All Forum Posts by: Paul Defngin

I always tell all my clients, get your HELOC, in place before you ever need it, and while you are living in your home.

You get better terms when the line of credit / equity is against your primary residence than an investment. You don’t use, you don’t pay but when you need it, it will be readily accessible.

That said, there are still some lenders that will extend to you a HELOC on your investment property. I would do a search on this forum for this subject has come up many times.

Look to the most recent ones that comes up, then call those lenders and see if they currently still offer HELOC's on investment properties.

Quote from @Kristi K.:

We had a closing date of Dec 1st 2022. The buyer was "pre-approved" by this lender. They asked for a 3 week extension which was the first red flag. I amended the contract for a Dec 23rd closing. On the evening of the 22nd my buyer gets a call from the loan officer and is told he has left the company but don't worry, it will be ok. On the 23rd I contact corporate headquarters of this lender and they tell me "Loan Officer" no longer works for the company and the loan was denied by this lender. They couldn't give me details since I'm just the seller. That's the last we ever heard from the loan officer that strung us all along for the last several months. The appraisal came in exactly where we needed it to be. The buyer had their downpayment ready, was supposedly pre-approved, I let them move in at Thanksgiving, and at the last minute we get screwed over. Luckily I used cash to remodel this house and get it ready to sell so I'm not under pressure for hard money loans or anything. My personal mortgage company is now involved and they say they can use the same appraisal so life is good.

Lot of lessons learned on this one......... the hard way!  

Thanks for letting me vent! 

Goodness gracious. I’m sorry that you and the buyers had to go through this. 

Quote from @Ramandeep Sidhu:

The mortgage approval process for purchasing a second home as a personal residence while keeping your current home as a rental property can be somewhat complex. Lenders will typically consider both mortgages when evaluating your debt-to-income ratio, and the down payment requirements for a second home may be higher than for a primary residence. However, if you intend to live in the new home as your primary residence and rent out your current home, you may be able to qualify for owner-occupant financing. It may also be easier to obtain financing if you have already moved out of your current home and have a renter in place. It is important to carefully consider your financial situation and work with a lender who has experience with this type of scenario to ensure that you are able to obtain the financing you need.

To add to what @Ramandeep Sidhu had eloquently stated, if you are converting your primary into a rental and buying another primary home, the vacating home mortgage will not count towards your debt to income ratio if you have a signed lease to offset that mortgage payment. 

FNMA only requires that you have that lease in place, however, some lenders will have overlays that require you to provide receipt and proof of 1st months rent or security deposit, or a combination of both. 

Any positive can be added back as extra income to qualify ONLY if you have landlord experience. If not, then the lease adjusted for standard vacancy rate, can be used to just offset the mortgage for the property being vacated, and converted into a rental property.

Quote from @James P. Malone:

I have been using traditional commercial loans (i.e. 20% down, 20 year amortization) to finance our real estate purchases through a credit union.  The lender has been a good partner but I am looking for potential alternative mortgage options or longer amortization terms given the current interest rates on the commercial loans.  I'm sure I'm not the only one that has encountered this situation and I'm looking for any suggestions / advice.  Should I look into an SBA loan or try to find a porfolio lender that may be able to offer different terms? 

Look into DSCR type of loans when speaking to other lenders. 30 years amortization is the norm. That said, they usually come with slightly higher interest rates but it shouldn't be to far off then a standard conventional interest rate in the current market.

Most will also allow for investment properties to be taken in the name of the LLC.

Good luck. 

First thing, is I would lean on your experience of renting to Section 8. Your story, your success and, of course, the challenges you faced, encountered, and how you overcame them.

In my honest opinion, there's nothing better than your own experience. Have a webinar, Eventbrite, or in person event, where you invite local or out of State landlords to come learn more about the things that worked for you. Have a theme for your event. Peel back the curtain and share those things that you serve, be it the the property owner or the potential tenant. This way those property owners can relate too. Do it consistently, even if only one or two person shows, and brand it as the expert in that space

Then give them more info about how the program works and help alleviate their fears or misconceptions they may have about the program, and the people who participate in it.

Offer to also be an advocate for both parties to assure the landlords, (if that is possible, I don't know, not really my space) that they will be able to have open communication with potential tenant. It's important that the landlords that you are representing or approaching to consider renting to the potential tenants know that they can communicate openly and honestly with those potential tentants.

Emphasize the protections provided they Fair Housing Act. Depending on the property's location, Section 8 voucher holders are considered protected class  (***in some places*** ), and cannot be discriminated against based on their income, including housing vouchers. And if they do, they could face legal action.

Offer support and assistance. If a landlord is concerned about the process of navigating the paperwork and requirements, you can offer to provide assistance and also information about local housing agencies and advocacy groups that can provide additional support.

Teach property owners how to understand terms of the Section 8 contract and what is expected of them as a participating landlord. Educate them about the benefits of accepting Section 8 vouchers: Section 8 vouchers can provide a reliable source of income for landlords, as the voucher program pays a portion of the rent directly to the landlord on behalf of the tenant. This can help to ensure that rent is paid on time and in full. Additionally, the Section 8 program screens tenants, which can help to reduce the risk of problems such as unpaid rent or property damage. Not always the case but this is where your story and experience makes an impactful difference.

Address any specific concerns the landlord may have. Work with them to address these concerns and provide reassuarnce that the potential tenant (client) that you have will held to the same standards as any other tenant.

Get to know the potential tenants, which you noted, you have a long waiting list of clients seeking rentals and are desperate. Property owners should take the time to get to know the potential tenant and learn about their rental history and any other relevant information, and if you know your clients; you will not only be an advocate for them, but in some way be also an advocate for the property owners - by bringing the two parties together successfully, which not only benefit them both financially, but also serve housing needs of those in that need them the most.

Build trust and understanding. Good luck.  

Quote from @Brad Cook:

That is one thing I am learning as I do more research and ask more questions. I know it's pretty rough right now for the most part, and if I can make it happen when it's rough times, I should be able to do well when things look up.

That’s the way to do it. When others are fearful, now is the perfect opportunity for you. I’m rooting for you. 

Here’s the thing, if you know a lot of people or have no problem getting to meet new people, you will absolutely be fine. It won’t be overnight but the more people you know and the more they know what you do, you’ll be just fine. 

First, do sign up for some training. Xinnix have some great training. Invest in yourself. 

After you take that then get your NMLS license. Start with only the State you reside. There’s plenty business out there and especially as some are leaving the industry. 

Talk to everyone you know about your new endeavor. Shake as many hands. Go to as many events. Brand yourself. People will do business with those that they like and trust. You got this. 

Your responsibility is to solve a problem, and what better way to do it then to give money to people, who needs it? 

Wishing you all the best and don’t hesitate to reach out if you have any questions. 

Quote from @Chris Wilson:

@Dominique Guinnane From my personal perspective as a seller I don't care if the offer is below asking or near asking with a seller paid buydown. The additional costs for commissions and costs are negligible in the bigger picture and if you are looking at capital gains tax it's a deductible sales expense which more than offsets the additional costs. I have accepted an offer with a buydown and am in contract now and my response to my realtor about the offer was simply that I was wondering when that was going to happen. Prices are high and I don't know if we could afford to buy the house at these rates now even when we were working at good paying jobs. I get that the rates are at historic norms but the prices aren't. 

Do the same. Offer with the seller of the home you are looking into to either do the 3-2-1 buy down or 2-1 options or permanent buy down. For you, if you’re making great money and you’ve already sold your home, I imagine that you will be looking at top home prices, which makes it even more sense to do one of these strategies, because most higher priced homes are the ones comes with higher mortgages and a 1/4 reduction in rate makes an impactful savings. So, imagine if it’s a 1% or more reduced interest rate and what that would do for your payment. 

Most agents and buyers thinking that dropping the price is the better option forgets that dropping the price means you are effectively setting the comp for that neighborhood. Next person that buys in that neighborhood will use that comp for when they make their offer. Would they offer more than what your home went for or less, knowing that you bought yours for less? And even if they offer more, remember that appraisers look backwards first when completing an appraisal. So when an appraiser looks at the data, if your home is the most recent sale then they will use that to adjust for their appraisal report which shows value is dropping. 

Personally, I would rather the next buyer who buys in the neighborhood pays more than what I paid because that means my value went up, not down. 

I’ve also seen some misinformation - that the buyer pays for the buy down and therefore it doesn’t make sense. That is not the case, because the seller or builder is paying for it in exchange of not dropping the price. 

Moreover, should you refinance,  as the experts are expecting that rates will go down in the next 24-36 months, before the temp buy down is up, if that is the option you took then any of those funds collected from the seller / builder, and held in escrow to subsidize your mortgage payment will be applied as principal curtailment towards your mortgage balance.  Now, you effectively have a lower mortgage balance and lower interest rates, then and even more lower monthly payment, and property value either increased or at the very least stable, not declining. 

Focus on the monthly mortgage payment and what your monthly budget can afford. Then seek out a local expert lender, and go over your options. 

Congratulations on your sale and good luck.

Quote from @John McKee:

I just got a quote from a mortgage banker of 5.65 for 10 years/25 year amortization for a commercial property.  Seems like a pretty good deal, although the payments are all interest.  This is a property that is paid for and has a tenant with 8 years left on the lease.  What are you guys seeing out there in the marketplace.?

I’d say that’s a pretty good deal. Interest only doesn’t mean you can’t pay towards principal, right? So, I think that is a pretty good IMHO. 

Absolutely. I agree with most of what everyone have said; plus it is is pretty easy to determine what that it is from a preapproval standpoint since your income is mandated by Congress and is public record. So all you will need really upfront is to let your lender know your rank and where you’ll be PCS too.

If you have your PCS orders already that makes it even easier but the above should suffice for preapproval purposes. 

Happy holidays and thank you for your service. 

Quote from @Michael Plante:

When selling a flip I do buy down and/or money towards closing VS lowering the price 

This keeps the price higher so when I sell another flip in that geographical area, the appraiser  uses the higher sales price as a comp

For an agent it’s better as the seller pays a slightly higher commission 

 This^^^.  Gold!