We’re going to talk about how much you need a down payment and funding sources of funding? How can you get two of them? Let’s list different types of mortgages available out there for you. You have VA loans, FHA loans, traditional/residential types of loans, and commercial loans. To start, we’re going to go over the VA loans.
VA loans are loans available for veterans. Yes, you have to be a veteran to qualify. The minimum down payment required for this is 0%. That’s a great deal if you don’t have enough savings. You still have to cover some of the closing costs, but that’s easily taken care of with credit cards or maybe some of the savings that you have.
To qualify for a VA loan, you will have to have a credit score of at least 620. You have to keep in mind that when you put 0% down, you have to pay a VA fee. That could be easily avoided if you put down 5%. Assuming you have a house with an asking price of $100,000 if you decide to use a VA loan, chances are, you won’t have to worry about putting any down payment. If you don’t want to worry about paying the VA funding fee, you put a $5,000 down payment, equivalent to the 5%. That’s one category.
Now, we’re going to move on to FHA. FHA stands for Federal Housing Administration, and these are typically loans that will require you to put down somewhere between 3 to 3.5% of the down payment. For example, if you have some savings available and you find a house for $100,000, you have to put down somewhere between $3,000 to $3500 as a down payment. The requirements for the credit score typically lower. You will need a 580 credit score.
The reason why I’m listing these two loans up at the top is that for you to leverage these, you’re going to have to reside in the property. You’re going to have to find one type of stuff that has somewhere between one to four families in either one of them. For VA loans, you have to live in the property no matter what. I will suggest that if you’re planning to purchase a house for investment purposes, that you find one that has one to four families, and you reside in one of them, and you rent out the other three.
The same thing or a similar situation applies to FHA loans. For FHA, you have to reside in the house for at least one year. What you can do is either by a single-family and just live there, and then, a year later, you just move out or just simply make the same investment in housing that has the capacity to house one to four families in one structure. The same thing, you live in one, and then, you just rent out the other three.
Now, for traditional/residential, I think that’s what we typically hear about the most. For this type of lending, you will need about a 20% down payment. If the asking price of your house is $100,000, then you’re going to have to put down $20,000 for the down payment of your home. Now, if you want to go– Oh, the minimum credit score that you need for a residential is 620 as well.
Now, moving on to the commercial. That will require a bit more money down, typically. If you’re lucky, you can get it for 25%. Let’s say, assuming that the investment property costs $100,000, you’re going to have to put down $25,000. Typically, the FICO score requirements, your credit score requirements have to be of at least 650. I believe the assumption is, well, if this person is going to invest, he or she must have money, or the company itself has to have money.
The requirements are a little bit more strict, and you will require a little more paperwork, but that’s not to say that it’s not possible. Then, whenever you’re buying anything commercial, that means anything that’s five units and above, you cannot reside there. They make you sign a disclosure attesting that you will not reside or have no intention of residing in that property anywhere in the near future. That’s it in terms of how much money you need.
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Fundings for your down payment
Now, I want to talk about funding. How do you get funding for your down payment? One way is to do it through savings. That’s a great way if you’ve been planning for a long time, but let’s say you decide overnight or maybe a year from today that you want to invest in a property. Chances are, you might not have enough down payment. If you do, congratulations, but for those that don’t or are falling short, there are other ways where you can come up with the money.
One of them, it’s credit cards. Yes, I know. It sounds crazy, but yes, you can leverage credit cards for a down payment. If you don’t know how to get the money out of the credit cards, here’s a link that you can go over and take a look at the video and the content. Hopefully, you find it helpful. The other way is through a cash-out refinance. I view it as an exchange of something for those who don’t know what a cash-out refinance is. You go to a bank, you take your property, and you say, “Hey, Bank XYZ, I want to do a cash-out refinance on this property, what can I get for it?”
They’re going to assess it. They’re going to evaluate, and say, “Well, you know what, I’ll give you up to 80% of what it’s worth.” They’re going to become the new owners, temporarily, and they’re going to issue a certain amount of money, and then, you’re going to take that money. You’re going to use it either to invest on a flip or to put it as a down payment, whatever is it that you want to do with it. If you want to learn more about cash-out refinance in detail, here’s a link that you can refer to.
Now, once you get that money, either through credit cards or giftings, and things like that, or even through a cash-out refinance, you have to consider the season. You have to let your money season. You need to be able to prove where the money is coming from, and it has to remain in your account for at least 60 days. Let’s say, for example, you go ahead, and you take money out of the credit cards, you start doing that, you plan, maybe even before you find a suitable property because you want to make sure you have enough funding in your account. You start taking money out of the credit cards, and you leave it in your mind, and you wait for 60 days in your account. Then, after 60 days, that’s when you go ahead, and you apply for a loan.
Now, not all fundings will need to be seasoned in your account. For example, any money that comes through your employer, like your paycheck, maybe even a gift from family, parents, and stuff like that, you don’t have to prove or wait that seasoning period because as long as they issue you a letter, then, you can evidence, “Okay, well, this money is legit.” That’s what it comes down to. They want to see that the money that is sitting in your account is legitimate, and it’s not something that just popped out of thin air and next thing you know, it’s going to disappear overnight.
Back to the parents and your siblings, if somebody decides to gives you the money, they’re going to have to issue you a letter and say, “Hey, while I’m giving Lucy $10,000 as a gift so that way this person can use that money as a down payment.” Never say lending because now the bank is going to think, “Okay, now this person’s going to have to return the money to their friend or their parents and to us.” It’s just not going to look good because there’s a possibility that you might default.
If you are receiving money as a gift, make sure that there’s something in writing that can attest that it is a gift. However, your friends or your family are going to have to wait for the 60-day period. They are the ones who are going to have evidence of 60 days. However, there’s a way to “bypass” this. That’s basically through a cash-out refinance. If you’re doing a cash-out refinance and then immediately you want to do the purchasing, then you will have to wait that 60-day period. I’m not sure if this is across the board with all the banks. I know mine did it. The trick is to be able to do it with the same bank.
For the purchase of my 17 unit, what I did, and if you don’t know how I did it, here’s the link as well, so you can refer to it. The lender worked with me because they were willing to issue money or funding for a cash-out refinance, and then, on the same day, also closed on the financing of the property. Let’s say, for example, I wanted to buy a property that was worth $100,000, but I needed to put 25% down. That’s $25,000, which means I’m going to have to finance that remaining $75,000. That same lender was willing to do a cash-out refinance in one of my properties and gave me the money for that, and then, at the same time, they’re closing for the financing of the rest, which is the remaining $75,000. It was all closed within one same day.
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When that happens, you don’t have to wait for the money to “season”. It’s basically because the lender can see where the money is coming from. If the money is coming from the same bank that is issuing you the financing, then, I mean, it will be pointless for you to have evidence that money and just let it sit there. I remember that when I did that, I was working on closing for another two, three days, and the bank was okay in terms of the seasoning of the money. They didn’t require that I have to leave the money in my account for up to 60 days. I think it all depends on the bank.
If you don’t know, I suggest you just find out. Just walk up to any lender or any potential lenders that you’re planning to work with, and you ask them and explain them. Always be transparent with them and tell them, “Hey, I want to invest in this property, but I don’t have the money for a down payment in cash, right now, in my bank account. I was planning to do a cash-out refinance. Do you want the money to remain in my account for the next 60 days or so, or is it okay if I show you where the money’s coming from, and then you can just go ahead and allow me to use that money as a down payment for this property that I’m trying to buy?”
Chances are, they are going to be okay with it, and if not, then just move on to the next lender. Maybe that one person doesn’t understand what you’re saying. That’s okay. There’s plenty of other lenders out there that you can use and go and build relationships with.
RESOURCES & LINKS MENTIONED IN THIS EPISODE:
– Recommended Credit Cards: https://go.www.novariseinvest.com/credit-cards
– Chase Sapphire (Sign up bonus): http://bit.ly/Sapphire-Chase
– Get pre-qualified with Fund & Grow ($500 off using this link): https://go.www.novariseinvest.com/funding
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