Real Estate Investment Financing Spotlight: Goldenwest Credit Union
Published On: September 27, 2017 Posted by: Jeremy Peterson
One of the major hurdles of real estate investing is finding the right financing. Funding an acquisition or refinance can take many forms depending on your exit strategy or long-term goals. Hard Money, Construction Loans, Bridge Loans, Private Loans, Seller Financing, FHA, VA, and SBA are all ways to create an IOU to a lender. Unfortunately, for individuals who are self-employed, like me, using 1099 income to secure a mortgage often leaves many doors shut to you.
I recently ran into this problem while attempting to secure a home equity line of credit on my personal residence which we intend to use for real estate investment purposes. I visited a local financial institution that I have banked with for decades. The loan officer took my information. A day later they called me up and said I was declined. When I asked why, they said that my debt to income ratio was too high because I had too many rental properties and too many children to support. It turns out they were not including rents in the equation to offset the rental mortgage payments. (Nor did they give us credit for the wheelbarrows of cash we make from our kids working in our basement sweatshop.) When I asked them what I can do to qualify, they told me to sell my income property (or my children). Obviously, that was an unsatisfactory answer.
Fortunately, someone from Goldenwest Credit Union reached out to me to see if they could get a loan done for me. They have a lot of experience working with self-employed individuals and business owners. We were able to get the home equity line done quickly and easily. Given my previous headaches elsewhere, I was shocked at how smooth the transaction occurred. While I was there I discussed my need to refinance a couple of our rental properties. They referred me to their Commercial Finance division.
Goldenwest Credit Union offers some interesting terms for real estate investors. For other traditional mortgage brokers, a refinance on an investment property will require 6 months rents as cash reserves in the bank for the rental property you are refinancing plus an additional 2 months for each unit you own. Goldenwest does not not have these draconian reserve requirements which add up quickly if you already own many units. However, these lighter reserve requirements are balanced by lower loan-to-value ratios which need to be at or below 75%. So, rather than tying up money in a savings account somewhere forever as rent reserves, GWCU allows that money to be placed as equity (i.e. down payment) in a property instead.
The rate we secured for our rentals was 5.25%. That is higher than you can find from a mortgage broker but given GWCU’s understanding of self-employed situations and lighter reserve requirements, it was a bargain. Their commercial loans also come with a 20-year amortization. For investors looking strictly at cash flow, they will recognize that this will convert their monthly profits into principal pay down. But, in my view, the forced building of equity is financially healthy for those seeking long term wealth creation.
Another interesting caveat about their income property loans is that the the interest rates are adjustable once at the 5-year mark and the loan has a 10-year balloon payment. However, with principal being paid down so quickly and with LTV ratios being so low to begin with, by the time the balloon payment is due, the property will be at an LTV of less than 45% which makes extending or refinancing the note an easy decision for any bank.
If you are looking to finance the purchase or refinance of your income property, I highly recommend Goldenwest Credit Union. Give Paul Naegle [NAY-glee] of their commercial division a call at 435-770-5075. Tell him I sent you.