Getting a mortgage is all about following the rules. Different mortgage brokers have access to different lenders, and different lenders have different rules. Those rules could change at any time, but at the time of writing this, these are some of of the strategies that investors use to buy properties and the rules associated with them.
A-LENDERS MORTGAGE HACKS
Mortgage Refinance. Most home owners see the mortgage refinance option as an option that people use when they are desperate for cash. This option can be a saving grace for someone who just lost their job, needs to pay medical expenses or put their kids through university. But this is also a great option for someone who just wants to buy more property. Here\’s how it works: if your property has doubled in value since you purchased it, then your lender may allow you to borrow up to 80% of that increase in price. For example, if you purchased a home for $300K and it is now worth $600K, then you might be eligible to borrow $180K in cash to buy another property.
5% Down, Owner-Occupied Home. If you are purchasing a home that you are going to live in, most lenders only require you to put down 5%. Most people know this, but what they don\’t know is that if you aren\’t going to occupy the property, most A Lenders require you to put down 20%. This is a huge difference, and for that reason, it\’s very important for you to take advantage of this strategy, which many first-time homebuyers use! That\’s the great thing about this strategy – most people who use it don\’t even realize that it is a strategy, and what a great decision they are making. Why put down 20% if you aren\’t required to? It\’s better to hang onto that cash if you plan to buy more properties in the future.
5% to 10% Down, Owner-Occupied Multifamily. This is similar to the above strategy, but this allows you to not only put down the minimal amount, but also rent out part of the property to tenant to increase your income. That increase in income will help you qualify to purchase more properties. If you are looking to buy a duplex, then you could put down as little as 5%. If you are looking to move into a 4-plex, then you could put down as little as 10%. This 4-plex method is highly sought after for new investors because with more units, there is a higher likelihood to get into a cash-flowing property.
B-LENDER MORTGAGE HACKS
5% Down, Owner-Occupied Home. Some B-Lenders allow the owner to live in a non-conforming unit within the property, such as a bachelor or basement apartment. This allows the owner to buy a home and count the rental income towards their own income to help them qualify for the mortgage. This strategy is ideal for a new investor who travels a lot, but would like to own a real estate investment.
90% or Better Financing Hack. For a non-owner occupied property, A-lenders typically require at least 20% downpayment but some B-lenders may only require 10% down, especially if the property is appraised to be worth more than the purchase price. In addition to that, they may allow you to borrow 10% from another lender, or borrow 10% from the seller using a VTB agreement. This is a popular strategy with experienced investors that allows the buyer to get the property putting down less than 10%, and sometimes even less than 5%.
Qualifying with a HELOC. Some B-lenders will allow you to use money from your home-equity line of credit as a downpayment. This is ideal for people who aren\’t refinancing their property; instead they open a secured (home equity) line of credit against their property and use money from that as a downpayment on their next property.
A word on B-lenders. B-lenders typically charge a higher interest than A-lenders. For example, if an A-lender is charging 2.0% then a B-lender might charge 3.5% or more, depending on how risky their investment is. Some B-lenders offer a 35-year amortization. Most B-lenders will charge higher fees to initiate and/or break the mortgage. If you are planning to BRRRR or just refinance the property in a certain period of time, make sure your mortgage broker knows this to help find a mortgage that has either a suitable term or exit fees that are acceptable. For example, some lenders charge 0.25% to break a mortgage which is $12,500 on a $500K property, while some lenders may charge a fee of only $2,000. B-lenders may take a closer look at the rental income of a property and qualify you to borrow more (this is called offsetting), while most A-lenders will only consider 50% of the rental income of the property to help you qualify (this is called an add-back and makes calculations simpler). Some lenders may allow you to roll your fees into the mortgage, similar to how they will often roll the CMHC insurance fee into the mortgage.
COMMERCIAL MORTGAGE HACKS
Pre-Qualified Properties. These are properties that have a price and income that meets the lender\’s criteria for a good investment and practically anyone with a sufficient downpayment can buy, regardless of their income. The downside is that these mortgages typically require anywhere from 25% to 50% downpayment. These mortgages are best suited for people that have exhausted their ability to purchase more properties under residential mortgages because their monthly debt obligations are at 35% of their income.
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