Duplex w/ 100% Financing?

[Clark056]

Always love reading everyone's posts. Really great advice that makes me more wise each time I read it. Quick question for anyone that has a clue:

I'm thinking of buying a duplex locally in my area (south carolina) if I go 100% financing w/o being owner occupied will I have trouble? I want to get residential rates. Let me know your thoughts. Thanks!

[DeeinAustin]

Not sure if your state is very different, but on average, lenders seem fine lately with 90% non owner-occupied properties. 80/20 is available, but the rates seemed pretty high compared to putting down 10%. I think you may also need better credit.

A lender can give you a Good Faith Estimate to show each scenario. It's not impossible to have 100%, but the cost may not be worth it, especially if you have to go to a private lender.

[Mdhaas]

if I go 100% financing w/o being owner occupied will I have trouble?  

Depending on your parameters (credit, income, assets, etc.) there are 100% investment property programs.  

I want to get residential rates.

Probably not going to happen.  Investor rates are going to be higher than normal residential rates as they are higher risk to the lender.  On average, investor rates are about a percent higher than conforming rates.  Again rates will vary depending on parameters.

[kdhastedt]

You can get the residential rates (or even a low downpayment HUD loan) if you occupy one of the units...

I currently take a hit of about 1/4% for investor loans vis-à-vis an O/O.

Your mileage may vary according to wind, weather, driving habits...

Keith

[Roger J]

100% financing is available, you just have to know where to look.  My suggestion is to find a local, preferrably referred mortgage broker that specializes in investor loans and have them do the searching for you.  Personally, I think that it's worth the money!

You will get residential rates (as opposed to commerical), however, they will be for a non-owner occuppied (investor) loan, which is generally 1/2 to 1 point higher than occupied rates.

You credit score, DTI, and the property itself will determine how many financing options that you have available.

The big question is what price are you 100% financing?  By that, I mean it makes  a big difference if you're trying to buy at FMV and get 100% financing (example FMV = $100K, you're buying at $98K), or if you're trying to get 100% financing on a 50% of value purchase (example $100K FMV, buying at $50K).

It's much easier to get 100% financing when there is equity in the property.

Raj

[reoconsultants]

Your financing options are directly effected by the deal and how creative the seller is willing to get! For instance I bought one last week

Appraised at $204,000.00

I bought it for $160,000.00

Here is the catch I showed the owner was going to carry the 20% and did the contract for 204k owner's note is $40,800 So I got an 80% mortgage note for the property!

After closing I already contracted to purchase the note for $.01 cent on the dollar So I bought that note from under them proir to closing!

This shows that it is not the financing it is the DEAL!! Hope this helps

[Bluemoon06]

Remember that the 90% is on the appraised value after it is fixed up.  If you buy the property at a low enough price, you can finance 100% of it as long as that dollar figure is 90% of the appraised fixed up value.  I hope this helps.

[polishdave]

  Hey Clark, where are you SC are you from?  I live in Columbia but go to school in Anderson.

[Clark056]

Columbia, SC is my market, but there seems to be some good growth in Anderson as well.  

The reason I asked the question about being owner occupied is that I am considering moving into one side of the duplex.

[jmd_forest]

PER REOCONSULTANT"

..."I bought it for $160,000.00

Here is the catch I showed the owner was going to carry the 20% and did the contract for 204k owner's note is $40,800 So I got an 80% mortgage note for the property!

After closing I already contracted to purchase the note for $.01 cent on the dollar So I bought that note from under them proir to closing! "...

I don't quite understand the machinations here. Why contract to buy for $204K with the owner's consent to basically write off the second mortgage? Although I am admittedly new to this game banks it seems logical the bank would lend the $160K without the second mortgage as long as the property appraises. The only issue I can think of is capital gains tax avoidance (??), although there must also be some tax consequences to the 1% buyout of the second mtg. I'm hoping reoconsultant can fill in some of the blanks and educate us all on the purpose of the second mtg.

[Mdhaas]

If you are truly going to move into the property then rates and terms will absolutely get better.

[DFWHoldings]

jmd -

The 80% loan without showing a seller carried second with a sales price of 204,000 would require REO to show that he had 44K in cash available at closing. Showing this 'phantom' second relieves that necessity. Had he just lowered his purchase price to $160,000 then the LTV would be 100% instead of 80% because LTV is based on the lesser of the appraised value or sales price. Remember, the 'worth' of anything is really only what people are willing to pay for it. So if someone pays $160,000 for a property, it doesn't really matter that an appraiser is saying it could be worth $204,000 because it's only worth $160K if that is all you can sell it for. So reoconsultants is circumventing that by showing that it's worth $204k because that's what is being paid for it and what the appraiser said it would most likely be worth.

[Investment Loans]

JMD Forest.

Creating a "write off" 2nd mortgage so you can get into the property at a lower ltv is illegal.

The governtment and lenders consider this fraud.

[DFWHoldings]

Correct, this is loan fraud and it is illegal. Lying on a loan application on a stated income product is also illegal. I'm not condoning it, I'm just explaining why it worked.

Bear in mind that agreements between Seller and Buyer where the Seller gives 'cash back at closing' is illegal and fraudulent if they sign a Real Estate certification that there are no outside agreements. Real Estate Brokers that give cash back at closing and sign the Real Estate Certification are also committing loan fraud. Gifts made to a borrower from a family member that are to be repaid are also fraudulent because the gifts are understood (and so written in the gift documentation) as forgiven and thus not repaid. Buying a house as a primary residence when you are not utilizing it as a primary residence is fraud. Qualifying someone on un-improved taxes when improved taxes would render the ratios too high to approve is fraud. Sending ONE contract to a lender and a different contract to the title company is fraud. Etc, etc, etc.

There are a number of things that happen daily in these transactions that are fraudulent. I think it goes without saying that no one here is condoning fraud. However, condoning it and explaining why it works are NOT the same thing. I can explain why someone may have gotten away with Murder....but I am not condoning it.

[jmd_forest]

Investment and DFW:

This is why I asked the question - something didn't seem quite right and that is why I asked for an explanation.

I now understand a little why REO might want to show 80% LTV but (even though I admittedly am new at this) since there are 100% financing deals available I would suspect they would be glad to finance 100% of a property that appraises at 125% of loan value.

Even so, I would not be so fast to assume fraud here.  Many 2nd mtgs are heavily discounted when sold. The discounted mtg may have even been sold to a seperate legal entity (LLC, corp) not otherwise involved in the transaction.

JMD