Are you a real estate investor? If so, you’re about to uncover the ultimate loan which consists of the lowest down payment requirements (and possibly, even no money down at all), a loan where the lender even provides you with the money for renovations or repairs, the lowest possible interest rates, a thirty-year fixed amortization which applies to long-term rentals, housing flips, and primary residences. Of course, since this is a conventional mortgage, not everyone will qualify for it; however, even if you aren’t the best current loan candidate at this stage in your financial life, you’ll still want to read on. This will still pertain to you, as even if you are flipping properties, you can still introduce this information to prospective buyers of the property you are working on.
Due to the fact that all-time lows have been hit regarding inventory levels, now is the best time in American real estate history for this loan to be utilized. Of course, demand is so high that many buyers are settling for run-down, fixer-uppers, as there is barely anything out there to buy. The following video is going to shed light on how you can get your dream-deals by using this amazing loan.
Meanwhile, the demand is huge so many Buyers are now willing to drop their expectations and settle for buying beat up, dilapidated houses because there is simply nothing else out there for them to buy! Light bulbs will probably go off in your head when you watch this video because this loan could allow you to do deals you never thought possible. The absolute best loan for real estate investors is The Fannie Mae Home Style Renovation Mortgage. The reasons why are that the loan allows for:
Fannie Mae purchases this loan on the secondary mortgage market. What essentially happens is that several different banking institutions and mortgage brokers can originate the loan, and then they sell it to Fannie Mae. This loan provides an incremental amount of flexibility to real estate investors, as it will provide the money needed for renovations. They then put that money into a reserve and over a specific amount of time, the money gets drawn out. Investors are allowed the opportunity to either hire contractors or do the work themselves.
Low Interest Rates
Currently, interest rates are 4%. With this loan, the interest rates will be the same as this established rate. The other ability this loan offers is a thirty-year fixed rate loan. Keep in mind that while Hard Money loans will give you the money needed to renovate an investment property, you can expect the interest rates to be between 10-12%. However, as hard money loans aren’t based on a specific deal in its own right, they are often a better bet for those with less-than-stellar credit.
Low Down Payments
If you are looking for a way to get a lower down payment, alternative routes are to either move into the property as your primary residence, or use another program through separate organizations. Of course, there are also other options, yet each depends on the availability of programs in your local area.
Keep in mind that while it is possible to qualify for a zero-percent down payment on a residential loan, it isn’t always the greatest idea. For example, if you own a property right now after paying off the mortgage, you could cash flow nicely by turning that same property into a rental. Afterward, you could find a deal on the market, or even off the market, and purchase it with no money down as your new primary residence.
Many people don’t realize that our tax structure as it stands allows you to re-sell a primary residence property every 2 years with tax-free gains. Meaning, you can buy a new house, renovate it, live there, and re-sell it in two years. This means any profit you make from the home is yours, tax-free.
Know that if your plan is to obtain a Fannie Mae Home Style Renovation Mortgage on an investment property, you can expect to pay a higher down payment; sometimes almost as much as 15% down. Though, this number is still much lower than the usual 20-30% down payment required on most real estate investor loans.
Another advantage of this type of loan for investors is the flexibility it provides regarding the types of properties it can be used for. This type of loan can be used on single-family homes, triplexes, duplexes, or quads. It just has to be a primary residence. You’d also be shocked at how strong the cash flow is in Vacation Rental Investing.
What is an FHA 203(k) Rehab Loan?
There is an extremely popular loan available called the FHA 203(k) that is administered by the United States government. It may (or may not) be surprising that this loan has been used more frequently than the Fannie Mae Home Style Renovation Mortgage, because it has fewer underwriting restrictions. Used specifically for primary residences, this loan is perfect for anyone who cannot qualify for the Fannie Mae loan, but plans to purchase a home with the intent to live there.
An FHA 203(k) rehab loan, also referred to as a renovation loan, enables homebuyers and homeowners to finance both the purchase or refinance along with the renovation of a home through a single mortgage. Instead of applying for multiple loans, an FHA 203(k) rehab loan allows homebuyers to purchase or refinance their primary home and renovate it with one convenient loan. By allowing the buyer to finance the cost of improvements into the purchase or refinance of a home, home rehab loans take the financial guesswork and frustration out of renovating a home.
In the past, purchasing a fixer-upper was difficult: most banks wouldn’t grant a mortgage on a house in bad shape until repairs have been completed, but repairs couldn’t possibly be made until the house is purchased. This put homebuyers in a difficult position. Now, thanks to the FHA 203(k) rehab loan, it’s possible to purchase a property and include the cost of repairs and improvements in the loan — making it easier than ever before to purchase a fixer-upper or renovate your current home.
Rehab loans are designed to help homeowners improve their existing home or buy a home that can benefit from upgrades, repairs, or renovations. A 203(k) rehab loan is a great way to help you create your own home equity fast by bringing your home up to date. Not only will you be able to upgrade your home with your style and needs, but you’ll also be able to buy a home that’s usually listed at a lower price due to the older existing condition. That’s why a 203(k) rehab loan is great, it can help you gain equity and offer you great interest rates for your rehab in one loan.
In addition to a low interest rate, rehab home loans come with a low down payment and more savings options. Since only a minimum down payment of 3.5 percent is required, you won’t deplete your savings trying to come up with a down payment. Because FHA insures your mortgage, the qualifications for an FHA loan may be more lenient than for a conventional loan. Ultimately, 203(k) rehab loans are a convenient way to finance your home improvements without the need for perfect credit, huge down payments, or high interest rates.
The Fannie Mae loan has title seasoning; meaning, their restrictions on how long you have been on a title are not quite as strong. The FHA requires that the owner be on the title for a full ninety days before re-selling a property. While the FHA loan has fewer underwriting restrictions regarding debt-to-income ratio qualifications, it does not have nearly as much flexibility room as the Fannie Mae loan.
Mortgages purchased and guaranteed by Fannie Mae are called conforming loans. Generally speaking, conforming loans have lower interest rates than non-conforming or jumbo loans, which are typically not backed by Fannie Mae because they exceed its loan size limits.
Both FHA and Fannie Mae loans have the ability to help you do more real estate or flip deals to people than you ever thought imaginable. With interest rates this low, you should take advantage of purchasing either rental or vacation properties.
How can you get a Fannie Mae Mortgage?
The best possible way to obtain a Fannie Mae mortgage is to find a mortgage lender that has worked with this type of loan. Lenders are often very helpful in determining whether or not your personal financial situation will allow you to qualify for this loan or not. There are numerous rules and regulations that must be followed when it comes to this type of loan. For this reason, it is paramount that you work with a loan originator that has experience with Fannie Mae loans.
In order for Fannie Mae to buy single family home loans from mortgage bankers, savings and loan associations, commercial banks, and other financial institutions, the loans must conform to their set of “Fannie Mae guidelines.” Together with an acceptable credit score, they require certain debt to income ratios.
If your debt-to-income ratio is too high, you can:
- Make a larger down payment. By making a larger down payment, your monthly payment will go down and lower your debt to income ratio.
- Buy down the mortgage rate. Ask about paying extra or “buying down” the interest rate on your mortgage. A lower interest rate will result in a lower monthly payment and reduce your debt ratio.
- Consider a Co-Signer. A co-signer can add to your income which can help improve your ratio.
- Renegotiate with the Seller. If the above options are not possible, you can try negotiating with the seller for a reduced sales price.
These ratios are calculated as a percentage made up of of your monthly gross income in relation to how much goes toward housing expenses and to servicing such debt as auto loans, credit cards, home loans, and credit lines. You must be able to prove your employment and document your assets and liabilities (debt). Normally you will be required to verify two years employment.
Fannie Mae only deals with mortgages made to individuals. A corporation or general partnership would not qualify for a Fannie Mae loan. Fannie Mae will allow a mortgage that has a co-borrower, and that person is not required to take title to the property. The income from the co-borrower will not be accepted for qualifying purposes, unless that person also signs on the promissory note. Loans made for your principal residence, second home, or an investment property, all may qualify under a Fannie Mae loan program.
Fannie Mae HomePath
When foreclosures arise on mortgages in which Fannie Mae is the owner/investor, or when properties are acquired through deeds-in-lieu of foreclosure or forfeiture, Fannie Mae attempts to sell the properties in a timely manner in order to minimize potential impacts on the community. HomePath.com is the Fannie Mae website where homebuyers and investors can search for and make offers these properties, and HomePath Mortgage offers buyer financing products for the properties. In some cases, special financing may be available through HomePath Mortgage and HomePath Renovation Mortgage. These include expanded seller contributions for owner-occupied properties, and lower down payment options for buyers with multiple financed properties.
HomePath.com exclusively offers properties that are owned by Fannie Mae, and include single-family homes, town houses and condominiums. Fannie Mae uses local real estate professionals to prepare, maintain and list the properties for sale. Most listings have photographs, property descriptions and other details, including school and neighborhood information. The number, type and sales prices vary greatly by market, as does the condition of the properties. While some homes are move-in ready, others require repairs or even extensive renovations. Each property is sold in “as is” condition.
Home buyers looking for zero down, low down or renovation loans might should check out the following options:
USDA Loans: a great zero down option for low to moderate-income borrowers who buy homes in USDA-eligible areas (mostly rural)
VA Loans: the loan of choice for military veterans, eligible spouses and active service members
FHA Loans: very popular government-insured, 3.5.% down mortgage
HomeReady: 3% down mortgage for low to moderate-income buyers
Conventional: 3% down mortgage for first time home buyers, no income limit
Home Possible Advantage: Freddie Mac’s 3% down mortgage for low to moderate-income buyers
FHA 203k: government-insured loan program that gives borrowers an ability to purchase and renovate with a single mortgage transaction
HomeStyle: Fannie Mae’s version of the FHA 203k, a single loan to finance a purchase and renovations