You're about to discover the best loan for real estate investors; very low down payment requirements (and in some cases, no money down), the lender provides the money for renovations, ultra low interest rates, 30 year fixed amortization and it applies to long term rentals, flips and primary residences. It is a conventional mortgage so not everyone will qualify for it BUT even if you aren't loan-friendly at this time in your personal financial life, you still want to watch this video because if you are flipping properties, you could introduce it to prospective buyers.
And now, more than at any other time in American real estate history, is the time for this loan to be used. We have hit all time lows in inventory levels. 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 Fannie Mae Home Style Renovation Mortgage
The Fannie Mae Home Style Renovation Mortgage is simply the best loan for real estate investors. Here's why:
1. Money for Renovations
This loan is backed by Fannie Mae because they purchase it on the secondary mortgage market. Several different banks and mortgage brokers can originate the loan, and then they sell it to Fannie Mae. This loan provides a tremendous amount of flexibility for real estate investors. They will provide the money needed for renovations. They put that money into a reserve and overtime it gets drawn out. You can choose to hire contractors or do the work yourself.
2. Low Interest Rates
Interest rates will be the same as the prevailing interest rates, which are currently 4%. There are super low interest rates and you can do a 30 year fixed rate loan. Hard Money loans will potentially give you the money needed to renovate a property, but their interest rates will be 10-12%. The nice thing about hard money loans is that you do not have to have great credit, because the loan is based on the deal itself.
3. Low Down Payments
If you are going to move into the property as your primary residence, you can put as low as 5% down. There are sometimes other programs available through a separate organization that can offer you that 5% down. You have to talk to your mortgage broker to find out what is available in your local area. You could qualify for zero percent down on a primary residence loan. As an investor, you might not be needing a primary residence loan, but think about it for a second. If you own a home now after paying down the mortgage, you might be able to cash flow really well if you turned that property into a rental. Then you could find a deal on the market, or even off the market, and purchase it with 0% down as your new primary residence. Our current tax structure allows you to resell a primary residence property every two years with tax free gains. This means that you could purchase a new home, renovate it, live in it, and resell it in two years. Any profit that you make on the house is yours completely tax free. This could easily apply to a long term strategy you might have. If you would like get a Fannie Mae Home Style Renovation Mortgage on an investment property the downpayment will be higher. You might have to put as much as 15% down, but this is still less than the typical 20-30% on most investor loans.
One other characteristic of this loan program that is ideal for investors is just how flexible it is with the types of properties you can use it for. It can be used on a primary residence that is a single-family home, duplex, triplex, or quad. As an investment property loan or vacation home, it has to be a single-family home. I have actually moved my entire inventory and portfolio of investments over to vacation rentals because the cashflow is sos trong. Here are some great resources on Vacation Rental Investing, if you would like to learn more about that subject.
Fannie Mae Homestyle Mortgage vs. FHA 203(k) Rehab Loan
There is another type of loan that is also administered by the U.S. Government called the FHA 203(k). This loan has actually been used a lot more than the Fannie Mae Home Style Renovation Mortgage, because it has a lot less underwriting restrictions. The FHA 203(k) loan is specifically for primary residences. It is a great loan for someone who is buying a home to live in and cannot qualify for the Fannie Mae loan. Fannie Mae has title seasoning which means they do not have strong restrictions on how long you have been on a title. However the FHA requires you to be on the title for 90 days before you can resell a property. The FHA loan has less underwriting restrictions on debt to income ratio qualifications, but not as much flexibility as Fannie Mae. My team and I have actually invented a technique to overcome this problem with FHA. But it's not something I could tell you on a blog like this because it's only for my Apprentices. If I reveal this technique, and then someone does it wrong, it'll ruin it for the rest of us who are doing it right.
These two loans can help you do deals or flip deals to people, that you never though possible. Interest rates are so low that you can purchase a property, fix it up, and then put it out there as a rental. You can make a lot of positive cash flow every month by turning a property into a vacation rental.
How to Get a Fannie Mae HomeStyle Mortgage
Find a great mortgage broker that has originated this type of loan before. They can be very helpful in helping you determine if your details and financial situations will qualify for this loan. But only work with a loan originator that has done these types of loans before since they have many important details and rules that must be followed. You don't want to be the guinea pig that a new mortgage person is doing their Fannie Mae HomeStyle Loan testing on.