If you’ve ever had trouble with a conventional loan as a real estate investor, you know how stressful it can be.
You need to make sure that the payment will cover your monthly expenses, and you’re worried about whether or not your monthly payments would cover the interest and principal on time.
Listen to a seasoned investor as he discusses the best ways to finance your long term investment properties.
Transcripts:
Chris Bounds 00:00
Eddie, I asked you years ago, and it was about conventional financing. And he told me you say you can’t build your business off just conventional financing. This question, if it doesn’t apply to you now it will and someone submitted it online too.
I have a W-2 income, but my loan officer said I do not qualify because I’m self employed and the income on my tax return is too low. What can I do?
Eddie Gant 00:26
Are we talking long term financing or short term financing?
Chris Bounds 00:30
At this point, long term.
Eddie Gant 00:32
Long term financing, to hold properties for rentals. Well, I think you got a couple options, but the most viable today 2022 is the product that did not exist as often as, I mean as recently as four or five years ago. And we call it non-QM. That means Non-Qualifying on your income. It’s Wall Street money. Jet lending doesn’t, our friendly competitors doing, we write the 30 year paper, and we send it out to Wall Street. It’s the same bucket of money that used to supply back in ’06, ’07, ’08 until it collapse was the subprime.
As well, it’s all Wall Street money. Here is the key to non QM their 30 year fixed mortgages, the rate fluctuates based on your credit, and loan to value and debt service coverage ratio. Everybody kind of understands credit, I think everybody probably understands loan to value. But one people don’t necessarily know quite as as much about his debt service coverage ratio.
I just said your loan, your loan rates fluctuate on those. That’s also their underwriting guidelines. That is it. Credit, loan to value debt service coverage ratio. So let me explain debt service coverage ratio just for a second, most of them are around 1.2 to 1.25. 1.2 means if your payment is $1,000, it must rent for 1200. Okay, if it’s a 1.25, if your payment is 1000, it must rent for 1250. You normally know your payment or you know your rent, and you saw for the other one for your qualification.
If you know it rents for 1250 already, then that means your max payment you’re going to qualify for as 1000. So you pretty much got to have a 680 credit score to get in this game. loan to value the good rates started at 70. You’re not going to get anything above 80. But when you go to at the rates bumping up a few weeks ago, these rates were around 4%, maybe low fours, but with everything going on rates are on the rise, your rates now are in the fives, but you’re in the fives for a 30 year fixed rate mortgage on a non owner occupied loan meaning short rental, and you’re not showing your income. Y’all that’s pretty damn good product.
Now, I’m gonna tell you, you would love that product for years, for decades because it didn’t exist. And it started to come alive. Four or five years ago, a lot of people how many I’ve never even heard of this. Oh, see, there you go. And it’s very, very prevalent out there now. And it’s growing. They are extremely finicky. It’s Wall Street. When COVID Monday hit Monday, March the ninth 2020 They all shut down. And they weren’t back playing the game with us until June or July.
That’s how finicky they are. But it’s it’s good and healthy now. It’s called non QM may non qualifying on your mortgage. But that’s where most everybody goes. Now the ones that don’t go there will go regional banks. You know the allegiance banks, the Texas Citizens Bank so the world around town, you can go there. That’s where most of my rentals properties are financed at.
And if you don’t go there, if you can show your income you still go the old Fannie Mae, but we used to do a lot of Fannie Mae’s, but those are gone by the wayside because there’s almost no difference between the interest rate on a Fannie Mae and a non QM and the non QM is faster and easier. Did that answer that fairly clear?
Chris Bounds 04:32
Absolutely.