Mortage Options And Goals
Hi,
I am looking to purchase rental properties for cashflow. I am confused about the different mortages options are and their associated goals and advantages. Could somebody clarify?
30 year fixed
5/1 ARM
5 year ballon
Using a 100% LTV loan to save on down payment.
Using a Paper note to purchase a property.
Any advice / input is welcomed. Thanks.
Hello,
1) 30 year fixeds are usually not recommended unles you are going to be holding the property FOREVER and already have some GREAT cash flow! Why would you want to be stuck with the longest rate and the longest term is you're only planning to keep for 3-5 years.
2) 5 Yr ARM - Good if you're planning to keep from 6 years and under. Because usually there is a cap on the first adjustment (usually just 1%) you still have time to get out of it in time! The 5/1 ARM will probably give you the best rate.
3) A 5 Yr Balloon - Only good if you know FOR SURE that you will be selling in 5 years FOR SURE. Come month #60, you will literaly be owing the ENTIRE balance on the mortgage, if it is for sale and it has not sold yet, you will probably be stuck with a foreclosure.
4) 100% loans are good, but you got to see how much you would save in cash vs. how much you would save monthly compared to one where you put money down. It may seem like a good short term option, but for long term it may hurt you.
5) No advice on paper note - do not know much about these
6) Here is one of my own - interest only payments. Maximizes your cash flow by strictly paying simple interest. Can save you a good chunk of change.
I'm guessing this will be your first investment property?
To go with a conforming loan, you have to have 2 years of property management experience now...fannie mae is requiring lenders to enforce this rule, whereas in the past they have been willing to over look it...this puts you into non-conforming loans with non-conforming lenders...most of the time these lenders are going to want to put you on a 3-5 year arm and charge you a pretty good premium to get a fixed rate mortgage...
100% LTV is also going to be more difficult to find as a NOO investor...