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Finding Loans for Investment Property

by admin on December 6, 2009

(Be sure to read the Fannie Mae Does Investor Loans post before reading this.) To see how many lenders were willing to make loans on investment property, we called every mortgage lender in a town of 50,000 people. Our informal survey included the four biggest banks in the US. We told them we were full-time real estate investors with ten financed properties (the limit set by Fannie Mae), excellent credit, low debt ratio, more reserves than Fannie required, and we wanted to refinance several loans on rental properties.

Here is what we found: Out of twenty lenders, all but two said the limit was four financed properties and some said they wouldn’t do rentals at all, even if we only had four mortgages. For the ones who said the limit was four, we asked if they knew that Fannie Mae had raised the limit to ten in February 2009, they all said they thought Fannie’s limit was four. So we asked them to email their underwriter to confirm the higher limit, and all of them called back to say something like “You were right, their limit is ten. But it doesn’t matter, our limit is still four. Sorry!”

We did find two lenders that could do the loans. Both wanted a 1% origination fee plus normal closing costs (appraisal, title insurance, etc.) Only one could do Fannie Mae loan products like ARMs (including interest only), but they wanted 3.5 points for those and 2 points to do a normal 30 year fixed, rates on both around 5.5%. Both lenders had 70% LTVs. The Fannie Mae lender could only do purchase mortgages and refinances with no cash outs, and the limit of ten financed properties applied. The other lender could only do 30 year fixed rate mortgages, had rates around 6.8% to 7.3%, but cash-out refinances were allowed and they had no limit on the number of financed properties.

Their underwriting guidelines: For the Fannie Mae loans, minimum FICO score 720, full documentation (two years tax returns, bank statements, W-2s, pay stubs), six months of reserves (PITI) for all financed properties, and two years of rental history (with positive cash flow) on the tax returns. For the other lender, minimum FICO score 660, full documentation, three months of reserves (PITI) for all financed properties, and positive cash flow on the rentals. (Negative cash flow on one or more rentals might be OK if the positive cash flow from the other rentals was far greater than the negative amount.)

How can you find lenders to finance your investment property in Sacramento? First, ask other landlords and investors if they know of any “investor-friendly” lenders in your area. You will usually have better luck if you spend your time looking for a portfolio lender, which is a lender that keeps their loans instead of selling them. Contact all of the smaller banks and credit unions to ask if they know of any local portfolio lenders.

If you find a bank that says they can do investor loans, be sure to ask if they’re brokering the loan (underwriting it for another bank). If they are, you can usually save money by eliminating the middleman and dealing directly with the real portfolio lender. And that’s how you find lenders for your Sacramento investment property!

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