INVESTMENT LOANS
MORTGAGES Non Owner Occupied
There are so many ways to purchase or refinance real estate today. Investment loans (called non owner occupied) by lenders are far more expensive than they were four months ago. Fannie Mae and Freddie Mac (our government) pulled out of purchasing non owner occupied loans for many reasons.
At this point in time I expect this trend will continue a couple years.
I'm going to discuss the mortgage products out there today.
Investors are paying pricing adds or points to cover the risk a lender has who must either hold the loan for years until they find a buyer or portfolio them long term. It costs about seven thousand dollars to originate a mortgage with the hundreds of checks, many people who review the file, and costs for services. Lenders are charging 2.75-3 points (points are a percent of the loan amount) upfront to hedge in case the loan is paid off early which disrupts planning and costs the lender. The points today are in reality an upfront prepayment penalty.
There are MANY programs for investors to qualify. If your bank said no, it might be that they don't want to hold for the long term risk of keeping a lower rate mortgage against the rising tide of future higher rates. Or it might be they only have one set of rules with bank overlays. I'm going to describe what is available today starting with the lowest rate without actually quoting rates as they are a moving target, subject to your middle FICO score, vary by property type, loan to value, and qualifying back end debt to income ratio.
A full documentation loan that meets the county conventional loan amount is the cheapest. Borrowers need two years IRS taxes (2019 2020 today) -all returns personal, LLC, partnership, S-Corp; a year to date 2021 profit and or loss from CPA; bank statements all pages past 60 days; identification current; paychecks past 30 days; rental agreements if differ from taxes; mortgage bills; property insurance bills, HOA bills; w-2, 1099 or 1098 past two years; award letters for pension/social security; divorce papers if applies. Borrower's credit is pulled and middle lowest FICO applies to pricing. Back end ratio cannot exceed 43. 620 score middle minimum
Next product same as above but is called high balance loan which varies by county
Next product is FHA on 2-4 units same documentation above with 590 middle score
Next is one year IRS return plus all the assets and 2020/2021 income documentation above. 660 score middle score minimum
Next Bank statement programs. Either 24 or 12 months bank statements are provided; identification; mortgage bills; property insurance bills; HOA bills; deposits into ONE bank account are used, depends on end lender to calculate income there are four methods, call me... it's tricky Middle FICO 620
Next Asset Depletion loans. All liquid asset statements past two months; identification; FICO middle 680 this is for those who have checking/savings/401k/ IRA as excessive amounts. Asset depletion can be layered with some income documentation items that continue 36 months
Next Debt Service Ratio. Property is looked at as a stand alone source for qualifying. Rental income verified by appraiser/ survey/ payments are used against the proposed principle, interest, taxes, insurance and HOA
Next hard money/ portfolio. The property is looked at from the eyes of lender who may want to own subject with lots of equity.
Next seller financing and other ins and outs. Lots of variety
Many Bigger Pockets investors like to ask about HELOC's but they are extremely difficult to find today for investment properties. You need 720 middle FICO and they are full documentation. Today there are two places that will fund a HELOC on non owner occupied property. A HELOC can be changed, rescinded, closed, and is subject to ongoing equity and credit worthiness of the borrower. They have low start rates with 18% cap.
This post does not discuss vesting which also is another layer of qualifying. Loans to LLC's are always priced much higher, let's leave that topic for another post.
I hope this helps you find mortgage loans that fit your investor dreams!
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