Real Estate Investing Primer: An In-Depth Look At Lenders

The lending landscape for those looking to invest in residential properties has changed significantly. Within only a few short years lenders have become more lax in regards to credit and income guidelines. Investors that were once shooed away from lenders are now welcomed with manageable rates. In addition to the credit and income guidelines, down payment requirements have been swept under the rug for investors that qualify. Real estate investing is experiencing a rapid change. This article will provide you with a well-rounded understanding of residential investment financing options.

There are four types of lenders that will be willing to supply you with a loan. As we’ll see, each lender has its own pros and cons. The lenders can be broken down into the following categories.

Conforming

Conforming lenders attend to quality borrowers. They are comprised of A-paper mortgage banks that almost exclusively work with borrowers with impeccable credit and high income. Since conforming loans are only offered to those with high credit, those that lock down such a loan are offered low interest rates.

A conforming loan gets it name from the need to conform to rules and restrictions set by pseudo-governmental agencies like FNMA and FHLMC. The most significant restriction placed on such loans are loan limits. The limit depends on the market that the borrower is in. The average market will see a loan limit set at $484,350 however high-cost markets such as SF and NYC are set at $726,525.

Lenders will look at a number of factors when assessing if a borrower qualifies for such a loan. Factors under consideration include: credit score, mortgage payment history, debt-to-income ratio, employment history, amount of down payment, and amount of liquid reserves among others.

Alt-A

Alternative “A” credit lenders lend to borrowers that don’t quite quality for conforming loans. Real estate investing is a steep financial undertaking and lenders want to make sure that they get their money back. Alt-A lenders are loans generally offered to borrowers with credit scores of 660 and up. Alt-A banks can get creative with loan creation. While most of their clients possess credit scores of 660+, they may also create programs for those with scores as low as 620. Alt-A has a risk profile that lies between prime and subprime mortgages.

Loans programs offered through Alt-A loans include many interest-only products such as the Option Arms loan, loans that require only 5% interest with no down payment, and of course standard fixed-rate and arm products. What’s unique about Alt-A loans is that they offer a loan-to-value ratio of up to 100%. Debt-to-income ratios are typically higher than the standard at between 36-43%.

Non-Conforming or Subprime

Subprime mortgages will never have a positive ring, and for good reason. These are only loans that borrowers with poor credit have access to. Because lenders believe subprime borrowers have a higher chance of defaulting on their loans, lenders offer rates that are much higher than the prime rate. Of course interest rates aren’t uniform across subprime loans. However, borrowers of this type of loan should expect to be paying high interest rates.

When granting subprime mortgages, lenders will take a long hard look at credit score in relation to loan-to-value. Lenders are usually willing to offer financing to borrowers with credit hovering just over 500. Special programs can also be designed that cater to borrowers with outstanding credit. Should lenders be staring at a borrower with a score of 580 or better they’ll be willing to offer 100% financing for an owner-occupied property. Investors securing loans from subprime lenders will start to offer loans for borrowers with a 550 credit score.

Before settling for a subprime loan, get your finances in order and ascertain which type of loan you quality for. You might be surprised to find that you qualify for a loan that offers much better rates than a subprime mortgage.

Hard Money

Hard money lenders have been en vogue as of recent. These types of loans lend themselves to borrowers looking to fix up a home. Fix and flip investors secure loans quickly only so that they can revamp a property and sell it off in quick time. These loans are appealing because they can be processed and approved swiftly and are generally more malleable than traditional loan agreements.

Unlike with the aforementioned loans, hard money lenders are almost always small companies or individuals. Being that these lenders don’t abide to strict company rules, they’re more flexible when it comes to offering a loan. That being said most hard money loans are still accompanied by high interest rates (12-18%) and must be paid back within a year.

With such a range of loans waiting to be scooped up by a real estate investor, you’ll have no problem securing a loan that suits your needs. Should you desire to talk about your real estate investing endeavors in-depth feel free to get in touch with the real estate experts at Affiliated Mortgage. With over 15 years of experience, this real estate finance company helped borrowers with varying needs find solutions to their real estate obstacles.

Real Estate Investing Primer: An In-Depth Look At Lenders

The lending landscape for those looking to invest in residential properties has changed significantly. Within only a few short years lenders have become more lax in regards to credit and income guidelines. Investors that were once shooed away from lenders are now welcomed with manageable rates. In addition to the credit and income guidelines, down payment requirements have been swept under the rug for investors that qualify. Real estate investing is experiencing a rapid change. This article will provide you with a well-rounded understanding of residential investment financing options.

There are four types of lenders that will be willing to supply you with a loan. As we’ll see, each lender has its own pros and cons. The lenders can be broken down into the following categories.

Conforming

Conforming lenders attend to quality borrowers. They are comprised of A-paper mortgage banks that almost exclusively work with borrowers with impeccable credit and high income. Since conforming loans are only offered to those with high credit, those that lock down such a loan are offered low interest rates.

A conforming loan gets it name from the need to conform to rules and restrictions set by pseudo-governmental agencies like FNMA and FHLMC. The most significant restriction placed on such loans are loan limits. The limit depends on the market that the borrower is in. The average market will see a loan limit set at $484,350 however high-cost markets such as SF and NYC are set at $726,525.

Lenders will look at a number of factors when assessing if a borrower qualifies for such a loan. Factors under consideration include: credit score, mortgage payment history, debt-to-income ratio, employment history, amount of down payment, and amount of liquid reserves among others.

Alt-A

Alternative “A” credit lenders lend to borrowers that don’t quite quality for conforming loans. Real estate investing is a steep financial undertaking and lenders want to make sure that they get their money back. Alt-A lenders are loans generally offered to borrowers with credit scores of 660 and up. Alt-A banks can get creative with loan creation. While most of their clients possess credit scores of 660+, they may also create programs for those with scores as low as 620. Alt-A has a risk profile that lies between prime and subprime mortgages.

Loans programs offered through Alt-A loans include many interest-only products such as the Option Arms loan, loans that require only 5% interest with no down payment, and of course standard fixed-rate and arm products. What’s unique about Alt-A loans is that they offer a loan-to-value ratio of up to 100%. Debt-to-income ratios are typically higher than the standard at between 36-43%.

Non-Conforming or Subprime

Subprime mortgages will never have a positive ring, and for good reason. These are only loans that borrowers with poor credit have access to. Because lenders believe subprime borrowers have a higher chance of defaulting on their loans, lenders offer rates that are much higher than the prime rate. Of course interest rates aren’t uniform across subprime loans. However, borrowers of this type of loan should expect to be paying high interest rates.

When granting subprime mortgages, lenders will take a long hard look at credit score in relation to loan-to-value. Lenders are usually willing to offer financing to borrowers with credit hovering just over 500. Special programs can also be designed that cater to borrowers with outstanding credit. Should lenders be staring at a borrower with a score of 580 or better they’ll be willing to offer 100% financing for an owner-occupied property. Investors securing loans from subprime lenders will start to offer loans for borrowers with a 550 credit score.

Before settling for a subprime loan, get your finances in order and ascertain which type of loan you quality for. You might be surprised to find that you qualify for a loan that offers much better rates than a subprime mortgage.

Hard Money

Hard money lenders have been en vogue as of recent. These types of loans lend themselves to borrowers looking to fix up a home. Fix and flip investors secure loans quickly only so that they can revamp a property and sell it off in quick time. These loans are appealing because they can be processed and approved swiftly and are generally more malleable than traditional loan agreements.

Unlike with the aforementioned loans, hard money lenders are almost always small companies or individuals. Being that these lenders don’t abide to strict company rules, they’re more flexible when it comes to offering a loan. That being said most hard money loans are still accompanied by high interest rates (12-18%) and must be paid back within a year.

With such a range of loans waiting to be scooped up by a real estate investor, you’ll have no problem securing a loan that suits your needs. Should you desire to talk about your real estate investing endeavors in-depth feel free to get in touch with the real estate experts at Affiliated Mortgage. With over 15 years of experience, this real estate finance company helped borrowers with varying needs find solutions to their real estate obstacles.

© 2019 Affiliated Mortgage, LLC. NMLS #14211: AZ NMLS#0947858. All Rights Reserved. Affiliated Mortgage, LLC is a Division of Lend Smart Mortgage NMLS #4474

Developed and designed by https://blairallenagency.com

Spread the love

Leave a Reply