Best way to get a Mortgage for Investment Properties over $10,000,000

Real estate investment requires a significant amount of money. With five or ten thousand dollars, you can comfortably get into the crypto or stocks market and make a healthy profit. However, when buying property, you need hundreds of thousands of dollars. Most times, you will need to get a mortgage to be able to afford a real estate property.

Buying an investment property is one of the best ways to make money from real estate. Investment properties enable you to generate income through rent payments or equity appreciation. Getting a mortgage for an investment property is usually tricky. Lenders typically set steeper requirements to offset their increased risk on this type of loan. While it may be easy to meet these requirements on smaller amounts, getting an investment property loan for amounts running in the millions is usually herculean. This piece shows you the best way to get an investment property loan for enormous amounts.

Types of Mortgages for Investment Properties.

Before taking a loan for an investment property, you need to understand the available options. A significant characteristic of all investment property loans is that the federal government does not back them. These loans may be offered by traditional financial institutions or personal lenders and commonly include the following;

Conventional Mortgages

Conventional mortgages are the most common loans to finance residential and investment properties. Conventional mortgages conform to Fannie Mae and Freddie Mac regulations and, as expected, aren’t backed by the federal government.

Conventional loans for investment properties have very steep qualifying criteria. For example, most lenders will need you to have a credit score of at least 680, make at least a 15% down payment, and have at least six months’ worth of mortgage payments in cash reserve. You must have higher credit scores and make higher down payments to get better interest rates on these loans. Conventional loans also have lengthy processes, as lenders need lots of checks before giving you a loan.

Conventional loans are suitable when you want to buy a property for less than $600,000. Despite the steep requirements and lengthy processes, these loans are usually better for investors as they are less predatory and have longer terms, allowing investors to pay back easily.

Jumbo Loans

Jumbo loans are very much like conventional loans. However, these loans are reserved for buying very expensive properties, typically between $647,200 to $3 million. Jumbo loans are also known as non-conforming loans since they do not adhere to the Fannie Mae and Freddie Mac guidelines.

Jumbo loans have steeper requirements than conventional loans. A jumbo loan is not for the average home buyer but for high-end investors with an excellent ability to repay. Such investors must have a very high credit score (typically more than 720), make a high down payment (25-30%), and have at least 12 months of cash reserves. In addition, lenders typically charge higher interest rates on Jumbo loans, typically about 1% higher than conventional loans.

Hard Money Loans

Hard money loans are rarely used t finance long-term holdings. Instead, these loans are used to finance properties investors want to fix and flip. Private individuals with adequate finance usually offer hard money loans. Since these individuals are rarely concerned about your credit history, hard money loans are easier to obtain. However, they come with steep down payment requirements, up to 30% in some cases. The most significant disadvantage of hard money loans lies in their predatory interest rates. These loans require that you pay interest of up to 13%, with terms as short as 18 months. Therefore, hard money loans should only be reserved as a last resort to finance a quick flip.

Home Equity

You can take out a home equity loan against the equity in your primary residence to buy an investment property. A home equity loan is more uncomplicated to qualify for and typically has better terms since your primary property will be used as security. You need a credit score of at least 620, a debt-to-income ratio of at least 43%, and a strong credit history to qualify. However, you won’t be eligible for a home equity loan unless the value of your current home and the property you wish to buy are equal.

Non-QM Loans

A non-qualified mortgage, also known as a non-QM loan, is a form of mortgage loan that enables you to qualify using different criteria than the usual income verification needed for most loans. The federal government’s and the Consumer Financial Protection Bureau’s (CFPB) standards for qualifying mortgages are not met by non-QM loans. Non-QM loans give more people access to real estate investment opportunities due to the more flexible qualifying standards.

If you require more debt relief than your credit score permits, a non-QM loan is the best option. People who cannot meet the Qualified Mortgage (QM) requirements for a Quasi-Market Mortgage Loan may qualify for a Non-QM loan. Usually, these are people with median incomes and poor credit histories. Due to their fast payouts, non-QM loans are comparable to hard money loans. However, they often require lesser down payments and have lower interest rates. Your credit history is also considered for non-QM loans; however, the standards are less strict.

Other loan options for purchasing investment properties include;

• Private money loans
• Owner financing
• Cash-out refinance
• Blanket loans

Which option is best for a $10,000,000 mortgage

You will need a non-conforming loan to finance the purchase of a $10 million property. Non-conforming loans like jumbo do not fall within the Federal Housing Finance Agency (FHFA) limits. Thus, lenders can allow you to borrow more than $650,000 to buy a property. While most jumbo lenders have a limit of $3 million, many lenders will let you to borrow up to $10 million and even $15 million. To be eligible, you must, of course, be able to afford the monthly mortgage payments on a $10 million loan. And for this reason, lenders’ requirements for jumbo loans are so stringent.

Can you finance a 10 million dollar mortgage with an SBA 504?

The Small Business Administration’s 504 loan program offers low-interest, long-term, and fully amortized commercial real estate loans to qualified borrowers. The SBA 504 program thus presents an excellent opportunity for businesses seeking funding for commercial real estate. However, SBA 504 loans have some limits. For example, you can not use them to finance apartment complexes, condominiums, or multi-unit family homes, all of which are residential-type investment properties. These loans are specifically for commercial properties like daycare centers, hotels, office buildings, retail buildings, etc. In addition, these loans have an owner-occupancy requirement that expects the building to be at least 51% owner-occupied. Also, individuals cannot obtain SBA loans. These loans are made specifically for small businesses.

Thus, if you will use an SBA loan for an investment property, it has to be for a commercial property like a mall, and your business has to have 51% of it, then you can rent the rest of the building to other businesses.

What are the financial implications of a $10 million mortgage?

You’ll typically need a 20% down payment if you want to take a jumbo loan for a $10 million property. Some lenders may require that you make higher down payments considering the mortgage price.

To meet the down-payment requirements, you will need to have at least $2 million in cash. You will also need to make at least $1.8 million annually to meet monthly mortgage payments on a $10 million mortgage. The good side is such a property should easily be able to generate such an income from rent or equity appreciation. `

You must demonstrate that you have the income to make the monthly payments on a jumbo loan since they typically have tighter underwriting requirements than conforming loans. Most jumbo loan mortgages come with a 30-year fixed interest rate of around 5%. If you have strong credentials, you might be able to obtain a reduced rate; otherwise, you can end up paying more if your credit history is poor.

With the standard 20% down payment ($2M), you would have an $8 million principal debt. Thus, your $10 million property would require a monthly mortgage payment of around $43,000 at 5% interest.

Financial experts believe that mortgage payments should not take more than 28% of your monthly income. Therefore, paying $43,000 in monthly mortgage requires you to make at least $153,571 monthly, equating to $1,842,857 annually. However, while you may be able to afford mortgage payments with such an income, it will be better if you earn more than that, probably up to $2 million annually.

If you’re buying a $10 million property, you must consider your yearly income and other non-mortgage-related expenses. These include credit card debts,  student loan payments, car payments, childcare/schooling, vacation homes, etc. You must also consider the purpose for which you are purchasing the property. If you plan to generate income through rent, then you must be able to get tenants that can afford the rent payments in the long term. Thus, your property has to be in a high-brow area, capable of attracting top players in society.

Regardless of your class of tenants, you must consider the probability of things going wrong at any time. Thus, you must have adequate financing to cover eventualities such as your tenants not paying rent. You must also have sufficient finance to cover the property’s maintenance and renovations.

How to get a Jumbo Loan for a $10 million Investment Property

Jumbo loans, like regular mortgages, can have fixed or adjustable interest rates and a wide range of terms and repayment plans. Jumbo loans, however, operate differently from standard mortgages. To qualify for one of these loans, you’ll need to meet very particular down payment, credit score, and debt-to-income ratio requirements.

Because the government has no restrictions on how to use your jumbo loan, you can use it to buy various properties. You can employ the majority of jumbo mortgages for all varieties of investment properties as long as you comply with your lender’s other standards.

Other requirements for a jumbo loan include;

Down payment

The down payment requirements for jumbo loans are often substantially more significant than those for conforming loans. Lenders frequently demand a 20% down payment for jumbo loans for single-family homes. A larger down payment could be required for multifamily buildings. In addition, your loan amount and credit score are considered when determining the down payment needed. For a $10 million investment property, you will ideally be required to make a 25-30% down payment.

Credit score

Obtaining a jumbo mortgage depends heavily on your credit score. Your credit score is a quantitative assessment of your dependability as a borrower. This score, which depends on several factors, can range from 300 to 850. The credit score you’ll need to qualify for a jumbo mortgage depends on the lender and the loan terms. The minimum FICO score required to qualify for a jumbo loan is 700, though it may go as high as 760 depending on the type of property and the purpose of your mortgage transaction. You usually need a credit score of at least 740 to qualify for a $10 million jumbo loan.

Debt-to-income ratio

Your debt-to-income (DTI) ratio evaluates your income in relation to the total amount of debt you have. When applying for a jumbo loan, having a low DTI ratio demonstrates to lenders that you will have sufficient cash flow to service your mortgage. You can be eligible for a jumbo loan with a more excellent DTI ratio if your down payment or credit score is higher. A DTI of 36% or less is typically required for a $10 million investment property jumbo loan.

When looking to get a jumbo loan, your primary focus must be on improving your qualifying metrics to show lenders that you are a worthy borrower. Besides, a better credit score, DTI, and higher down payment will also get you better rates on your jumbo loan.

How to get the best rates on jumbo loans

Confirming that your finances and credit history are in order before you begin researching jumbo loan providers is crucial. Regardless of the lender, if your credit score is strong, your DTI ratio is low, and you have a sizeable down payment, you’ll obtain the best loan terms.

When researching jumbo loan providers, try comparing the rates and services of different lenders. Lay your search results side by side, and you can get a good idea of your most favorable lender.

When comparing different lenders, it’s important to focus not only on rates but also on other expenses such as loan origination fees and closing costs. When you have completed your comparison, you may be able to use the information to negotiate better fees with a preferred lender. For example, you may prefer the services offered by a specific lender, even though their rates and fees are .5% higher than the lowest-rate lender. You can then use the rate information to negotiate with the better-service lender to get the “best of both worlds.”

Can you get a $10 million mortgage with a non-QM loan?

Some lenders offer a “non-QM jumbo loan,” which allows borrowers with poorer credit histories to access large amounts of up to $10 million. While this is rare, it offers an opportunity for borrowers with poor credit scores and without certain documentation to afford a high-end investment property.

Lenders might require a credit score of about 640 and a 10-15% down payment for this type of loan. However, these lenders will typically not need you to present tax returns or bank statements. You will also be allowed to use income obtained from the property to qualify for this type of loan.

Bottom line

Buying a $10 million investment property is no mean task. If you cannot pay for such a property with cash, your best bet is to take a jumbo loan. Most jumbo loans have a $3 million limit; however, you may be able to find a lender that will offer you a  jumbo loan of $10 million or higher. In some cases, you may not qualify for a regular jumbo loan. As such, you can finance your property with a non-QM jumbo loan that allows alternative means of proving income. Finally, you may consider an SBA loan if you own a small business and are looking for $10 million to finance commercial property.

Before getting a $10 million investment property mortgage, ensure you do your checks and balances. The profit you will make from the property, either through rent or equity appreciation, has to be able to pay for the mortgage; if not, it may not be the best investment. Aurum and Sharpe offer a range of mortgage options for investment properties. These include non-QM loans, and cash-out refinance for these properties. Contact us today at 9177404325 to book an appointment, or use the online form to get in touch.

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