- What's up everyone, hey,
it's Clint Coons, here. And in this segment, what I wanted to talk about was lending. 'Cause we know how
difficult it is many times when market or interest rates go up. And if you're an investor
and you're struggling trying to figure out how to
put that deal together and where that money's going to come from. Well, that can be a
problem to hold us back with our real-estate investing. So what I thought I would
do with this episode, is bring on someone who is
an expert in their field that has been in the lending business and knows how to work with investors. So I reached out to someone who we actually use here at Anderson. We make them available. They're one of our preferred providers when it comes to lending and we recommend that our investor clients
check out their products and work with them as far as
putting their deals together. And that person that I'm
been bringing on right now is Rick Floyd, the
Executive Vice President of HomeBridge Financial Services. Rick, you here. - Yep, I am, Clint, is
glad to be with you today. Thank you. - Thanks for coming on. You know, owning a lending
company and starting all that up, it's got to be kind of interesting. So could you tell us a
little bit of background, and how you got to where you're at? - Yeah, absolutely, it's
a pleasure to be here. HomeBridge Financial Services today, we're an independent mortgage lender. We employ about 2,400
associates across the country and we actually formed
HomeBridge, call it back in 2009, right after the real
estate mortgage meltdown 'cause we felt like it
was a gold opportunity to continue to fulfill the American dream. And so we put it together in 2009 and I've been very fortunate
to grow through the years. And so I've been in this mortgage space for about 29 years now. - Great. So you have quite a bit of experience, which is phenomenal because
I'm going to be asking you some questions that I get
all the time from my viewers and listeners about financing. It's it's a really, I
would say it's a hot topic because for many people you
don't have tons of cash. You're going to have to borrow money and setting yourself up the right way, knowing what you need to be doing before you go into apply for
that loan is so important, and also knowing the products
as you and I have discussed prior to us coming on this episode. So just to start off with,
when it comes to lending, you know, if I was going to walk in, and I'm a real-estate investor, and I'm going through
the traditional real, we'll talk about non-QM
here in a little bit, you know, most loans, right? For real estate investors,
they're going to be underwritten with Freddie Fannie guidelines,
is that pretty consistent? - Yep, that is correct. Especially in the agency space. So it'll be your typical,
Fannie Freddie guidelines, unless it's in the jumbo world, which those dollar amounts differ by state across the country. - Okay, so if I came in
and I apply for that loan, one of the things that I tell people, is that if you have
existing rental properties, that depending on where
they hit your tax return, Freddie Fannie will force you to hold back a certain amount of income. - Yeah, obviously,
there's lots of different, what's the right word I'm looking for, courts probably not the right word, but different components
of their guidelines. So if you currently have a portfolio or investment properties, but obviously you're limited to the number that you can finance as you
and I talked about earlier. And then there also
there's different caveats to how much income you can show, whether you're W2 or you're self-employed. So, but again, it's just
such a key to make sure to your point, Clint, that you
got all your ducks lined up in a row and you clearly understand. And if you're, no matter
which lender you go to, you need to make sure use
somebody that clearly, looks at your whole picture of not what you're just trying to do now, but what you're looking to
do in the future as well, so that those deals can be structured, not just for now, but your goals and what you're
looking to do down the road where you're looking to sell
some, buy more and so forth. But there's lots of different guidelines inside of the Fannie and Freddie world. - Okay, so if I was going to come in and I was going to be
using a traditional broker and go through that standard process where it's Freddie Fannie, what are some of the common mistakes that you see real-estate investors make when they're applying for a loan? - Probably some of the biggest mistakes would obviously you got to know how you're looking to
structure it and what terms you're basically looking for. But I would say some of the pitfalls to stay away from is to talk
through with your lender, what you're looking to do
first, before you apply, right? And let he, or she guide you as to, you're not that you're
not that you're not going to disclose everything and be forthright, but they can talk you through to make sure that that's truly the route
you need to go, right? You know, because in today's environment, you know, we had pre-COVID, then we had all the guidelines that were tight, tight,
tight during COVID. And some of those still exist, even though a lot of them
have been relinquished, especially in the self-employed arena. So it's just a key to make
sure that you talk through. And again, I know I'm repeating that, what's the route you want to go. Cause the Fannie and Freddie and the agency route may not be the route that you want to go because
there's plenty other options for you today, you
know, but if you've got, you know, plenty, you know, cash on hand, you've got good LTV, good FICO scores, obviously know you're Fannie and Freddie is the route to go if you
meet all those components because your interest rates
will be lower going that route. You know they've also added on, this is more on the second home, which I know we're talking
about investors here, but, you know, Fannie and Freddie have both added a lot of add-ons
to the second home arena. So you just got to be careful to watch make sure you ask your lender, you know, what are add-ons
for different types of investment properties and so forth. - So when you're going into to, or setting yourself up
before you apply for a loan, how important on the investment
side is seasoning of cash to buy for that down
payment for qualifying. - Seasoning is not, the seasoning, Clint, is not as important, as being able to validate where
that cash came from, right? If it's like, if it's new cash, right? If it's been setting in your accounts for a lengthy period
of time, not an issue, but if you've just moved
$100,000 into this bank account or that, you know, we
have a lot of our clients that are looking to buy properties that are taking out helots on their existing primary residents in order to help cash
flow investment properties that they're buying as well. So it's not critical that it has to sit there
for a period of time, you just have to be able to source it. - You got to be able to source it. So showing them where it came
from is what's important. - Following one of our clients. - Will set up limited liability companies. They'll have an LLC and
they'll park all their cash in. And that's what I do. And then when I want to buy a property, I'll distribute the cash, transfer it from my LLC account
into my personal account. And I've run into problems
before with lenders where I hadn't anticipated
finding this deal and then they'll see that transfer of cash and they'll be wait a minute,
where'd that come from? And they want to trace it all
the way back up to the LLC. And if they see distributions
coming into the LLC, they really start sniffing around and digging in my LLC going, where did that money come from? And that money. And I have to explain to them, well, those are other
businesses that I hold, and those are distributions. - Right. Well, again, each, as you know, each lender can be a
little different, right? In their interpretation of the rules that may not be just
clearly black and white. I would just tell you at HomeBridge, just because we do a lot of variations of different type of businesses and deal with all types of walks of life. I can't say that issue
wouldn't take place here, but as long as you can source it back, we're not going to dig into things that just to create questions,
just to be asking questions. - Got it. Well, why does it seem like whenever you're using these traditional products, the Fannie Freddie stuff, why are there so many hoops
that I have to jump through to get these loans through? Is that because you're selling them? - Well, but that's
because most lenders sell the loans, right? To Fannie and Freddie and/or
they put them into a security. So you just got to make sure that, our lending business sometimes
think that the agencies have become that Dotty
is and crossing the Ts are more important than the
quality of the borrower, but then there's a difference whether you service your loans, like we do, you know, it's not to say that we
want to make bad loans to put in our servicing portfolio, but maybe every single I
doesn't have to be dotted into T crossed when it lender services and it creates their own portfolio loans versus those that sell
direct to Fannie and Freddie. - So is that a question that someone should ask and if they're
going to work with someone, are you going to, is this
going to be a portfolio loan? Or you sell it?
- Yes, absolutely. Great question. Great point that I should
have brought up a while ago. That's a great question
to ask your lender, yes. - And if, say for instance, I came to you and I asked that question, you said, oh, we'll probably
treat as a portfolio loan. Would you then still use
Freddie Fannie guidelines or would you be more open to?
- Yes. Nope, we would still use
Fannie Freddie guidelines, but again, if there's minor
Ts and I dotted and crossed, you know, that's where
that comes into play, but we would still follow
the agency guidelines, in case we decided to sell your
loan at some point in time. - [Clint] Okay. - But it just gives you a little bit more flexibility, Clint. From all the details that you don't necessarily have to follow. - Got it. So what I'm hearing then is that, even though you may treat
it as a portfolio loan, you still want to keep your options open that if you needed to sell
that loan to Freddie or Fannie it comports with their guidelines or underwriting guidelines,
so they'll buy it, you want it to separately negotiate it. - That is correct, absolutely. You hit the nail out on the head. But look, if you've got a
solid borrower, lots of cash, low LTVs, it gives you some flexibility. - Okay. All right, so, I've often told investors, hey, the Freddie Fannie route ago, most people end up going that route 'cause they don't know anything else or there's any other ways
to put deals together. And as you and I were
talking about beforehand, the non-qualified mortgage route is another door that
someone could walk through. So could you explain what a
non-qualified mortgage is? - Yep, absolutely. Non-qualified mortgage is obviously, it's not an agency loan, and, right? And so we do, the industry
and at HomeBridge, we do a lot of non-QM
because a lot of it fits 'cause you got a 12 month bank statement, you got a 24 month bank statement, you got investor cash flow,
there's all types of loans. And basically these are loans that don't meet the Fannie
Freddie guidelines, right? And investors have an
appetite for them, right? So if you're self-employed
you just got 12 months of bank statements is basically
analyzing your cash flow. You know looking just
from your wherewithal to make the payments, obviously credit's examined as well, but that's a huge space, especially in the investor community. 'Cause we do a lot of
that investor cash flow. So if you own 10 properties, you know, instead of underwriting, you, and your tax returns and so forth, we're underwriting the cash
flow of those properties. So I would highly recommend
that any of your clients that, or either self-employed
or don't, you know, have different structures, lot of K ones or just
different, flows of cash in their businesses to
definitely talk to their lenders about the non-qualified mortgage are also known as non-QM. Now your rates are going
to be a little higher, but that's just because to all offset the risk of not underwriting you to a fine tooth comb, so to speak. So it's a great product for your investors that are buying residential properties. - Okay, so let's break this down. So with the bank statements, what are you looking for
there on the bank statements? - Cash flow. Just make sure that you've
got enough cash flow to sustain your debts, right? So, you know, again, so
it's a 12 month, 24 months, so if you need 24 months to
look at a bigger picture, obviously you get a lower
break if you go longer and you can prove that
you've got the cash flow. So if you've got $20,000 flowing in and out of
your accounts each month, you can easily see that
you've got the cash flow to make your payments on your mortgage. And then the investor cash flow
is obviously the properties. - So if an investor had limited
liability companies set up or land trusts things, entities that we typically recommend
and investors create for asset-protection purposes, when you're looking at the bank account you just take the LLCs bank
account and judge the cash flow if I can show you that
I'm the owner of that LLC, is that how that would work? - Yes, sir. That absolutely. LLCs are not a problem
in the non-QM space. The LLC cash flow is limited liabilities. - All right, and when you
talk about the rental income, if you can show the income coming in, as we were talking about
touching on the issues with the Freddie Fannie stuff, where they have a holdback, my understanding 25, some I've seen 30% as far
as rents will not be applied for vacancy purposes, when you're going non-QM, and do they do the same
thing or do you get 100%. - 100%, on that investor
cash flow, it's 100%. - Okay. So when we're doing that non-QM, then does that also allow me to close any limited liability company? - Yes, yes. On the non-QM side, you
can close in an LLC. That is correct. - And with those non-QMs, do I have to give a personal guarantee or these asset-based loans? - Yeah, now, well, there are
programs that are asset-based, but these non-QMs, so, you're
personally guaranteeing, yep. Right, 'cause the property
is your collateral, you're personally
guaranteeing you as well. Now there are the asset-tight loans. We don't do many of
those here at HomeBridge, but they do exist in the marketplace. - Got it. Well, how important is my
personal credit score then when I'm using a non-QM loan. - Always, always. They will take a lower FICOs, but its a hit to your
pricing or pretty dramatic. - So the other thing too, is as you and I were
discussing with Freddie Fannie, they allow each borrower
to acquire 10 properties. And so I see this a
lot, a husband and wife, they'll both go on a few
of the loans together and if they went on four loans and they real lies when
I start talking to them, hey, you just took four
potential opportunities away from yourself if
you're going to stick working with the Freddie Fannie market, because each of you can
only be on 10 loans total. - [Rick] Correct. - Whereas with non-QM, is
that even a consideration? - No, sir, not an issue. Yeah, those guidelines that
same 10 cap does not apply in the non-QM space. - Well, so within the non-QM space, then where's the money coming from? - You know, a lot of investors, there's hedge funds that
operate in the non-QM space. We at home bridge, we pull
seven different investors, whether it's like
Goldman Sachs or Starwood or a lot of them, we pull those together, created our guidelines
that they would all buy and then, but then I'll see
there's exceptions to that. You know, we go to those guys for that, but it is investors' money,
it's hedge fund money, just looking to get a
return on their monies. Like Goldman Sachs is a big
player, Angel Oak, Starwood, just different investors. - So can you give us an
idea of what the terms, the typical terms are
for a loan like this? - Yeah, in today's environment, Clint, you're in the high sevens. - Okay. - You know, if you've got a, it depends, if you've got a low LTV
and a high FICO score, you know, you're going, you'll
still be in the mid 60s, but again, if you've got, if you're looking to finance at a high LTV or you got a lower,
under a 700 FICO score, it's really going to get
bumped up into the sevens. Most of the non-QM business
in today's environment is in that low seven to mid seven range. But you know, you're paying, to have different options
for your financing. - Got it, so with the terms of the loan, is it any different
than the Freddie Fannie? Are there prepayment
penalty clauses in there? - No. No, you still do 15, 20, 30. Yeah, there's no prepayment penalties. You know, some investors will write it with a prepayment
penalty, but we do not, but they're your 15, 20, 25 30 year terms with no prepayment penalties on ours. You know obviously some lenders pay offer. - So typically how much do I
need down on an investment loan than for this type of product? - If you want the best rate and so forth, you're probably needing at least 30% plus. - 30%? - Yeah. You know, you have to-
- If I found a problem, go ahead. - But if you don't have to, right? I mean, you could do it
with a little as 10% down, but you're going to pay for the risk. - 'Cause yeah, 'cause the
interest rate's going to go up based upon the risk the
lender is taking on. - Absolutely. - That is dependent
upon you as the borrower and how much money you bring in the table, what your credit score
is, things like that. - That is correct, yes, sir. - So here's what I'm wondering. Let's assume that I bought
a property on contract with a seller. - Okay. - So the seller's carrying the note, and the deal was is that in three years I would finance that seller out. So I come to you and I say,
listen, I got this property, I bought it for 150, it's now worth 200, and all I need to do,
is cash out the seller who's carrying the note
against the property. Would that qualify under a
non-QM type deal transaction? - To make sure I'm clear. So the seller is holding the note. So you're buying it from John DOE and John DOE is going
to take back the lean that he's going to be your lean holder? - Correct. - And now you want to
finance that property to pay off John DOE. - [Clint] Yes. - That's a great question. I'm going to my experience, Clint, I'm going to say
yes, that would extend, we could qualify that
under the non-QM space. - And then that equity. So, there's equity in that property, do I need to come up with
anything in a situation like that, or do they also count if
I've negotiated a price for a piece of property, a house, and there's built in equity,
what it appraises at, let's say it appraises for 25% higher than the purchase price. Would that count then towards my down or do they still look for saying, hey, even though you got equity, that's great, but we still want to see 20%
down to get those lower rates? - That built-in equity there can be used for your down payment. - Great, so they could
use that built-in equity. 'Cause I know investors come
have properties like that that they've found. And if it's a cash flow issue, bring the property with the equity. - Yep, absolutely. - Okay. So HELOCs, are you doing any
on investment properties? - No, we're doing it today
only on primary residents. Not any investment properties. - Why don't they do them
on investment properties? - Just risk. It's not to say that,
that's not to say that some, that some investors may not be out there. You know, I can't speak
for everybody out there. Today at HomeBridge, we only do only on primary residents. - Okay. So if I had an investment property with say fair market value,
$600,000, $400,000 in equity. So I owe 200 to Wells Fargo. If I came to you, could I do a cash out refi on
that deal and maybe pull, 250? - Absolutely. Yes.
- Okay. - Yes, yes, absolutely hand. Yeah, we do cash out refi
on investment property all the time. We just don't do the
HELOCs today on those. - So that's something
then for the investor that can't get the HELOC and has a lot of equity in their rentals to keep expanding their portfolio. Best thing to do then would
look at going that route to do cash out refi.
- Yes. Yep, cash out refi, absolutely. And then you can do
those on the non-QM side, the agency side, by either whichever way the program best fits their
needs and their situation. - Are you finding most of your investor, or clients investor
that are coming to you? Are they mainly going non-QM now? Are they still on the agency?
- Yes, yes. Yeah, most of them are going, most of them are going non-QM, just because it's easier
with their cash flows, you know just the guidelines and so forth, so are paying a little bit higher for it, but it's just an easier process. - And what is the typical
closing underwriting time for non-QM versus an agency's? Is it shorter? - Yeah, it's well, no,
they're both, they're both. The time frames. In 2020, 2021, it's probably
a little bit longer, you know, than it is now with volumes down as an industry, but you know, they're 48, 72 hour tops,
underwriting turn times. - With rising interest rates, where do you see everything going for the investor in the next year or so? (Rick laughs) - Yeah, that is a loaded question, right? - [Clint] Mm-hmm. - The biggest interest rates
are what they are, right? I mean, interest rates, not
our biggest challenge today, biggest challenge today
is lack of inventory and now rising rates don't get me wrong. There's a big difference
between two and three quarters and five and three quarters, but we've all seen this roller
coaster of interest rates. Lack of inventory is a big impediment to the environment today. - Yeah. You see, I was talking to
an investor this morning and he asked me the question. He goes, well, what do you
think is going to happen with the market right
now, with home prices, with rising interest rates
are the prices going to, you know, of course, possibly fall, is it going to be something
like we saw back in 2008? And I had my views on it, but I'm curious what your views are. - Personally, obviously, no clip with fighting inflation, right? With flood, fighting eight
and a half in inflation, depending on what the fed wants to do. But my personal opinion
is that we're going to see some stabilization
in the short near future. And then we will not have a relive of 2007, eight, nine, during those times. And I don't think we're going to see, I don't think we're going
to see the values fall. You know, again, not
saying our firm belief is that will plateau here. And I don't think we're going
to continue seeing people paying a couple $100,000 over asking price on a lot of this stuff. But we think rates will find
a spot to settle in here and that they'll get
everything under control. So, but do not see a 2008 on
the horizon in our viewpoint. What your thoughts are, but that's Rick Floyd's opinion. - Yeah, I agree. That's different metrics
now than it was back then with the way they were
going to write loans. - And lending, the problem is back then
lending if you had a pulse, we gave you a loan.
- Yep. We still, we we're trying
to make it a little easier, but you still have some
hurdles to go through, unlike in '08 with the Alta-type business. - Yeah, there's one
question I forgot to ask you on that non-QM side
that I'm curious about, and that has to do with property transfer. So let's assume that we
closed in a Texas LLC and you're holding the
first position on that. If I decide I wanted to
move it to a separate LLC, have you ever seen a lender? I mean, would you guys call that no due, or does that even matter
at that point in time since you're secured against the property? - It doesn't. It wouldn't matter. So, long as your payments
continue to keep being made and so forth, I mean. - Keep the property insured, pay the taxes and pay (indistinct)
- Yes, absolutely. Yeah, yeah. Check all the boxes. And then we would not care about if you transferred that
to your LLCs and so forth. Not an issue on our front. - Well, Rick, it's been a
pleasure speaking with you. What I'm going to do is I'm
going to put your contact, well, the contact information
for HomeBridge Financial in the show notes. So if anybody wants to
reach out to you all to talk about a non-QM
product for their investing, hopefully he'll drive
up some business for you and he allow some investors to
get it into some properties. - Absolutely. And applaud you for the services that you offer to your clients, and we greatly appreciate the time. And any questions along the way, don't ever hesitate to reach out. So we appreciate the partnership. - Thanks, Rick. - All right, thanks, Clint, take care.
