Speaker 1Welcome to GRE. I'm your host, Keith Weinhold. We're talking about today's mortgage landscape, including does it really make sense to have a traditional 30-year mortgage when instead you can substantially lower your payment with a 40-year interest-only loan on a rental property? What are its pros and cons? And more on how seller concessions are creating an improved buyers market today on Get Rich Education. For years, I've sent listeners to Mid-South homebuyers in Memphis, and for years I've heard the same thing back. Keith, there's a wait list. Well, not anymore. Mid-South has grown into three markets, Memphis, Little Rock, and Dallas, with its classic renovations and now brand new construction. For the first time in years, there's enough inventory to buy to. Day, and they've picked now to roll out their best terms in their 25 years. It's called the Triple Five. 5% property management for five full years, half their standard fee, and Mid-South buys your mortgage rate down as low as 5% for qualified buyers. If you're paying all cash, ask about the Forever Five. That's 5% management for as long as you own the property, plus special cash pricing with $6,200. Homes under management, Mid-South is the place to turn for turnkey real estate. Book your free investment strategy session at midsouthhomebuyers.com.
Speaker 2That's midsouthhomebuyers.com. You're listening to the show that has created more financial freedom than nearly any show in the world. This is Get Rich Education.
Speaker 1Welcome to GRE, from Secaucus, New Jersey to Seattle, Washington, and across 188 nations worldwide. In fact, I'm Keith Weinhold, and you're listening to Get Rich Education, talking about how to build wealth through real estate without sacrificing your lifestyle. I mean, come on, what's more important than our fragile quality of life? This decade, the best time to sell a property was. 2022. The best time to buy? Well, U.S. housing is tilting more and more toward a buyer's market, and really, it's this increased market normalization. Long-term, in American housing, that's really been somewhat traditional for a seller to help out a buyer in a lot of cases, and that's usually because the buyer is feeling pretty strapped after saving up for a down payment. Now, some of the most common concessions, sellers are giving buyers today are a closing cost credit, and this means that the seller pays toward your loan fees and even toward your title charges. That is fair game. You can ask for that in a lot of cases. Also, the very well-documented mortgage rate buy-downs that we've talked about on this show a good bit, and that is for a lower permanent rate. The longer you hold the property, the more that this one matters, because it helps you over time. If you won't hold the property for long, well, then a closing cost credit is probably going to help you more instead as a buyer more than a mortgage rate buy-down would. Also, repairs or repair credit. The seller fixes inspection issues or provides an agreed credit to you at closing, and that way later you could decide upon what to repair. Another common seller concession is for appliances. In upgrades like flooring, and this is especially prevalent with new construction. So they are some of the most common concessions that sellers are giving today. Now, we're talking about qualifying for financing now. I've learned that increasingly more borrowers, they want to get their loans sooner than later because they fear being laid off, and that might be due to AI-related layoff threats. But one thing is for sure, once you're laid off, your prospects of qualifying for a loan get really small because mortgage underwriting just loves seeing a steady income from a borrower. And of course, when you own more property, real estate is a diversification away from AI disruption because AI still can't help you download a three-bed, two-bath home onto a quarter-acre lot. It can't do that. Now, if it does not come to that, then you're going to have a lot of trouble. If it does not come up in our interview, I'm going to give you the result later on this week's show about just exactly how much your cash flow will increase if you employ a 40-year interest-only DSCR loan versus the regular old 30-year fixed. But first, something a little heartwarming for a real estate story. Now, I mentioned this before to you a few years ago, but the update is that it is still happening. A condition, that persists. After my recent visit to New York City that I told you about, I drove five hours to see my parents in rural Pennsylvania, and I slept in the same bedroom where I slept as a baby. This is because mom and dad are still married, still happy, and still living in the home that they bought in March of 1974. They moved in when Richard Nixon was president, and they still live there. The Vietnam War was. Still underway. All four Beatles were in their early 30s. Before real estate became my career, it was simply home in Countersport, Pennsylvania. My first real estate story is still being written by mom and dad. It is still going on, and my parents also listened to the show, so they just heard that along with you. Let's discuss the mortgage landscape. I'd like to welcome back to the show the person that leads the eponymous Ridge Lending Group. They're an industry leader for investor mortgage loans. It's Chaley Ridge. Hi, Keith. So great to be back with you again. Now, I kept your intro brief. Since anything longer would probably have to be approved by underwriting, we kind of need to get going with it here. And yeah, I often like to ask how she's doing. But the way she hears about how I'm doing is that she usually just needs two years of tax returns from me first, because Ridge is where I get loans for my own property. And Chaley, before we talk in more detail about mortgage rates, why don't you talk to us bigger picture about the Fed since we got a new leader there about six months ago?
Speaker 3Yes, Mr. Kevin Warsh. When he was confirmed, we didn't know what to expect. And I won't go down a political rabbit hole. I promise. But, you know, Trump has been clear on the people that he wants to surround himself with need to be yes men. Is that an appropriate? I think it's an exacting way to. Yeah. So I wasn't sure what to expect from this because, you know, the Federal Reserve is supposed to be independent. And by independent, that means there is no outside influence. So I was a little concerned at first thinking, all right, well, what's this guy going to do? How are the foreign markets going to respond if he does end up being that kind of yes men guy? That would have been bad news, I believe, for all of us. I was very pleasantly surprised. He seems to be very even keeled, steady, rational, reasonable. Everything that's come out of this guy's mouth, I have been a supporter of so far. Most importantly, though, early on, he was talking about forward guidance and how he was going to limit some of that. His predecessor, and I think going back, I don't even know how long, that's kind of been a norm for the Fed Reserve and helping move those markets. He's really been staunch about not doing that. And I think that when you and I talked about this, I think what it is doing, it's making Wall Street stand on its own two feet. They have to use the data points that are available to them to predict where things are going to go outside of what the Fed is responsible for. So that gives us some stability anyway. So I'm keen on that. And I'm a fan so far. I mean, the jury is still out, but we'll see. So the Fed is doing a good job so far. They are saying that in the December meeting, we'll probably have one more Fed rate hike for the year. We'll see what happens.
Speaker 1The best thing I can say about Kevin Warsh's first move, which was a rate hike, is that that very act helped exhibit some of the independence that we all hope for. And the fact that he appears to want to give less forward guidance and show his hand less often than his predecessor is probably good because generally I think that supports free markets rather than everyone focusing on one central person. And just how did he say that word? Did he say moderate or modest? And what does that mean? So yeah, more of a hands-off approach is something that I surely like. And we're talking about rates. It's not so much the rate that the Fed sets, but with mortgage rates above 7%. Will you tell us about some of the most effective ways that investors are making deals work today, Chaley?
Speaker 3I got the tea. I'm bringing the tea today. Okay. Are you ready for this? So I've got some good nuggets I think your listeners are going to appreciate. So yes, we are in an environment where interest rates are slightly higher than they used to be. And I think that's a good thing. And I think our interest rates are slightly higher than we have come to expect them to be. But let me just quickly preface for everyone. Guys, we are far from where the average high has been over the, let's say the last 30 years. Okay. So we continue to have that narrative. Interest rates are higher than they have been, but they are certainly not at the high point of what a 30 year average would be. That said, I would tell you that the two things that we are focused on most right now to support our investments and making sure that our cash flows are there appropriate to the returns, et cetera, are a debt service coverage ratio. I've got a bombshell for you there and interest only loans. Let me take DSCR first. So DSCR, everyone is debt service coverage ratio. If you've never heard of this before, it's just a different way to underwrite an investment property loan. And the calculation is very, very simple. We're going to take the gross rents and we're going to divide those by the PITI, principal interest tax and insurance. Okay. That division gives us a ratio of what the debt is versus what the income is. And if it's 1.0 or above 99.9% of the time, you're going to have a loan. Now there are products that will let you go below a 1.0 ratio. Let me give you a quick example. Let's say the gross rents are 750 and the principal interest taxes and insurance is a thousand. That would equate a DSCR ratio of 0.75, right? Okay. There are loans that you can get that go below the even. Okay. The even being if the gross rents were a thousand and the PITI was a thousand, you'd get a 1.0 ratio. All right. Generally speaking, the rule of thumb you want to have from a lending perspective is that the gross rents are equal to or greater than that PITI. Equal to or greater than is where you want the rents. Okay. So that's just a quick one-on-one on DSCR. Now here's the bombshell. Interest rates, and I went and looked back, Keith, and I'm not sure I can pinpoint another time that I've been able to say this. Yeah. Interest rates for DSCR products. Are posting better, AKA lower than Fannie Freddie right now for non-owner occupied mortgages. That's great news.
Speaker 1That's really good to hear. Why might one want to use a DSCR loan rather than a more conventional product other than what you just told us about the potentially lower rates?
Speaker 3I think that the other shine on this is going to be the underwrite is easier, right? So the Fannie Freddie loans, right? Our golden tickets. You've heard my joke a hundred times. Vials of blood and DNA samples, right? Fannie Freddie. Is about your individual qualifications. So your tax returns, your pay stubs, your W-2s, all of that mixed together with what your monthly liabilities are. A lot of extra paper pushing on that end of the spectrum, but it was worth it because generally you're going to get the better interest rate over there, right? The better terms. Well, the DSCR is still a 30 year fixed folks. So the same fixed rate mortgage, the same amortization that keeps the payment lower, but the DSCR underwrite is now about the property. We don't care about your tax returns. We don't care about your pay stubs. We don't care about your Fannie Freddie. We don't care about your W-2s. It's about the gross rents divided by the payment. And that's it. You still have to show good credit to get the best rate. You still have to show some liquidity, right? Your down payment, et cetera, your bank statements, but it's an easier lift in the paper pushing underwrite and it provides the same 30 year fixed. And now the rates are better. You can avoid rolling up the sleeve for
Speaker 1that blood draw because the debt service coverage ratio loans, to your point, it looks more at the performance of the property than it does you and your property. So it's an easier lift in the paper pushing underwrite and it provides the same 30 your individual credit worthiness, although it's still going to take that into consideration. And you talked about 30 year fix with the DSCR. In order to lower payments, are there options with the DSCR like for 40 years or for interest only for the first 10?
Speaker 3Yes. And yes. So DSCR was the first bucket. The interest only is another one that we are really focused a lot of our attention on right now. And here's why. Okay. I'm going to walk you through this. It might take me a second to unpack. So I want you guys to imagine just the 30 year fixed mortgage. Okay. Go back to the Fannie Freddie, those golden tickets. This is an amortized mortgage. Okay. And if anybody's ever looked at an amortization table, chances are you're familiar with this. The first 10 years of the 30 years, the portion of your monthly payment that is going toward the principal is this much, right? The vast majority of that principal and interest payment is front loaded to cover the interest first. You are not going to even start plunking down or chopping down that principal until the back end of the loan. All right. That's piece number one. Piece number two is statistically speaking, y'all. Okay. Look this up for yourselves. Don't take my word for this. Statistically speaking, the average shelf life of a 30 year fixed mortgage on an investment type property is about five years before we as investors are refinancing to reduce an interest rate or pull cash out. We want to harvest our equity to rinse and repeat, right? It's about five years. So you guys can connect that dot. If the average five years before we're refinancing for whatever reason, but the first 10 years of that loan is 98% interest, an interest only loan is going to, on my opinion, be more advantageous to whether the slightly higher interest rate storm as some are psychologically attaching to it and get us over the hump. So I'm a big fan of the interest only. It is saving in the monthly so that the cashflow is more improved, et cetera. Always, however, my token thing, do the math.
Speaker 1Do the math and the math will tell you what to do. You know, Shaley, before I was a real estate investor, and even in the early years of doing so, I thought interest only loans sounded terrible because I thought, oh, well, how would you ever pay down the principal? That sounds awful. Later, I learned the point is not paying down the principal. It's about maintaining prudent leverage and it's about cashflow. The way equity is built in property is typically through price appreciation. More so than mortgage loan pay down. You know, I've heard some say things like, oh, with an interest only loan, you don't own the house. The house owns you. That sounds terrible. But when I think the house owns you is when you're working hard or working overtime to make extra principal payments. That's when the house owns you. And as we know, every dollar that we convert from cash into equity, that dollar becomes unsafe, illiquid, and its rate of return is always zero. So interest only loans are going to be paid down. Interest only loans provide a lower payment and increase your cashflow. And I think a lot of people don't realize that with an interest only loan, you typically have the option of paying down principal if you like.
Speaker 3I'm so glad you said that because that was going to be my follow-up statement. So for those naysayers that have a problem with the interest only, the fact is you could actually within an amortization table, okay, you could actually prepay the mortgage faster on an interest only basis in that first five to 10 years than you could with a, you know, 30-year fixed. So if you were going to do that anyway, right, apply additional principal with a regularly amortized 30-year fixed, you could probably make more headway on an interest only by doing the same thing. Now you and I agree that that's not the best use of someone's capital and funds. I'm going to hold onto my cash for obvious reasons because getting that locked in, right, that inflexible, anything you're going to pay in addition, if it's that 30-year fixed and it's not an open-ended revolving HELOC is gone. You've lost all liquidity and flexibility. You've lost and I'm not sure that that's where most of us that kind of know this math are going to place our funds. A lot of
Speaker 1us have done conventional loans, typically a 30-year fixed. If someone's new to the DSCR world, what else should they know? Are there any mistakes to avoid?
Speaker 3Mistakes to avoid. Make sure that you do your due diligence on the front end. I mean, just some of the common sense stuff, Keith, I would say is make sure you get your inspections. I can't tell you how many times, as long as I've been doing this, people, they decide not to get their own independent inspection and then come to find out after they've closed on this loan that you need a whole new roof or there's a foundation issue or whatever. So obviously get your independent inspection. That is different than an appraisal. Everybody, the appraiser is looking for obviously major safety or hazard issues when they're doing an appraisal. They're looking for the market value for us lenders as well, but it's different than an inspection. Make sure you get your inspection and do your due diligence on, let's say you're using a turnkey provider. Make double checking their numbers, right? Are the taxes up to date? Sometimes, you know, I'm not saying that this is routine, but just verify the data points. Are the taxes accurate to what they've got on their performance? Insurance as well. Because some of these things, especially like the insurance or the interest rate, largely depends on your qualifications. So they may be quoting $1,000 a year for insurance, but you've got a claim or whatever it may be. There could be something that your insurance is going to be $1,500, right? The deductible may be different. The lender may not allow for such a high deductible. The interest rate they're using is based on an 800 credit score and you've got a 720. So just do your due diligence on the front end so that the math as it exists before you close is accurate and you're not finding out when it's too late.
Speaker 1You know, Chaley, with these DSCRs, you and I might need to talk about this again when I buy more property for myself because I'm pretty interested. Can I get a DSCR with both a 40 year amortization and 10 years interest only fixed rate at the beginning?
Speaker 3You sure can. I just quoted one of those the other day, 40 year am and a 10 year. So it's a 10 year interest only with a 30 year repay. Yeah. And it looks great.
Speaker 1That is super attractive. And then the rate is lower as well in the short term, something that I wouldn't even need to have in order to be attracted to that. We're talking with Chaley Ridge here. She's the president and CEO of Ridge Lending Group. We're talking about how in today's environment, it's seven plus mortgage rates, how you can get some relief, how you can lower your payment and, For some perspective here, before we go on with this, one thing I'd like to think through is that mortgage rates fell to 3% exactly once in history. That was for COVID, where we practically shut down the entire world. It took a global catastrophe to make that happen. And we're still recovering from it. Well, right. Yes, we really are. And so is the economy in a lot of ways. So now you certainly want to get the best terms you practically can, but you can't put your entire personal life and investing life on hold, waiting for that to happen again, because I wouldn't expect that it will. So grow your portfolio if it's something that makes sense to you. And Chaley, one way that a lot of builders and sellers are approaching this in order to help buyers, whether investors or whether they're looking to own their own home, is we know it's pretty common for a builder to offer an investor, say, $20,000 as a concession. So as a way, to get some relief, when is it smarter to take a price reduction of the overall price? And was it smarter instead to use, say, that $20,000 to buy down the mortgage rate? Can you weigh the pros and cons there?
Speaker 3Yeah, I think that, and I don't have a spreadsheet in front of me that I can plug those in for you really quickly, but it always ends up being that math problem. Okay. Based on an interest rate today, say, let's just use the $20,000 as an example. So $20,000 off the purchase price at prevailing interest rates. What's the principal and interest payment? Versus keeping the $20,000 in the deal, the purchase price is still going to be higher, and using that $20,000 to buy down the interest rate, the markets are going to dictate how much that $20,000 is going to yield in the buy down. Let's say that the baseline is 7.5%, okay? 7.5%, and we've got $20,000 of a credit to buy that interest rate down. Secondary markets are dictating what that spread looks like. So does 7.5% become 6.5%? I mean, that could be the case. Does a one point on $300,000 justify? What's the payment difference in that case? Versus if we simply just keep the 7.5% and we take the purchase price from $750 to $730, that math is going to tell that story, and it's going to be specific to the day in which you're having the conversation because interest rates are a very fluid thing. So I hope that answers the question. I think that it's a case by case, and we should run the math every single time to determine what the true best outcome is. In my experience, you would
Speaker 1probably agree, in most cases, it's a better use of the $20,000 to buy down the rate than it is to lower the capital price of the asset. And we're talking about doing rate buy downs. Tell us more about what you're seeing because you do so many loans in there. This is interesting. Who is doing the buy down? Is it the seller or is it the buyer? Is the buyer getting into it and participating in it as well?
Speaker 3Ooh, good question. No, I'm really feeling like, and this has been, I think, a long time, but I think it's a long time. I think it's a long time coming. That buyer's market is really starting to take hold. We've been seeing it for some time now, but it is the seller that is having to give up some skin in the game here. The buyers are the ones with more power and the buyers are the ones that are going to continue to set the table, right? They're the ones in charge of the narrative here. And I'll tell you something else. I've been having this conversation a lot lately. We are right on the precipice, you guys, of being in a place where investors, real estate investors specifically, not as much homeowners, it's a different animal, but real estate investors specifically are right on the edge of being able to make fundamental legacy wealth, that financial freedom through real estate. There is a window that is upon us that we should be taking advantage of. Stop fixating on the rate, you guys, please. You are missing the boat and you're missing the opportunities that are here for the taking and will be, I hope, for the next coming months, maybe even a couple of years.
Speaker 1Yes, we've seen this reversion to what's really marketable. Market normalization where you're getting more concessions as a buyer and you can ask for more things that are on the home inspector's punch list and you can get more coverage of your closing costs from the seller. One of the most common ones being that rate buy down. What other sorts of concessions are you seeing from sellers today, Chaley, especially things that you would not have seen just five years ago?
Speaker 3I would say it's a good combination of reduction in purchase price and seller concessions. Both of those are happening regularly. The other thing that I'm noticing, and I'm tracking this, I've been really tracking it closely for the last couple of years. We have a spreadsheet that can go back around 18 months now. Home values. So up until a couple of years ago, it was very uncommon for a seller to come down if an appraisal came in short. Example, if the purchase price is $100,000 and the appraisal came in at $95,000, just for easy math, the lender, for those that aren't aware, is always going to lend the appraisal. So if the appraisal came in at $95,000, just for easy math, the lender, for those that aren't aware, is always going to lend the appraisal. If the appraisal came in at $95,000, just for easy math, the lender, for those that aren't aware, is always going to lend the appraisal. The loan that we are going to provide for the individual is always going to be calculated on the lower of those two numbers. So if you're buying the house for $100,000, but the appraised value comes in at $95,000, we are going to give you, your loan to value is going to be based off that $95,000. So that spread, that $5,000 spread, you've got a couple options. Either the seller comes down the $5,000, the buyer covers the spread, or maybe some combination of the two. Up until recently, the sellers would never come down. You're having to cover that spread as the buyer, right? If there's any shortage from the purchase price to the appraised value, it was very uncommon that a seller would negotiate that. The buyer was going to have to be the one to cover that difference. I think that's another concession that's been more prominent these days. The seller is absolutely negotiating to come down or at least meet halfway if the values are coming in or do come in low.
Speaker 1Talk with Chaley Ridge, president and leader at Ridge Lending Group about investment property loans. When we come back, I'm your host, Keith Weinhold. Let me ask you something. If you've worked hard to build wealth, is your money positioned to actually support your goals? A lot of accredited investors leave capital sitting in cash because it feels safe, but inflation and missed income opportunities can quietly erode its value. Freedom Family Investments offers Freedom Notes for investors seeking structured income backed by real estate. It's a straightforward approach built on real assets, not speculation, and full disclosure, I'm an investor myself. What I like is that their team walks you through how it all works so you can decide if it aligns with your portfolio and income goals. Every investment carries risk and nothing is guaranteed, but with a track record of consistent on-time investor payouts, they built real credibility. Go to freedomfamilyinvestments.com to book a clarity call or text FAMILY to 66866. That's FAMILY to 66866. What if you got your mortgage loans the same place I get mine? You sure can at Ridge Lending Group, NMLS 42056. They've provided GRE listeners with more loans than anyone because Ridge specializes in investment property. They'll help you build a long-term plan for growing your real estate empire with leverage. Start your prequal and even chat directly with President Chaley Ridge while it's on your mind. Start at ridgelendinggroup.com.
Speaker 4That's ridgelendinggroup.com. This is author Jim Rickards. Listen to Get Rich Education with Keith Weinhold and don't quit your daydream. Welcome back to Get Rich Education, episode 630.
Speaker 1We're back in 2015 here. And one of the things I've been trying to help you, the listener, with is for new purchases or existing ones, how you can get better loan terms. And not too long ago, I had asked Chaley about ARMs, adjustable rate mortgages. Is that an option? But it sounds like it's pretty unpalatable right now. It really is not.
Speaker 3And this has been going on for many, many years. It's called an inverted yield. So when we talk about mainstream institutional lending, an ARM historically has provided us with some relief that would make interest rates lower than a fixed rate, a 15, 30-year fixed, right? A half, a full percentage point lower on the ARM. The inverted yield is keeping us from that. So in other words, it means that the fixed rate products are pricing better than the alternative ARM. So there is no incentive for an adjustable rate mortgage right now on the traditional 30-year AM type mortgages. So no ARMs.
Speaker 1A lot of homeowners, as we know, they have equity locked up behind this awesome three or 4% mortgage that they probably got in 2022 or earlier. And by the way, when we look at the numbers of that, I happen to know that of American homeowners, only six in 10 have a mortgage. About four in 10 do not have a mortgage, more or less. And among those that do have a mortgage loan, it's now down to 48 to 49% of borrowers that have a mortgage. So for those people that might want to access that equity, but yet keep that rate in place, what's the best thing for them to do without giving up that first mortgage?
Speaker 3Well, I might push back a little bit on that to start with and say, have they done the math? What is it that they're going to be using the cash for? You know, if you look at this country and statistically speaking, the overwhelming credit card debt that most people are carrying, it's a big, big number. If they're not looking at that equity as a means of trying to extinguish some of that debt, it's a problem because 4% means nothing if you're carrying carrying $10,000, $20,000, $30,000 of 18% to 24%. So just make sure you're doing that math. And specifically what I'm saying is that if you take a 4% interest rate and you increase it to a 7% interest rate to wipe out $20,000 at 18%, there's a math problem there that you must be doing. Otherwise, if that is not your scenario and you just simply want to harvest equity for other investment purposes or whatever you want, then you can always look at a HELOC second lien or first lien. You have options. You can do a second lien, do the math and see if having an increase in interest rate actually makes a difference to your bottom line. There's plenty of options that you can access. And if that is all too confusing, then you just call me and I will walk you through it. Before you get a second
Speaker 1mortgage, check and be sure that you do not have a DraftKings or FanDuel app downloaded onto your code. But, you know, Jaylee, when we talk about that, we talk about accessing equity. Talk to us about that. The CLTVs, the Maximum Combined Loan-to-Value Ratios for both a primary residence and an
Speaker 3investment property. Yeah. Let me just take you through the quick maths for ease of use here. So let's say that your home value is $100,000 and you owe $50,000 on your first lien mortgage and the CLTV is 95%. Okay. That's going to be the highest anyone's going to be able to find. And keep in mind at a 95% CLTV, the rate's going to be up there. So if you had a 95% CLTV, $100,000 value and a $50,000 outstanding first lien mortgage, that means that you're going to have access to $45,000 as a second lien mortgage. Okay. You guys do this math with me really quick. So 100,000 times 95% is 95,000. Okay. 50,000 stays in place. Then the difference there is going to be $45,000 that they would be able to access as a second lien HELOC. So the CLTV numbers are going to range between 75% and 95% depending on occupancy, credit score, right? Some different variables like that.
Speaker 1Right. We're talking about how much equity you can access. And can you parse that by investment property versus owner occupied?
Speaker 3Yes, of course. So we have options that let us go to 80% CLTV for rentals and the 95% is going to be reserved exclusively for the owner occupied. When one looks at a
Speaker 1second mortgage, how do those rates compare with the headline rate that we see for the 30-year fixed mortgage?
Speaker 3Largely dependent on the CLTV number and credit score. So with those two things, I mean, I've seen prime is at what? 675 right now. There are some deals that will go prime minus a quarter. So you could be at six and a half on a teaser or 599 on a teaser for three months or something like that. But I think in general, we cap at 80% on the investment property. With good credit, you're probably in the eights. Yeah. Okay. And you know,
Speaker 1Chaley, do you find this to be true as well when I'm just out walking in the park or hiking on a trail and I make conversation with somebody a few minutes in, they learn I'm in real estate. I soon find out about them. They don't know that they can get a second mortgage. Just the lay person on the street doesn't seem to know that. They don't want to give up their 4% rate. And a lot of times they just don't even know that they don't have to.
Speaker 3Especially investors. I think it's pretty common in my world too, where they're surprised that a non-owner occupied property can actually get a second lien HELOC.
Speaker 1And you've been talking about a HELOC, a home equity line of credit for the form of that second mortgage, where you're keeping your first fixed low rate one in place. Talk to us about the different forms that that can take, perhaps other than a HELOC and some of those pros and cons.
Speaker 3Well, let's talk about the HELOC first. So you want to pay attention to, if you're out there looking for a HELOC, pay attention to the term of that HELOC. The longer the draw period, the better, in my opinion. Oftentimes HELOCs on rental properties will come with a shorter term draw, like a three-year draw. That means that you only have three years or 36 months to draw the funds. And then that draw period stops, and then it goes into interest only and repayment. So check out the draw. Ideally, you want at least 10 years draw or longer, and then figuring out what the repay looks like too, so that you're prepared for that. Chances are it'll have been extinguished or refinanced in the meantime anyway, but those are important details. I like the HELOC option better because you're never paying interest on funds that aren't being used. So if you have $100,000 line of credit and you're only using $20,000, the interest accrual is only on that $20,000. So that gives me a leave to pivot into a HELOC, which I think was your question, Keith. So HELOC is open-ended revolving. You have access to draw from it and put back into it, et cetera, et cetera. A HELOC is when it's kind of like a first lien, where you're going to get all of that money up front at closing, and it's just an amortized payment over 15, 20, 30 years, paying interest immediately on the whole ball of wax. The home equity line of
Speaker 1credit having more flexibility than the home equity loan. All right. Well, you gave us some great alternatives and strategies around 7% plus mortgage rates in today's market. Chaley, how can our audience best connect with you? Because you are the experts in investment property loans, since that's mostly what you do.
Speaker 3Yes, sir. There's a lot of ways. You can find us on our website, ridgelendinggroup.com. You can call us toll-free at 855-747-4343. 855-74-RIDGE is the easy way to remember, or email us, info at ridgelendinggroup.com. In any of those cases, we will be here on standby, ready to serve you.
Speaker 1855-74-RIDGE. I don't really know if it makes it that much easier to remember, but I think we've got it. It's been great, Chaley, having you back on the show. Thank you, Keith. Love being here. Thanks again to Chaley. She's helped GRE listeners originate more investment property loans than any lender anywhere ever. More on the DSCRs. You would pay about 16% more in a monthly payment on a conventional 30-year fixed than you would with a DSCR. And here's how I did that. Now, we're looking at principal and interest only. If a conventional payment is a 30-year fixed, then you would pay about 16% more in a monthly payment. If a conventional payment is a $1,000 at 7.5% interest, what would it be for a 40-year DSCR loan, 10 years interest only, and 7.25% since its rate is lower? So this means instead of $1,000, it would be about $864 a month for the first 10 years. And then after 10 years, when it starts amortizing, the payment would go up to $976 per month instead of $1,000. So $976 per month instead of $1,000. So not as much savings then, but you may very well have refinanced out at that point. And DSCRs can be either as a new purchase or a cash-out refi. You can typically close on those in 30 days or less because it's easier to qualify for that since it qualifies on the property more so than it does you, inducing less brain damage. 30-year fixed. Those rates, again, one-quarter to three-eighths of a percent lower. I only used one-quarter lower in the example. Note, though, that DSCRs have a five-year prepayment penalty. And also note that I'm not a mortgage loan professional. I am merely the shaved mammal that broke down these numbers for you. But you do know who the mortgage pro is and how to get a hold of her. Lots of terrific real estate wealth building material in future weeks here on the GRE podcast. It includes how. We had a guest here previously. That controls a $436 million real estate portfolio. And he predicted how AI would change his operations. Well, since his last appearance here, he's been putting AI to work. He's learned quite a bit about what actually works and what doesn't. And he will share it here. Until next week, I'm your host, Keith Weinhold. Don't quit. It's your daydream.
Speaker 5Nothing on this show should be considered specific. Personal or professional advice. Please consult an appropriate tax, legal, real estate, financial, or business professional for individualized advice. Opinions of guests are their own. Information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Get Rich Education, LLC exclusively.
Speaker 1The preceding program was brought to you by your home for wealth building. Getricheducation.com.
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