There’s almost too many numbers to know. And the moment you know them, they will
change. If you do this long enough
you’ve seen it change multiple times.
But as of this date on this posting these are the numbers you should
count on. For our purposes these are for
SINGLE FAMILY HOMES.
1.
Purchase – If you buy a home that DOES NOT need
renovations – meaning it’s ready to rent right now or maybe it already has a
renter in it – you can buy with conventional money with 15% down! (I bet there
are a few people who didn’t know this – now you do!)
2 Items of Note:
a.
Mortgage Insurance – Anytime you don’t bring 20%
down you pay Mortgage Insurance (sometimes referred to as MI or PMI). It’s a monthly charge that will go away once
you have 20% equity in the home. You can know what this charge is BEFORE you buy.
b.
Higher Rate – When you do buy with 15% down the
rate is a little higher. Between .125%
and .25% depending on your credit
2.
Purchase (Really) – and those two reasons above
are why most investors use 20% down to purchase a property. No PMI and a lower rate. And buying with
25% down gets even better rates. But if you are looking to leverage your funds
as best as possible and the numbers still work, then keep in mind 15% down.
3.
Refinance – If you buy and renovate a property. A conventional loan can refinance 75% of the
After Repair Value (ARV). So if you buy
a home for $50k, spend $30k on renovations, and the home is worth
$100k…..then you will be bringing money
to closing if you were to refinance. Knowing
these numbers will help you understand if the deal is worth doing. 75% of the ARV when refinancing
**NOTE** A portfolio loan could refinance 80% of the ARV
(See Part 2: Loan Types for more information on portfolio loans)
4.
Cash Out Refinance – you’ve bought a house and
fixed it up and now it’s worth Mega-Millions.
How do you get the cash out to buy more?
Cash out refinance. You are
limited to 75% of the value when doing a cash out loan on an investment
property (80% if it’s your primary home) and you have to wait 6 months after
you buy it to take cash out unless….
5.
Delayed Cash Out Refinancing – You’ve bought a
house and fixed it up and now it’s worth Mega-Millions except this time you
bought it with CASH. Buying a home with
cash means you CAN cash out in the first 6 months of ownership. 2 very
important things to note
**NOTE** You are limited to the initial amount of your PURCHASE
price (plus closing costs) meaning you cannot get back the repairs you put into
the home.
Example:
You bought a home for $50,000, you put $20,000 into the home, it’s worth
$100,000. 75% of $100,000 is $75,000 – but because
you purchased it for $50,000 the most you can receive back is $50,000 +closing
costs on the loan.
Very
important to understand this if you are seeking to get cash out in the first 6
months.
6.
Purchase with Hard Money – If you could buy a
home with less down than #1 & #2 would you like to know about it? Of course!
And that’s what Hard Money is for.
You should be using your hard money lenders to LEVERAGE your money. Run the deals by them and see what the numbers
are. If a hard money lender saved you $5,000 and
charge you 14% for 1 month is it worth it?
The answer is yes.
So many numbers! Don’t worry if your head is swimming – it’s
normal. Come back to this post later and
re-read it or just ask questions below. Next Chapter – Test Time!
Andrew Postell
Gateway Mortgage
817-873-0621
Andrew.postell@gatewayloan.com
