All Forum Posts by: Julee Felsman

@Jimmell J Swan I second Andrew's notion... financing the property in your own name will give you access to far more loan options. 

and if it's important to you to put your title in an LLC (my partner and I have each of our rentals in its own LLC and an umbrella policy) (we're paranoid like that), it is possible to purchase a property in your name and then transfer to an LLC -- with your lender's knowledge and without triggering a due on sale clause. 

Thanks for the shout-out @William Sing! :)

@Kenneth Honer The issue you're running into is one that is a common battle house-hackers face... convincing an underwriter that you really intend to occupy the property. This matters because loan terms are more generous (less down, lower rates) for owner-occupied properties, so an unscrupulous borrower has an incentive to lie about where they plan to live to secure more favorable financing. 

Moving from a rental to a home you own (SFR or plex) or moving from a smaller home to a bigger home is accepted as the norm. But downsizing or moving from a SFR to a plex are viewed as possible red flags for occupancy fraud. Fannie Mae calls it "downgrading" your residence (THIS LINK will take you to a Fannie Mae document of common red flags for mortgage fraud.)

A red flag for fraud is not reason to deny your loan... it's just a red flag. The underwriter is on alert and will have questions related to your intended occupancy. It is up to you to answer those questions. In my experience it's best to answer those questions ahead of time. Once an underwriter thinks they've discovered something they think you are trying to sneak past them, they are like a dog with a bone...  you'll have a heck of a time getting them to change their mind. I love our underwriters, but I swear they can be like a bunch of conspiracy theories. 

It's your job -- with the help of your loan officer -- to explain your intentions, lower the red flag and make your plans make sense. Unfortunately just saying "I'm a house-hacker and want to buy more property using an owner-occupied loan" is not an answer that will fly all buy itself. 

This is just one loan officer's opinion, but I don't think it's a bad thing to say that you want to live in a multi-family to help keep your living expenses low or that you believe in keeping real estate that you've purchased, rather then selling it, as part of your long-term financial plan. 

But to have success when you know your plans are going to make an underwriter skeptical, you want to try and find some additional reasons that are more "traditional" in an underwriter's eyes. That's where those "make sense" requests you are getting like moving closer to work or a better school district come from. But if you're living in a 7 bedroom space with a ton of roommates, maybe getting into something smaller where you have more privacy and don't have to argue about who's dirty dishes are on the counter. You just need to sell the move in a letter to the underwriter that they'll buy. 

If all else fails you may be able to add some credibility to your occupancy plans by moving out of your current space and renting an apartment. You are going to need to rent out the space you're in anyway... right?

If you are living in a modest apartment, shopping for a place to buy and move into looks more "normal". Not to say you won't still get questions. I just had to escalate a file and fight for a client moving from an apartment he's renting into an ADU on the property he's buying (main house has tenants in it). He owns five other rentals (many of which he lived in), so the underwriter's kneejerk reaction was to question occupancy... but we got there and that loan is approved now.

Topic near and dear to my heart as I'm both a loan officer and an former house-hacker. I moved from one duplex to another years ago. Even though I was in the industry  (or maybe because I was, now that I think about it... << insert pensive face emoji here >>), I had to fight this battle myself. 

And when it comes to loan options, a few notes on guidelines:

The minimum down payment on a owner-occupied duplex with Fannie and Freddie (conventional conforming loan) is 15%. 

Freddie Mac has a program called Home Possible that allows as little as 5% down on duplex, but it can be a tough box to fit into as your qualifying income can't be higher than 80% of the median income for your area.

FHA will allow a second concurrent FHA loan, but only under special exceptions: if your family size has changed and you need more space or if you are relocating over 100 miles form your current residence due to work.

There are a variety of portfolio programs out there that offer other options. 10%, 5% or even 3.5% conventional loan options exist.

Hope that helps! 

@Aaron Akins DTI is generally going to be capped at 43% or 45% for more jumbo loans. A very few go higher, but at 10% down on a second home, 43% is a good number to plan around.

Hi @Trevor F.... I can't think of any benefit to getting a conventional loan and then refinancing to a blanket mortgage. Fewer loans = fewer loan costs. 

@Trevor F.  I would probably try to find a local bank that will finance them, in bulk, using a commercial loan. I've always called a mortgage secured to more than one property a "blanket" mortgage.

I'm a residential lender, so I also want to comment on this part of your initial post: 

I don't want to use my conventional slots.

When financing a second home or investment property conventional conforming (Fannie/Freddie) guidelines allow you to have up to 10 financed 1- to 4-unit residential properties. Under this guideline, lenders tally properties, not loans (and not doors). Let's say you own your home with a mortgage and package up 9 single-family rentals under one commercial loan -- you may only have 2 loans, but you have 10 financed residential properties. 

If you want to preserve your conventional conforming loans for other transactions, I would suggest (if you've not already) forming an LLC, transferring ownership to the LLC, sign for the new commercial blanket mortgage as a member of the LLC.

A really finnicky underwriter might read the promissory note and, if you are personally obligated on the loan, still count the properties as part of your 10 max. In the real world, I've not seen underwriters split hairs in that way. 

As added insurance, I would recommend filing a separate tax return (probably a 1065 partnership return) for the LLC, even if it's a single-member and not technically required to file a tax return. You want to create as much of a separation between you and the LLC as possible.

When you apply for another residential loan for a rental or second home, you'll be able to show that the properties are owned by an LLC with financing in the name of the LLC and an underwriter should excluded from your 10 loan limit. 

You can read up on the actual guidelines HERE if you want further clarification.

 Good luck with your search for a good lending source!

@John Fernald Take @Tyler Combs up on that offer... he's an amazing wealth of knowledge!

@John Fernald Welcome to the Portland real estate community! 

@Chace Fraser is so right about the crew at Investor Lab. They have built an amazing community. The opportunities to network and for education are limitless. 

eXp's mentorship program is a great way to learn the ropes too. I've got a friend who's been mentoring new agents and helping her mentees get off to a running start!

If you find yourself with any lending questions, please feel free to hit me up. I'm a Portland-based loan officer and also a real estate investor.

If you're focusing on the tech sector and wind up working with folks who are contractors like you were, there are some idiosyncrasies to aligning that style of employment with lending rules -- I can share some of the guidelines if you'd like. Not your job, but it's good to know what a lender's questions and requirements will for your target demographic.  

And don't forget to let all of your veteran friends know about your new career! Not only do most of them likely have access to the amazing Federal VA home loan, but Oregon also has a terrific State VA loan that is a lesser known but a great option for certain Veterans. (And I too, thank you for your service to our country!) :)

Some notes from the front line at one of the bigger lenders:

I work for Guaranteed Rate. We're a large (top 5-ish) non-bank mortgage lender. We have not stopped offering loans on second homes and investment properties. We also have not added any pricing adjustors or extra bumps to rate (yet anyway).

Our head of capital markets shared some information this week that I found interesting -- and heartening. For starters he confirmed that we are, indeed, over the 7% threshold -- as are, from his account, nearly all lenders. 

Regardless, his plan is to stay the course and not throttle funding loans secured to investment properties and second homes. He'll likely continue to sell all of our second home production to Fannie/Freddie. He'll sell as much of our investment property production to Fannie/Freddie as he can. 

When we have excess investment property loan production (over our 7% quota) (which we will), he will take pools of loans to the non-agency securitization market. 

Translation: We'll be selling bonds on the secondary market that are secured to mortgages underwritten to Fannie/Freddie guidelines but not sold to Fannie/Freddie. Sounds like he's planning our first securitization of investment property loans in May.

For some context, lots of loans fall into the non-agency category and are securitized this way: Jumbo loans, non-QM loans, loans with non-traditional income documents, etc. 

He is trying not to change our pricing, but indicated that eventually we may have to start thinking of pricing for investment property loans as following the demand for non-agency bonds. 

Where that gets interesting is that sometimes the pricing for non-agency loans is better than that for Fannie/Freddie loans. A couple of years ago, I was able to get clients a slightly better interest rate on some loan scenarios by having them borrow $1 more than the Fannie/Freddie loan limit. 

In fact, I'm currently helping a long-time client refinancing an investment 4plex to a 20 year loan on a non-agency program. The rate was significantly better than what we could get on any Fannie/Freddie product when we locked in her rate -- about a month ago before the FHFA made these changes.

Of course other times the demand dries up and pricing for non-agency loans get much worse/hard to come by. Last March, when COVID hit was an extreme example of this, but the appetite for mortgage bonds as an investment ebbs and flows all the time.

So anyway... it's kind of interesting and definitely not a doom and gloom scenario. 

I should add that only a handful of lenders will have the ability to employ this strategy (scale, capital markets know-how, etc). Our capital markets guy feels this will offer us a competitive advantage in the investment financing space. That's a-okay with me... :)

@Balin Jessip I 100% recommend getting pre-approved before you begin your search. You'll need a pre-approval letter for your offer to be taken seriously and getting pre-approved will also give you an idea of the price range in which you should be shopping.

If you go the route of a 203k, there are a lot of details you'll have to work out after your offer is accepted, but the basic framework and overall budget should be worked out ahead of time.

Incidentally for a 203k I always talk to my clients in terms of their "acquisition cost" which is an aggregate of the price, renovation budget and the contingency fund (usually 10% of the contractor's bid). The renovation budget will include both the labor and material the contractor quotes and the "soft" costs -- permits, engineering, architectural, etc (as applicable).

You'll be well-serviced by connecting with a contractor and a HUD-approved 203k consultant early on as well. That can speed the process immensely.

@Balin Jessip Congrats and welcome from another fellow Colorado to Oregon transplant! (Grew up in Denver and Estes Park... landed in OR in 1994.) (I guess I'm old.) :)

@Brad Hammond's Master Class! He's going to drop some knowledge. 

If you have questions on traditional lending options, I'm happy to be a resource!