New Finance Options
Opening Up Market Opportunities
Published January 22, 2020
Do you see a lack of knowledge in the credit lending space?
I do. I see that there is a lack of knowledge about the programs available for buyers and of the types of individuals that can qualify for a loan. There’s a misconception that you need a high credit score and a large income to get financing. That’s simply not the case. In fact, some FHA loans can qualify a buyer with as low as a 550 credit score. You can even qualify for a loan two years after filing for bankruptcy. The market and guidelines are changing because there is more money available today. Yes, a lot of lending products were discontinued after the Financial Crisis, but there are a whole new set of options that lenders can offer buyers of residential and commercial properties.
"The market and guidelines are changing because there is more money available today."
Are real estate agents getting enough education on loans and financing?
I think agents can benefit from more education in financing options. Up to date knowledge of loan products can increase their productivity and client retention. Some agents may be new and they may feel intimidated about the amount of information that it takes to become comfortable with the topic of finance. This works to their disadvantage, because the more information that they have at their disposal, the more clients they can help to achieve their goals. There is also a misconception that buyers need to go to a big bank to get a loan. That’s simply not the case today. Buyers have many options, and it’s helpful when agents are aware of what they are.
"The market has an appetite for more products today than we’ve seen in recent past."
What are the pros and cons of dealing with a smaller versus a larger financial institution?
The market has an appetite for more products today than we’ve seen in recent past. Consumers tend to think that large lending institutions are the only solution. This is a fallacy. In fact, smaller lenders tend to be more customer-service oriented. Larger financial institutions tend to have departments that focus on specific financial products. The specialists in those departments may not have the knowledge of products in other areas of that organization that may be better suited for their clients.
Also, in larger financial institutions, you may be dealing with someone out of state, who may not know the local market as well as a local lender. I’ve seen instances where a purchase loan was declined by one bank representative, and then approved by another, at the same institution. I’ll also add that decisions in larger institutions may take a much longer time to get approved because of all of the layers that they need to go through. Smaller institutions, on the other hand, maybe able to close on transactions much quicker.
How can smaller investors with limited backing finance a rental property in the red-hot multifamily space?
To educate speculators in the multifamily rental space, financing with a minimum of 20% to 25% down*, no income, and no employment is possible for up to four units for investment. The reason that it's possible to do this is that we’re qualifying the property’s income, rather than the individual’s. If this same property were owner-occupied, we could work off of bank statements to get the buyer qualified. For multifamily properties above four units, the criteria would be different.
The red-hot multifamily market is enticing for
a lot of Southern Nevada investors.
"...Fannie Mae and Freddie Mac have recently announced loan limit increases. The VA has done the same for veterans, which I believe will help move higher-priced inventory that’s currently on the market."
What are some of the lesser-known loan products that are out there that buyers are missing out on?
One that comes to mind is the bank statement program. This is tailored for self-employed borrowers who have a lot of write-offs and who generally don’t report high incomes on their tax returns. The qualification process involves presenting 12 or 24 months worth of personal or business bank statements with a minimum 10% down for an owner-occupied property, or a minimum of 20% down for an investment property, all with a qualified credit score.* For buyers that already own rental income property, we can use the income from those properties to qualify them for financing.
From a lending perspective, how do you see the Southern Nevada property market playing out in 2020?
I would call it steady. I don’t think that we’re going to see many fluctuations, especially with the unemployment rate being so low. I also think that the more that people talk about “the next crash,” the less likely it is to happen. This is because people are taking precautions that they didn’t in the years leading up to 2008. The days of everyone being a self-declared real estate investor are over.
Lastly, Fannie Mae and Freddie Mac have recently announced loan limit increases. The VA has done the same for veterans, which I believe will help move higher-priced inventory that’s currently on the market.
Federal Reserve Economic Data
Case-Shiller Las Vegas Home Price Index 2002-2019
How do potential investors overcome any fear that they may encounter about investing in this market?
Ultimately, it comes down to education about the market and about the types of properties that they want to invest in. They also need to bear in mind that a lot has changed since 2007-2008, but they should also not overextend themselves. Real estate is still a very sound investment, with an appreciation averaging 5-6% per year.
*This is for educational purposes only to assist business professionals. This is not an advertisement extended to consumers.
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