When my wife and I purchased a home we used to live in, which was a duplex, the only financing we could find for the investment property was through a mortgage broker. Mortgage Lenders are by nature skeptical of everything. They didn’t believe we were going to live in the property because the price per unit was lower than the house that we were selling. The mortgage broker was our only way to finance the purchase because, at that time, we didn’t have enough of a track record to work with local banks. Well, how to finance a rental property? We’ll know at the end of this article.
Mortgage brokers can be the key to financing investment property. A mortgage broker arranges long-term financing (loans that typically pay down in 15 to 30 years) through many different lenders for a fee. A correspondent lender is similar to a mortgage broker but does not service the loans it creates.
Financing Rental Property: Correspondent Lenders
From a borrower’s perspective, a correspondent lender is much like a mortgage broker. A “correspondent lender” is a special type of mortgage lender that originates and funds loans in its own name. Cindy Glenn is a correspondent Oklahoma mortgage lender located in the OKC metro area. The article is just a short review of the type of mortgage loans you can get from mortgage brokers in OKC and correspondent lenders to buy investment properties in the Oklahoma City metro area. I have another article you might be interested in that discusses getting financing from small local banks in the OKC metro, also.
She shared with me some information about obtaining financing for rental properties in the OKC metro area.
- To get financing for rental properties, your credit must be too good, with a minimum credit score of 740.
- The maximum loan to value is 85%, which means the borrower needs to bring a 15% down payment to closing plus their closing costs.
- To prove income, they must provide 2 years of tax returns.
- A single borrower can have up to 10 of these types of loans.
The rental properties that a mortgage company will finance need to pass at least a cursory inspection. It also needs to appraise. What that means is that most mortgages offered through mortgage brokers are not for renovation projects.
Note: What is a Real Estate Cash Flow Statement? Why is rental cash flow important?
Correspondent Lending Process Flow (Cindy’s Company)
- Pre-qualification over the phone. She will pull your credit and gather other relevant information to determine if the deal would not work or not.
- Total cost analysis. At this step, Cindy would prepare several options so the borrower can determine what would work best for them. The nice thing is that the borrower still hasn’t paid anything out of pocket yet for items such as inspections, appraisals, etc.
- The final step is doing the inspections, title work, and closing.
Hey, by the way, if you are planning to invest in OKC rental properties for passive income then you need to learn the possible way to build an investment portfolio of OKC metro rental properties. Here is the passive income workbook that explains how.
One nice feature of this financing is that the investment property loan has a fixed interest rate. For 30 year loans, the current interest rate is typically just under 5%. There is some variability because as Cindy puts it, there is risk-based pricing. Most local banks don’t amortize rental property loans for 30 years. This makes a big difference for single-family homes in the $100K+ price range. It’s really difficult to get those into a positive cash flow situation if the rental property loan is amortized over 10 or 15 years.
Here is Cindy Glenn’s contact information:
405-245-6845
Email: cindy@cindyglenn.com
Website: www.cindyglenn.com
RMLO NMLS 210415
FHA and VA Loans For Financing Investment Property
The other opportunity to use mortgage lenders is for FHA and VA financing. FHA and VA financing is owner-occupied. That means you have to move into the property. Some people have gotten this type of home equity loan and never moved into the property. That’s something called mortgage fraud and is taken very seriously by OKC correspondent lenders.
The biggest advantage of FHA and VA loans is that the down payments are low (3% and 0% at the time of this writing, respectively).
That said, you can live in this type of property, and later move out and lease it.
The other situation is if you are planning on buying a 4-unit or less property, and you plan to live in one of the units. Check with your OKC correspondent lender for special conditions that may apply to these. And, if these types of properties are currently eligible for those programs.
If you are looking for a trustworthy Oklahoma City Property Management Company that can handle your rental properties and make steady profits, OKC Home Realty Services can be your right choice.
Pros and Cons of Mortgage Broker for OKC Rental Property Financing
If you’re considering using a mortgage broker for rental property financing in OKC, here are some pros and cons to keep in mind:
Pros:
- Mortgage brokers can offer access to various loan programs and lenders, potentially increasing your chances of finding the best loan for your needs.
- They can help you navigate the loan application process and provide guidance on documentation requirements.
- Mortgage brokers can negotiate better loan terms and rates on your behalf.
- Brokers handle the paperwork and interactions with lenders, saving time and effort.
- Brokers can access rates through the wholesale channel with their investors, lowering rates and fees.
[Also Read: Tax Benefits of Owning Rental Property]
Cons:
- Brokers may charge fees for their services, which can add to the overall cost of the loan.
- Some mortgage brokers may have limited access to loan programs or lenders, which could limit your options.
- Mortgage brokers may not always act in your best interest, as they may be incentivized to steer you toward specific loan programs or lenders.
- Brokers don’t provide the funds for loans or approve loan applications. They help people seeking home loans find a lender that can fund their homes.
- Some mortgage brokers have behaved unethically in the past, which led to the regulation of the field via the Dodd-Frank Act.
Considerations While Choosing a Mortgage Broker For Financing Rental Property
When choosing a mortgage broker for rental property financing in OKC, here are some factors to consider to secure funding for your rental property in OKC.
- Experience: Always look for a mortgage broker with expertise in financing OKC rental property in OKC. They should understand the local market well and the loan programs available.
- Reputation: Research the mortgage broker’s reputation through reviews and testimonials from previous clients. This gives you an idea of their level of customer service and success rate in securing loans.
- Loan programs: Be sure the mortgage broker offers loan programs that meet your needs, such as FHA or VA financing. They should also be able to provide guidance on which loan program is best for your situation.
- Fees: Request about the mortgage broker’s fees and how they are paid. Some brokers may charge upfront fees, while others may receive a commission from the lender.
- Communication: Choose a mortgage broker who communicates clearly and promptly throughout the loan application process. They should be available to answer your questions and update your loan status.
- Interest rates: Take comparison rates from multiple lenders to ensure you get a competitive rate. A good mortgage broker can help you find the best rate for your loan.
Also Read: What is Digital Real Estate – The Future of Investing
FAQs on How To Finance Rental Property
How do you finance an investment property?
If you want to do an investment property financing, Consider using an online lender. Many investors continue to fund real estate purchases through local banks and credit unions, but they are no longer the only choices. Make a sizable down payment, Gather a group of buyers and inquire about seller financing.
Who purchases loans from a correspondent lender?
The Credit unions, banks, and other financial that lend loans directly to the consumers also purchase loans from the correspondent Lenders. This assumes you can get a loan from a correspondent lender, but the loan will be acquired on the secondary market by a credit union, which will then serve as your servicer.
How do correspondent lenders make money?
The correspondent lenders make the money by collecting a fee when it closes and then immediately try to sell the loan to the sponsor to make money and mitigate the risk.
Can I get a mortgage based on rental income?
Yes, you can get a mortgage based on the rental income.
Are mortgage rates higher on rental properties?
The mortgage rate for rental properties is higher in comparison to others. The rental Property mortgage rate for single property homes rent from 0.50% – to 0.75%.
Can I rent out my house without telling my mortgage lender?
If the clause is mentioned in the mortgage contract then you absolutely have to notify the mortgage lender before renting to anyone. If the clause about rent is not mentioned in the mortgage contract, then you can rent without telling the mortgage lender.
Can I refinance my rental property in the future?
Sure! you can refinance a rental property in the future to secure better loan terms or access the property's equity. Just discuss refinancing with your mortgage broker and monitor market conditions for favorable opportunities.
How long does the financing process take?
The duration of the financing process may vary by the complexity of your financial situation, the lender's efficiency, and the volume of loan applications processed. It can take around 30 to 45 days to complete the financing process.
