Author name: Affinity Media

Commercial vs. Residential Loans: Which Is Better for Investors? Parker Borofsky November 22, 2023 Facebook Linkedin X-twitter Link So you’re ready to dive into the world of real estate investing and want to start exploring the lay of the financing land. Team Parker is here to help by shedding light on two common options – commercial loans and residential ones. That way, you can better determine the right fit for your financial situation and the type of property you’d like to invest in. Commercial Loans What is a commercial loan? It’s a debt-based financing option primarily used to buy property that will be used for a business purpose. A common misconception? They’re the only type of loan that can be used for investment occupancy. In fact, many primary home loans, second home occupancy ones, and investment occupancy loans can be residential in nature, but more on that later! Important Things to Note Commercial loans are typically originated by specialty lenders or banks themselves Because they look at the potential income of the property and not the borrower’s debt-to-income ratio, they generally have high interest rates, high down payments, and short loan terms While they can be obtained for dwelling properties with 1-4 units or more, they’re typically used for dwelling purchases of at least five units They are popular options for buyers purchasing a property in the name of an LLC It’s rare to find a commercial loan with a 30-year term; 15 years is more common If originated in your name, a commercial loan WILL count against your debt-to-income ratio and will also be included when it comes to the finance rule that states you cannot have more than 10 properties at a time. Who are commercial loans best suited for? Generally, commercial loans are great options for real estate investors who are looking to purchase a property in the name of an LLC. While this type of purchase is possible with a residential loan, it’s considered to be slightly more risky or complicated. It is possible to use a commercial loan for a residential property. Why would you do so? Since commercial loan approval is based on the property, not the buyer’s personal finances, they can be a good fit for buyers without W2 income or history who plan to live on-site and rent out the other units. Along with that, commercial loans are good options if you’re interested in buying a dwelling property with five or more units. Residential loans are only for dwellings with four or fewer units. Lastly, this type of investment loan may be a good fit for you if you’ve reached your 10 residential loan limit and work with an LLC that will purchase the property in the LLC’s name. Residential Loans Now, let’s turn our attention to another popular option – residential loans. What is a residential loan? It’s one that is used to purchase a property you plan to live on. These types of mortgages cover a range of properties, including multi-unit dwellings. That’s right – it’s possible to purchase, say, a 3-unit dwelling with a residential loan, but only if you plan on living in one of those three units. The other two, you can rent out! They’re great options for a range of investors, including primary home buyers, second home occupancy, and investment occupancy properties. Loan Highlights Many mortgage brokers offer residential loans, which means you may have quite a few lenders to choose from These loans come in all shapes and sizes; down payments, loan terms, and even interest rates can be unique to the borrower Can’t be used to purchase a multi-unit property with five or more units Since they are originated in your name, they will count against your debt-to-income ratio and will be included when it comes to the maximum number of financed properties you can have in your name at once (the current limit is 10) Residential Loan Occupancy Types For properties with four units or less, there are three occupancy lending types, which are: 1. Primary home. The property you intend to primarily reside in. 2. Second/vacation home. A residence you intend to occupy “some portion of the year.” 3. Investment occupancy. Here, an investment occupancy residential loan means you’re purchasing a residential property with the intention of earning income from it. For example, purchasing a four-unit dwelling, intending to live in one, and renting the other three out. Because the loan is residential, your personal debt-to-income ratio is taken into account. This third loan type can be applied to short-, mid-, and long-term rentals and can typically be obtained with 15-25% down. For more on those, visit our STR vs. MTR vs. LTR blog. Who are residential loans best suited for? The great thing about residential loans is that they fit a variety of situations, properties, and buyers. From a first home purchase to a vacation home or investment occupancy, these loans can help you build your real estate portfolio. Provided the property you’re interested in purchasing doesn’t have five dwelling units, a residential loan may be the right fit for you. Because every real estate investor and buying situation is unique, we encourage you to schedule a complimentary consultation to learn more about residential loans and see if they’re the wealth-building move for you. Direct Comparison Now that you know a little about each type of lending solution, let’s do a quick head-to-head comparison. Property Commercial Loan Can be used to purchase many types of properties that serve a business purpose. Residential Loan Can also be used for many property types, as long as you intend to live in it some portion of the year. However, when it comes to properties with multiple dwellings, there must be four or fewer units. Term Commercial Loan Typically 15 years. Residential Loan 15-year and 30-year terms are common, typically with no prepayment penalties or balloons. Qualification Commercial Loan Looks at the potential income of the property, not the financial situation of the borrower. Residential Loan Based on the

How to Get a Mortgage For a Second Home or Investment Property Wealth Builders Mortgage Group November 15, 2023 Facebook Linkedin X-twitter Link Are you thinking about investing in a rental property? You’re likely wondering if getting a loan for an investment property differs from your usual home loan experience – the short answer: kind of. For starters, loans for investment or second homes usually have slightly higher interest rates. Also, you’ll probably need to produce a larger down payment since lenders consider these loans a bit riskier. We’ll break down the specifics for you below. The Difference Between Investment Properties and a Second Home The primary difference between investment and second home properties is how you use them. Investment properties are typically strictly purchased for income production, while second homes are purchased for personal use, while still having the ability for income production when not being used for personal enjoyment. You might think you cannot qualify for a second home because you own two or more homes. It’s important to note, though, that a second home means it is “secondary.” So, let’s say you own five other properties. Suppose an additional one you plan to purchase will be a vacation home or a property you use when you are away from your primary residence, even for work. In that case, it may still qualify as a second (secondary) home. You might think you cannot qualify if you’re a renter because you don’t own your primary home. Where you live qualifies as your primary residence (even if you’re renting), and as long as you meet the loan requirements, you can still purchase a second home. Down Payments  The down payment requirements for second homes and investment properties can vary depending on the loan program and purchase price. Part of the attractiveness of purchasing a second home is that lending products often offer lower down payment options for second home purchases. 10% is the standard for conforming/conventional second home loans. Jumbo second home loans often require 15% – 20% down, but there are still some 10% jumbo second home loan options out there. 15% down is the standard for single family conforming/conventional investment occupancy loans. 2-4 unit properties will almost always require a min of 20% – 25% down payment. Jumbo investment occupancy or specialty loans like DSCR will traditionally range from 20% – 30% down payment depending on the loan program. Interest Rates Interest rates fluctuate, but one constant is that rates for second homes and investment properties tend to be higher than those for a single-family primary home. Depending on the property type and loan amount, count on these rates being 1% – 3% higher on average than primary homes. Financing Second Homes & Investment Properties When it comes to financing your second home or investment property, you have several loan options to choose from. Conforming Loans: These loans are a standard option that follow the guidelines Fannie Mae and Freddie Mac set. The loans have a maximum borrowing limit that vary with location. While about 97% of the country maxes out at a $766,550 loan amount (not purchase price) for a single-family home purchase, there are some high-limit areas. Jumbo Loans: Mortgages that exceed Federal Housing Finance Agency limits (see above) are called Jumbo loans. These loans are typically used to finance luxury homes in markets where housing prices exceed standard loan limits. Non-QM Loans: The most popular types of loans under this category would include Debt Service Coverage Ratio loans (DSCR), Bank Statement Loans, and Asset based loans. These types of loans benefit borrowers who may not fit under conventional financing. Keep an eye out for our next blog which will go into more detail on this topic! Government-Backed Loans: FHA, VA, and USDA loans typically require borrowers to live in their financed properties. But there’s a loophole: If you buy a multi-unit property (duplex, triplex, etc.), you can use an FHA or VA loan if you occupy one of the units and rent out the others. Unlock Your Investment Potential with Wealth Builders Mortgage Are you looking to finance your next property investment? Wealth Builders Mortgage is your go-to expert. We specialize in helping clients secure mortgages for investment properties and second homes. Whether it’s a second home or a rental property, we’re here to find the right mortgage solution for you. Contact us today! Facebook Linkedin X-twitter Link

STR vs. MTR vs. LTR Parker Borofsky November 22, 2023 Facebook Linkedin X-twitter Link Which Investment Option Is Right For You? You’re ready to start generating long-term wealth through real estate but have no idea where or how to start. Wealth Builders Mortgage Group is here to help, breaking down three popular investment options so you can establish or diversify your portfolio. Short-Term Rental (STR) Properties What are STRs? What is a short-term rental? It’s a residential home or accessory building that is rented out for short periods of time, typically less than a month. The maximum length varies from state to state and can even change based on the jurisdiction in which the property is located. Think of these as the “self-employment” of investing. While STRs have a lot of potential, they require effort on your part or a knack for hiring skilled professionals who can manage the property for you. STR Pros STRs are popular investment options for a number of reasons, including: High ROI potential. The ability to use it as a second or vacation home for yourself, friends & family. Typically located in vacation destinations, making the above point that much more enjoyable. Freedom to design and decorate as you wish. Short stays mean less time for damages from renters to happen or build up. Things to Watch Out For Of course, no investment is risk-free. When it comes to short-term rentals, be mindful of: Your income; even without a steady contracted tenant, you’re on the hook for on-time mortgage payments. Be sure you can easily cover the ebb and flow of the vacation market. Per the above point, it’s imperative to choose properties in popular destinations, which requires more research on your part. Securing property in a sought-after destination can be tricky, as those markets are competitive. Without a team to assist, managing a short-term rental property can be time-consuming. Purchase points are often higher than other types of investment properties. Without STR resources, navigating restrictions and regulations can be difficult on your own. Mid-Term Rental (MTR) Properties What Are MTRs? Mid-term rental properties are those with a rental agreement typically for more than one month but less than one year. Currently, the standard is between 3-6 month periods. When it comes to real estate investing, MTRs can be a happy middle ground, as they’re not as expensive as short-term rentals and not as limiting in their return on investment as long-term rentals. MTR Pros Many things draw investors to MTR properties, including: Purchase prices tend to be affordable/middle-of-the-road. Less active management than STRs. No build-up of damages, as owners or cleaners are typically on the property every few months. Fun to decorate as you see fit. Important Things to Note If you’re considering investing in a mid-term rental property, here are a few key things to keep in mind: It may not generate as high of a return as an STR. Does require effort and marketing on your part, as tenants won’t reside there for long periods of time. There are some tricky regulations to navigate on your own. Long-Term Rental (LTR) Properties What Is a Long-Term Rental? As you may have guessed, long-term rentals are properties that are rented out for longer periods of time at once. Typically, rental agreements are for a one-year term at a fixed monthly price. In terms of STR vs. LTR, If short-term rentals are the “self-employment” of investing, long-term rentals are the “W2s.” They’re the safer investing option, as they produce steady, reliable income. But that doesn’t mean there are no LTR downsides! Let’s look closer. LTR Pros Long-term rental properties offer many perks, like: The ability to count 75% of the rental income once you have a lease. This helps ease debt-to-income ratios for future purchases. Typically lower entry purchase prices. Less management. Little to no setup unless you’re using the BRRRR method (Buy, Rehab, Rent, Refinance, Repeat). Important Considerations Like any type of investment, long-term rental properties come with a few important things to be aware of: More limiting on returns; typically not much opportunity to create a tremendous increase in cash flow. Lower cash-on-cash numbers. If extensive repairs are needed (due to tenants mistreating the property), much of the initial profit will be lost. Which Investment Option Is Right For You? Now that you know about three popular real estate investment opportunities, you may be wondering how to choose which one is the right portfolio-building move for you. Here are a few questions to answer that will help you decide! What markets are you interested in? What’s your risk tolerance? How much work are you willing to put in? How are your cash reserves in case you need to cover mortgage payments for some time? How much have you saved up to potentially purchase a property? Do you have a feel for a loan amount that you may be able to qualify for? Get Started With Help From Team Parker As you can see, the difference between short-term and long-term rentals, even mid-term ones, is not only about time length. There are many other factors to consider! Getting into real estate investing can feel overwhelming or intimidating, but it doesn’t have to be. As long as you’ve done your homework and are working with lending experts, like the team here at Wealth Builders Mortgage Group, you’ll be well on your way to investing success. History shows that real estate is a tough investment to beat, so make your income-generating move today – schedule a consultation with Team Parker now! Facebook Linkedin X-twitter Link