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New program offers hard-money mortgages at half the rate

Flippers, borrowers with bad credit or who own lots of rentals tend to pay lenders 10% or more a year for a mortgage. A new program now offers such loans for as little as 5.75%.

By Jeff Lazerson


What I think: Mortgage rates are once again incredibly low for traditional-income qualifying borrowers — be it owner-occupied, second homes or one- to four-unit rentals. Paying some points can get you under 3% on a 15-year or the very low 3% range for a 30-year Fannie Mae fixed.

What about hard-money borrowers? That is, property flippers, borrowers with poor credit, borrowers who own lots of rentals who traditional lenders might not touch or folks who don’t disclose enough documentable (tax return) income.

These typically are business-purpose loans for one- to four-unit, non-owner occupied properties and are asset-based or asset-qualifying (as opposed to income-qualifying). They are short term, with a balloon payment in perhaps three years.

They tend to carry double-digit interest rates (10% or more) with 2 to 4 points being charged (one point is 1% of the loan or $5,000 on a $500,000 loan, for example). Ouch!

Relief is on the way.

A new program offers incredibly cheap hard money financing rates and points.

We are talking about a 30-year amortizing mortgage, with an interest-only rate and payment of 5.75% locked in for the first 5 years.

This is nearly half the rate for traditional hard-money mortgages. Holy smokes!

And, you can take another interest-only payment cycle for the second 5 years (after adjusting for the one-year Libor index and a 6% margin. At today’s pricing, that translates into a rate of 8.18%).

This rate requires a middle FICO score of at least 680 and no major derogatory credit (foreclosure, bankruptcy, etc.) in the past three years. You can go as low as a 620 middle FICO for a point higher, or 6.75%.

You can put as little as 20% down (or 20% remaining equity for a no cash-out refi) all the way up to a $3.5 million loan amount for the same mortgage rate. You can borrow up to $2 million of cold, hard cash should you want to do a cash-out refi up to 75% loan-to-value.

Gift funds are allowed for investment purchases. In the traditional Fannie Mae mortgage world, investment property down payment gift funds are never allowed. (Can you say straw buyer?)

To qualify, total rent must equal or exceed the interest-only payment, taxes, insurance and any HOA bill. Yes, you can use your one-year history of Airbnb rents for refinance qualifying.

You do not need any cash reserves, no matter how many rentals you might own.

Only one late mortgage payment is allowed to qualify for this non-owner, no-income qualifying loan.

This is certainly a godsend for property flippers and property investors captive to the hard-money world.

This could turn out to be risky business because inevitably, me-too mortgage lenders will jump in and offer similar programs. How much easy money investor saturation can be sustained in communities without loan defaults is anyone’s guess.

Mortgage broker Jeff Lazerson can be reached at 949-334-2424 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.

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Jeff Lazerson - Mortgage Columnist since 2011