Home Buying in 95843>Question Details

Tracy, Home Buyer in Antelope, OR

My brother is willing to purchase an investment property for me and my husband to rent from him. Is it true?

Asked by Tracy, Antelope, OR Tue May 20, 2008

that he must put 20% down payment on the home?

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Answers

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I'll back Jeff Marr, the loan broker, over my fellow Realtors on this one.

If an investor is not putting 20% or more down he is not a conservative investor, he is a speculative investor. The cost of money for highly leveraged investors is so very much higher than the cost of money for a large down pay investor that the the extra 10% to 15% borrowed is costing an interest rate similar to credit card interest rates. (for the EXTRA money borrowed, not the first 75% LTV of the loan) It does not make cash flow sense to the traditional investor to pay 18% for an extra $10,000 on the loan.
0 votes Thank Flag Link Mon May 21, 2012
Jim Walker, Real Estate Pro in Carmichael, CA
MVP'08
Contact
Tracy - just recently mortgage insurance companies have all but stopped insuring investment properties, so it's true that 20% down is required on an investment property these days. Other options would include getting a willing seller to carry back a portion of this amount. Less likely would be getting a piggy back mortgage (2nd loan), not many lenders are willing to do this though I do have one local contact for this...

Have you and your hubby considered buying a home under your names? Just curious...

good luck!

Jeff Marr
Stanford Mortgage
916-947-1312
0 votes Thank Flag Link Fri May 30, 2008
Hi Tracy: It is a great idea what you are proposing. I actually work with investors buying homes for people through a Rent-to-Own package. I think this would be perfect for you and your brother. You can get more details on my website. For you, you would click on the Rent-to-Own link on the left tabs and for your brother, he would click on the link for the Rent-to-Own Investor link on the left.

But to answer your question more directly, investors can pretty much count on about 20% down for today's investor's loans. However, I work with some lenders who are quoting 10% down with great credit for the investor and that investor is able to withstand full documentation with their application. If you want me to put your brother in touch with those lenders, let me know.

Good luck -- I hope this helps.

Erin Phillips
Keller Williams Realty
916-580-2227
Web Reference: http://SoldByErin.net
0 votes Thank Flag Link Tue May 20, 2008
You do not mention whether you can qualify for a loan yourself, or possibly have your brother or another family member co-sign for you. As others have mentioned, there are a multitiude of loan programs for the first time homebuyer in Sacramento county that are available. My two most recent clients found that, for the downpayment (out of pocket $) that they invested, they actually paid less than putting down one month's rent and one month's security for a rental! Plus they got all of the tax advantages of home ownership.

Your brother's interest might be not only in helping you out but in the tax advantages offered to him while investing in real estate. He would be able to find some great investment properties out there and know that the 'tenant' would be reliable to maintain his investment. If not, I would suggest you not mix business and personal by renting from your brother. Too many relationships are strained if you don't have a clear understanding there.

I would suggest that you get both your, and your brother's motives all on the table and then look at alternatives. If your brother is going to buy it, there are programs that require 10-15% on investment property but other factors need to be considered, such as his credit score, cash flow and collateral strength. These might be the reason that the lenders he has contacted require 20% down.

There are many quality lenders in the Sacramento area that I can refer you to if you need them to shop for other offerings.

Good luck!

Sue Archer
Realtor, GRI, ABR, SRES
The Galster Group
(916) 847-9686
Web Reference: http://www.suearcher.com
0 votes Thank Flag Link Tue May 20, 2008
No . . . 80% may be the highest loan-to-value the lender is willing loan on a mortgage but the 20% does not need to be in the form of cash. Seller carry-back and institutional 2nd mortgages (from the same lender) work great if your qualification scores are high enough.
0 votes Thank Flag Link Tue May 20, 2008
Both you and your brother should check with an investment advisor on the best way to structure the transaction. I'm not an investment advisor or a CPA, so this is not financial advice, however...

For example, it might make more sense for your brother to co-sign with you, so all three of you are on the mortgage and on the deed. That way, you might be able to get the preferred homeowner financing, while--structured properly--he could still get certain tax benefits.

That's very similar to, and could be structured as, an equity sharing arrangement. (Just Google "equity sharing" for more information.)

Even going with the scenario you proposed, no, he doesn't need to put 20% down. Shel-lee provided some of the more "conventional suggestions," which are definitely worth following up on. Your brother might also find someone willing to do owner financing, or a lease-option. With a lease-option, your brother probably would have to put up far less. It's all negotiable, of course, but it might only take the equivalent of 3-5 months of lease payments--in the form of an option fee--to set up the lease-option. Have him make sure that the option is assignable, so that if in the future you wanted to purchase the property, you could do so directly from the owners.

Hope that helps.
0 votes Thank Flag Link Tue May 20, 2008
Don Tepper, Real Estate Pro in Burke, VA
MVP'08
Contact
Tracy:

It is really wonderful that your brother is willing to help you out like this. With such a great brother, why not look into buying the home yourself and having your brother co-sign on the loan. FHA allows a co-signer for qualifying purposes but only requires a 3% down payment. If your brother is looking for an additional tax deduction he should check with his tax advisor on whether or not he would be able to take any deduction in this scenario.

Other options might be to work with a realtor and lender who specialize in 1st Time Homebuyer representation. In So California there are many city and county programs, in addition to the state and federal programs available to help 1st time homebuyers purchase a home with $0 out of pocket costs. You might be surprised what you can buy with some govt help.

If you would like a referral to someone in your area that can help you out, contact me. Since I specialize in 1st Time Homebuyer representation, I can refer you to lenders and/or screen realtors to insure you work with a true pro in your area.

Good luck fulfilling your dreams of living in a home.

Shel-lee Davis
Real Estate Consultant
RE/MAX Palos Verdes Realty
0 votes Thank Flag Link Tue May 20, 2008
Hi Tracy,

if he already has a house in his name and this property that he is buying is close to his home, cheaper than his previous purchase, smaller in square footage, then the lender mostly requires 20% down.
Best of Luck,
Laarni
0 votes Thank Flag Link Tue May 20, 2008
Hi there Tracy, it all depends what program he is looking at. I do know some investor finanancing has new restrictions on loan limits now.
Hope this helps
Regards
Michael Barron
First team Real Estate
0 votes Thank Flag Link Tue May 20, 2008
With some looking you may be able to find 90ltv financing. Investor financing has tightened up on the ltv limits.
Web Reference: http://getprequalified.com
0 votes Thank Flag Link Tue May 20, 2008
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