Financing Challenge For A Triplex In NJ
We got a deal (we will buy & hold) - we offered $320,000 to the seller on a 3-family house whose value would be $360k to $420k, and he accepted. Since we don't have much to put down (only 5%), our real estate agent structured the contract stating the purchase price be $339,200 and the seller is contributing the amount of $19,200 to us as closing costs. In this way, the closing cost can be financed, he said.
When the contract is under lawyers' review, we started looking for the finance. A mortgage broker referred by the agent said we could go with the FHA loan program, but she evades us by not giving us a specific rate.
Considering that even if we go with FHA, the mortgage insurance we will have to pay at the closing will be more than $4k, we called other sources to find what kind of loans & rates we can get. However, we found a pretty frustrating fact - all the conventional loan programs would require at least 20% down payment for a triplex. The percentage could have been 5 if it were a 2-family house.
One mortgage banker who thought we are buying a single family even agreed to give us the loan at very low rate given both of us have excellent credits and sufficient income. When I corrected him that it's a triplex, he said he couldn't do it 'cause it's a rule for any conventional loan.
All right, if that's case, we cannot go with any conforming loan programs. Aren't there any non-Freddie Mac or non-Fannie Mae loans that we can possibly get? It would be painful if hard money lenders are the only resort. Any suggestions?
See if the seller will carry back a second mortgage for 20% of the value for a year baloon and then refinance it into a home equity line. You may have to offer them a premium interest rate on that 20%, but it's better than no deal. If you can owner occupy one of the units, it may help with the mortgage companies.
Best of luck,
Andrew
Yes, we will owner occupy the first floor once we purchase it, but still no bankers or mortgage companies would be interested in providing us up to 95% loan even thoug the cash flow is good.
Asking the seller to carry 20% finance is not an option clearly from the beginning, and he's in need of the full amount of cash to pay 5 creditors of his. And that's exactly why we could got such a good price.
Well this is not at all my field but since no-one else seems to want to weigh in here--- Its alway been my understanding that the FHA/HUD guidelines for thier loans are four units and less. So I think you haven't found the right lender yet. Try the yellow pages or the newspaper under mortgage brokers and explain you are looking for someone to originate a FHA loan on a three flat-- may take some phone calls but each one should be short, only one question.
You have many options based on the info you gave. Exactly what depends are your credit score and recent credit history and of course, your income (including leases you may have on this triplex currently). FHA would be my initial thought on structuring this deal. Rates, of course, change daily, but let's say approx 6.25 - 6.5%. The upfront mortgage payment is rolled into the principal, so you're not paying that out-of-pocket. In many cases, what I like to do for my clients, esp. the investors, is to put them into interest only loans. Why? Lower mortgage payments, and therefore, better monthly cashflow. Hope this helps. If you wish, feel free to email me at **Please See My Profile** to discuss further.