... So if you start out with purchasing rental property, you may exceed the allowable number of total units to go the route of FHA.

• A common misconception that I frequently see; You can purchase with an FHA Mortgage, hold the property, and then refinance with conventional and repeat......... (If only it were that easy)
• FHA is not meant to be a cheap way for investors to get into financing with a low down payment. It is designed to get primary home buyers into a property with a low down payment.
• That being said; If you start out by purchasing a primary 4 unit with an FHA Mortgage (here is your 4 units towards the 7 max allowed) You put a little sweat equity into it over a year period, you then refinance with conventional and have a 75% LTV, with a conventional. You are already limited to 3 units or less. In addition,
• Underwriters are going to see that you are departing your primary residence. They are most likely, going to question why you are purchasing another multi-family residence as a primary residence, (especially if you are trying to go up in the number of units, maybe you could win if your new unit will be much larger than your previous unit) If you are going to now purchase a SFR, it isn't going to be much of a problem granted you meet the above criteria, as it appears you are moving from a MFR to a SFR and more of a potential permanent situation. FHA also limits you to a total of 7 units including subject property and all other rental property.
• The Only Exceptions To Qualifying For A Second FHA Mortgage At One Time!
• Relocation- Must be greater than 100 miles from current residence.
• Increase In Legal Dependents - The current property must no longer meet the family needs. The current departing residence is required to have an LTV of 75% as determined by current balance as well as a current appraisal.
• Vacating A Jointly Owned Property - The departing residence must be occupied by other owner with no intent of returning - such as divorce or legal separation.
• Non-Occupying Co-Borrower - If they are now going to be the primary occupying borrower, now.

Here is a list of some of the high cost areas;

These California cities are in the High Cost areas for 2015;

Los Angeles, Anaheim, Long Beach, San Jose, Sunnyvale, Santa Clara, San Francisco, Oakland, Hayward, Santa Barbara, Santa Maria, Santa Cruz, Watsonville

The CA counties are included in the high cost areas;

Alameda, Contra Costa, Los Angeles, Marin, Orange, San Benito, San Francisco, San Mateo, Santa Barbara, Santa Clara, Santa Cruz

These Colorado cities are in the High Cost areas for 2015;

Edwards, Glenwood Springs, Steamboat Springs, Breckinridge

The CO counties are included in the high cost areas;

Eagle, Garfield, Pitkin, Routt, San Miguel

Washington and Arlington - District of Columbia

These Hawaii cities are in the High Cost areas for 2015;

Kahului, Wailuku, Lahaina

The HI counties are included in the high cost areas;

Honolulu, Maui, Kalawao, Kauai

These Idaho cities are in the High Cost areas for 2015; Bailey, Hailey

The ID counties are included in the high cost areas; Blaine, Camas, Lincoln, Teton

The NY NJ PA counties are included in the high cost areas;

Bergen, Essex, Hudson, Hunterdon, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset, Sussex, Union, Bronx, Dutchess, Kings, Nassau, New York, Orange, Putnam, Queens, Richmond, Rockland, Suffolk, Westchester

These New York, New Jersey, Pennsylvania cities are in the High Cost areas for 2015;

Jersey City, Newark, New York

Elizabeth City in NC with counties of Camden, Pasquotank, Perquimans

In DC, VA, MD, WV - Washington, Arlington, and Alexandria

In MA - Vineyard Haven - Dukes and Nantucket

Always Feel Free To Reach Out With Questions. 

Thank you @Matthew Swisshelm and @Shawn Couch !

Here is a list of counties with increased conforming limits from 2015-2016

PDF List of Counties With Increased Conforming Limits for 2016

Here is a link with a list of the conforming loan limits for 2016

PDF List of Counties With Conforming Limits For 2016

Here is the site to look up FHA and Fannie Mae/Freddie Mac Loan Limits.

Look Up For FHA and Fannie Mae/Freddie Mac Limits For 2016

You can borrow for up to 10 conventional mortgages, down to a price of 10k, and up to confirming limits in your county. You have the option of a 15, 20 or 30 year term.

You can have an unlimited amount of mortgages and still obtain Primary Residence Financing.

Standard Conforming limits are below;

1 unit - $417,000

2 unit - $533,850

3 unit - $645,300

4 unit - $801,950

Maximum Conforming limits are below (If Your Area Qualifies, Please Use the Look Up Link Above to see where your location falls);

1 unit - $625,500

2 unit - $800,775

3 unit - $967,950

4 unit - $1,202,925

Anything above this limit, but below your specific counties conforming limit is considered high balance financing. There are different guidelines for both standard conforming limits and for high balance financing. Jumbo loans are for primary residence only and above conforming limits.

Standard Conforming Limit Financing

For A Fixed Rate Purchase, Primary properties, Mortgages 1-6;

• A SFR requires a LTV of 97%
• A Duplex requires a LTV of 85%
• A Triplex & Fourplex requires a LTV of 75%
• A minimum credit score of 620

For A Fixed Rate Purchase, Investment properties, Mortgages 1-6;

• A SFR requires a LTV of 85%
• A MFR requires a LTV of 75%
• A minimum credit score of 620

For A Fixed Rate Purchase, Investment properties, Mortgages 7-10;

• A SFR requires a LTV of 75%
• A MFR requires a LTV of 70%
• A minimum credit score of 620

High Balance Limit Financing (Within Conforming limit for individual county specific, & above standard conforming limit)

For A Fixed Rate Purchase, Primary properties, Mortgages 1-6;

• A SFR requires a LTV of 95%
• A Duplex requires a LTV of 85%
• A Triplex & Fourplex requires a LTV of 75%
• A minimum credit score of 620

For A Fixed Rate Purchase, Investment properties, Mortgaged properties 1-5 ONLY ALLOWED. You can not do a high balance loan on an investment property if you have greater than 5 mortgaged properties, including subject property!

• A SFR requires a LTV of 85%
• A MFR requires a LTV of 75%
• A minimum credit score of 620

Here are some answers to FAQ as well;

1. For all 1- to 4-unit investment property transactions.

Cash Reserves Required For Other Properties Owned by Investor;

Cash Reserve Requirements;

6 months Fannie Mae's Requirement for 1-4 Mortgaged Properties.

Fannie Mae's Requirements for 5-10 Mortgaged Investment Properties

Freddie Mac Requirements for 1-6 Mortgaged Properties.

These California cities are in the High Cost areas for 2015;

Los Angeles, Anaheim, Long Beach, San Jose, Sunnyvale, Santa Clara, San Francisco, Oakland, Hayward, Santa Barbara, Santa Maria, Santa Cruz, Watsonville

The CA counties are included in the high cost areas;

Alameda, Contra Costa, Los Angeles, Marin, Orange, San Benito, San Francisco, San Mateo, Santa Barbara, Santa Clara, Santa Cruz

These Colorado cities are in the High Cost areas for 2015;

Edwards, Glenwood Springs, Steamboat Springs, Breckinridge

The CO counties are included in the high cost areas;

Eagle, Garfield, Pitkin, Routt, San Miguel

Washington and Arlington - District of Columbia

These Hawaii cities are in the High Cost areas for 2015;

Kahului, Wailuku, Lahaina

The HI counties are included in the high cost areas;

Honolulu, Maui, Kalawao, Kauai

These Idaho cities are in the High Cost areas for 2015; Bailey, Hailey

The ID counties are included in the high cost areas; Blaine, Camas, Lincoln, Teton

The NY NJ PA counties are included in the high cost areas;

Bergen, Essex, Hudson, Hunterdon, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset, Sussex, Union, Bronx, Dutchess, Kings, Nassau, New York, Orange, Putnam, Queens, Richmond, Rockland, Suffolk, Westchester

These New York, New Jersey, Pennsylvania cities are in the High Cost areas for 2015;

Jersey City, Newark, New York

Elizabeth City in NC with counties of Camden, Pasquotank, Perquimans

In DC, VA, MD, WV - Washington, Arlington, and Alexandria

In MA - Vineyard Haven - Dukes and Nantucket

Fannie Mae/Freddie Mac High Cost are limits are the same as FHA for 2015. VA is the same as FHA for 2015

FHA and VA are owner occupied and have to be mortgage 1-4. Conventional can be both owner occupied or investment with up to 10 mortgages.

For more information on high cost area, VA Financing - please see one of my other blogs;

VA High Cost Area Financing

For more information on high cost area, FHA Financing - please see one of my other blogs;

FHA High Cost Area Financing

@Iris L.

You can do up to a maximum of 10 conventional mortgaged properties. So as long as you will not surpass this limit, you can go the route of conventional. For an investment property duplex, you are required to put down 25% and then there are closing costs as well........ You would need more cash on hand to go the route of conventional. A SFR only requires 15% down.

Purchasing With A VA Loan Criteria

Service Requirements For Eligibility

Obtaining A Certificate of Eligibility

Explanation of Entitlement and Second Tier Entitlement

VA Loan Limits are the same as Conforming Loan Limits for 2016

ELIGIBLE PROPERTY TYPES

1 – 4-unit properties

Condominiums—per VA guidelines and must be on VA approved list.

INCOME

• In order to be considered for approval of a VA home loan, income stability is a mandatory requirement
• Veterans recently separated from the service must have a minimum 2 year work history in the same line of work that he/she did in the service. The veteran should be in his/her most recent job for at least 12 months.
• Rental Income *** Rental income verified as stable and reliable may be included in effective income. Must have prior experience managing rental units.
• Rental Income *** Multi Unit Property Securing the VA Loan (2-4 units) cash reserves totaling at least 6 months PITI
• 75% of verified Rental history, or the appraisers opinion of market rent
• Rental Income*** Property the applicant occupied prior to the new VA Loan, use the prospective rental income to offset the mortgage payment only It may only be used to offset the mortgage payment on the departed residence.
• If no rental income is needed to support PITI - no cash reserves needed!

MAXIMUM FINANCED PROPERTIES

The maximum number of financed properties that the borrower can have is 4. However, the borrower must still have remaining VA eligibility for a VA loan.

GIFTS

A gift letter, source of funds and evidence of transfer of gift funds is required.

MAXIMUM LTV

100% for Purchase transactions
100% for Refinance transactions
100% for IRRRL Refinance transactions

MAXIMUM LOAN AMOUNTS, MINIMUM FICO SCORE AND RESERVE REQUIREMENTS

• Base Loan Amount - Up to the applicable county loan limit for the subject property - including high cost counties

Minimum FICO - 600

Required Reserves - none

• If Base Loan Amount - Above County Loan Limit - $750,000

Minimum FICO - 640

Required Reserves - 2 Months PITI

• If Base Loan Amount - $750,001 - $1,000,000

Minimum FICO - 680

Required Reserves - 4 Months PITI

• If Base Loan Amount - $1,000,001 - $1,200,000

Minimum FICO - 720

Required Reserves - 6 Months PITI

OCCUPANCY

Owner-occupied, primary residences are allowed. Second homes or investment properties are not allowed.

RESERVE REQUIREMENTS
RESERVES – must be liquid, readily accessible funds (non - retirement ) Cash reserves are required under the following circumstances:

1. • If the borrower uses rental income to qualify and the subject property is 2-4 units, six (6) months cash reserves
   • If the borrower uses rental income from other rental property(s), three (3) months cash reserves must be documented.
   • Please refer to “Maximum Loan Amounts, Minimum FICO, and Reserve Requirements” section for any additional restrictions due to loan size.

SELLER CONCESSIONS

Up to 4% of the purchase price.

Interest Rate Reduction Refinance Loan for Veterans.

The VA Interest Rate Reduction Refinance Loan (IRRRL) lowers your interest rate by refinancing your existing VA loan. By reducing your interest rate, your monthly mortgage payment should decrease. You can also refinance an adjustable rate mortgage (ARM) into a fixed rate mortgage.

IRRRL Info

• No appraisal or credit underwriting package is required when applying for an IRRRL.
• An IRRRL may be done with "no money out of pocket" by including all costs in the new loan or by making the new loan at an interest rate high enough to enable the lender to pay the costs.
• When refinancing from an existing VA ARM loan to a fixed rate loan, the interest rate may increase.
• No CASH OUT with IRRRL
• 6 month mortgage history required.
• No credit underwriting is required as long as....... Existing loan must not be past due more than 30 days, or the payment doesn't increase by more than 20% if reducing term.
• Credit pulled with a required score of 600.
• May not extend term of the refinance more than 10 years from original term.

IRRRL Refinancing & Cash Out Refinancing A VA Loan

• Must have an existing lien to cash out
• There must be no late payments for the previous 12 months
• Typically allow 90% Value for Cash Out
• 100% Value of;
• Buying out spouse - verified with court order
• Consolidating existing debt & reducing monthly payments
• Payment of any property related liens
• Use for property improvement - requires contractor bid
• 100% value -$500 or less cash at closing to be given
• "Cash Out Letter" explaining the use of the funds.

Here are some of the locations with the highest density of Veterans; Virginia Beach, Norfolk, Riverside, San Bernardino, San Diego, Carlsbad, Las Vegas, Dallas, San Antonio, Fort Worth, Arlington, Jacksonville, Richmond, Memphis, Tucson, Mesa, Albuquerque, Washington DC, Seattle, Arlington, Tampa, Baltimore, Houston, Atlanta, Ventura, Omaha, Bakersfield, Dayton, Columbia, Colorado Springs, Aurora, Oklahoma City, Honolulu, Denver, El Paso, Kansas City, Wichita, Louisville,Cleveland, Raleigh, Pittsburg, Tulsa, Minneapolis, Charleston are all area's with a high population of veterans.

Common Misconceptions with conventional investor financing .......... in the real estate world ...... And the truths.

Misconception; Small banks and local lenders are always the best route to go.

Truth; This isn't always the case. Many times these are portfolio lenders and they work well when a property or investor doesn't qualify for conventional financing. In my experience, these lenders many times have higher fee's, or adjustable rate mortgages, compared to traditional conventional rates and fee's.

Misconception; Only 4 mortgaged properties are allowed with conventional financing.

Truth; Conventional financing allows you to go up to 10 mortgaged properties. Not many lenders allow this maximum of 10 financed properties. It is an overlay.

Misconception; The maximum number of financed properties goes according to number of mortgages.

Truth; This limit of 10, goes by the amount of mortgaged properties. All liens on one individual property count as one mortgaged property, even if there is multiple mortgages or liens.

Misconception; Two years of rental income is necessary to include rental income on current properties and future purchases.

Truth; A mortgage history is required to count rental income. Tax returns are used if an investor has owned the property long enough. If the property is too new than 75% of lease agreements or market rent determined by the appraiser (whichever is less) is used.

HELOC vs Cash Out refinance

Misconception; A HELOC is the better route of financing as there is a higher LTV and no closing costs.

Truth; Although a HELOC is better in the short term, the interest rate is variable. 5-10-20 years down the road when rates go up, this could make a drastic difference. That short term savings in closing costs, could end up costing a lot more in interest down the road.

Misconception; Delayed financing is only up to a maximum of 70% of the purchase price.

Truth; Delayed financing is up to a maximum of purchase price plus closing costs - So 100% of the initial investment. It still goes based on appraised value, you are just capped to this maximum, prior to 6 months. This is also an underwriter's discretion to determine the value. Purchasing below market value and improvements are a way to prove this.

Misconception; No sub $50k financing, $30k, $20k. You must go the route of hard money or private money with this purchase point.

Truth; You can go the route of conventional financing with these small mortgage amounts. This is a common overlay of many lenders.

Misconception; It is always better to go the route of a Mortgage broker versus loan officer at an individual branch.

Truth; Although mortgage brokers attempt to find the best rates, many times their fees are higher. Interest rates are not that drastic from lender to lender for conventional. You are getting a short term service with a broker. Developing a relationship with an individual loan officer will give you the consistent customer service you need for the life of your loan. An individual loan officer many times has less overlays than the broker does. A broker wants to shop you out to qualify with several lenders so they have more overlays or requirements. You may end up with a higher down payment, or not being able to count rental income without a 2 year history.

Pre-approval vs pre-qualification

Misconception; They are used interchangeably.

Truth; A pre-qualification is done by a loan officer. A pre-approval is done by underwriting.

Misconceptions; You can get into a house with no money down. Subordinate financing doesn't work with conventional. There is a cap on LTV's that are the same as the down payment requirements. I see all sorts of investors looking for low down payment options, these are just not the case.

Truth; An Investor SFR requires a 15% down payment. A MFR requires a 25% down payment. This is the cap for investor financing and subordinate financing and second mortgages.

Misconception; Rate shopping is the best route to go when looking for a lender.

Truth; A loan officer (not just the lender) is very experienced working with investors is best. A loan officer not experienced with investors makes every mistake possible down the line, including many times resulting in a loan not closing. Investor financing is its own world. The do's and don'ts and guidelines must be known very well to reach closing.

Here is why:

• Primary mortgage purchase financing and refinancing is easy and simple, typically. It is what a majority of loan officers focus on. Therefore, they don't know the guidelines to cash out financing, investor financing, delayed financing and all the other methods. Mistakes are made and these above misconceptions are taught! Mistakes are made with seasoning periods, down payments and most of all calculating income!
• The experience of the loan officer is more important than a loan officer that can provide a lower rate. I have seen wasted weeks of time and money for appraisals, inspections, etc with clients who first went to other lenders and weren't informed the proper information, just to find out that their deal won't close! All because their lender didn't know the proper guidelines for investor financing.
• With investor financing....... A loan officer experienced in investor financing knows when NOT to give up on the deal and knows the proper way to "sell"

That better rate, just may have cost you a deal and a lot more money!

Questions and comments appreciated! 

Start The Mortgage Process With Jerry Padilla

At MB Financial we are a small local bank on a National level. We as a Lender offer conventional financing, with very little overlays, and go above and beyond for our clients. We have some of the lowest fees and rates in the industry. I personally am an investor myself and can relate to your financing needs.

• A credit tool to assist with improving your (or your clients) credit score to qualify for financing (Free of Charge)
• Investor loans - Financing for up to 10 investment properties, with Conventional Financing, backed by either Fannie Mae, or Freddie Mac
• Conventional or Refinance
• Cash Out Financing on the first six investment property's and a credit score as low as 620.
• Delayed financing with up to ten mortgages
• Credit scores down to 600 on FHA/VA/USDA loans - primary residence only
• National lender!
• Streamline refinance programs for FHA/VA/Conventional - Save money with less documentation
• Low rates & Low closing costs
• Jumbo Loans, to Sub $100k loans to Sub $50k loans to Sub $30k loans
• I personally am available extended hours
• Opportunity to increase your business to have more capital available for purchasing and rehabbing
• Lender credit available for purchases
• Automated approval system

Our current bank fee's (subject to change)

$995 admin fee

$9 flood cert

$37.50 credit pull

All other fees are standard and determined by our automated system

Sub $50k loans - there may be an origination charge or points possibly and is determined by the system when the loan is locked.

Rates fluctuate daily and are determined by credit score, and other factors.

STATES WE LEND IN:
Alabama,
Arkansas,
Arizona,
California,
Colorado,
Connecticut,
Delaware,
District of Columbia,
Florida,
Georgia,
Hawaii,
Idaho,
Illinois,
Indiana,
Kansas,
Kentucky,
Louisiana,
Maine,
Maryland,
Massachusetts,
Michigan,
Minnesota,
Missouri,
Nebraska,
Nevada,
New Hampshire,
New Jersey,
New Mexico,
New York,
North Carolina,
North Dakota,
Ohio,
Oklahoma,
Oregon,
Pennsylvania,
Rhode Island,
South Dakota,

South Carolina,
Tennessee,
Texas,
Utah,
Vermont,
Virginia,
Washington,
Wisconsin

Thanks  @Mark Updegraff

@JD DiGiacomandrea - Please let me know if i can answer any questions for you

@Ashley Tamayo

Welcome to the site! It is a great way to connect with others and grow your business. @DeMarrius Payne If you decide to relocate to San Diego @Kevin Fox is a knowledgeable agent in the area.

@Ade Tuyo

@Joseph Young

If you want to find properties where the numbers work the best reach out to @Kevin Fox I have personally seen how he finds properties that work for clients first hand. He is an expert in the field of San Diego investing. 

@Alex Perez

You can get a 30 year fixed interest rate loan on sub $50k properties, with conventional financing, as long as the properties are in livable condition.