Discover the success-driving insights of Colorado’s real estate investors with Aimee Fontes, Assistant Vice President of FirstBank Southwest Market. With over a decade in banking and four years of lending experience at FirstBank, Aimee shares her expertise in creative financing strategies to grow investment property portfolios. Learn about the key factors FirstBank considers for rental property loans, unique loan products for investors, and valuable tips to maximize borrowing power.
What are the key factors that FirstBank considers when evaluating a rental property loan application?
- Income: We look at all sources including salary/wages, business income, rental income from other real estate owned, expected rental income from the property being purchased, and etc.
- Credit History: We check for late payments, collections, judgements, and etc.
- Leverage: How much are the borrower’s assets borrowed against?
- Banking Relationship: How long have they banked at FirstBank or if they will be moving their banking relationship to FirstBank.
- Property Management Experience: Have they owned other rental properties in the past and will they be managing the new one alone or using a property management company.
Are there specific loan products or programs at FirstBank designed for rental property investors? What are the advantages of these products over more traditional lending options?
FirstBank is a privately-held, locally owned bank, known to be investor friendly. We work with customers to identify creative financing solutions that work best for them and the communities in which they operate. For investors, we offer several unique products you might not see with traditional lenders:
- Portfolio and Agency Mortgages:
- 5 or 7 year ARMs
- 5,10, or 15 year fixed rate mortgages
- Agency (Fannie Mae, Freddie Mac, and Federal Home Loan Bank)
- 20 or 30 year fixed rate mortgages
- Loan Modifications: Rental investors can avoid the headache of refinancing, and can lock in market rates for another 5 or 7 years on your existing FirstBank mortgage. All you have to pay is a 1.5% origination fee and a $200 document preparation fee. This is offered on all our portfolio mortgage products, which include ARMs and 15-year mortgages.
- Scatter Site Line of Credit: Great for investors who have various properties in a concentrated area. Investors can tap into their combined equity to fund other purchases or projects.
- Home Equity Line of Credit on Investment Properties: We provide HELOCs on your rental properties, so you can access the equity to fund improvements or use for other investments.
- Re-amortizations: If your property is financed through FirstBank, you can request a re-amortization or recasting. This can be a good option if you are locked in at a great rate, but want to lower your monthly payment to help increase cash flow.
- Regular Single Advances / Acquisition Loans: Allows you to acquire a new property with an interest-only loan while you finalize permanent financing. Typically closes faster than a mortgage. Product also works well for fix and flip investors.
- Fixed Adjustable Rate Mortgages: As mentioned earlier, FirstBank also offers 5 or 7 years fixed ARMS. The benefit of having this product is that the investor can lock a competitive rate for a shorter period. Some investors don’t carry their loan or keep the property for the full 30 years and don’t necessarily need a fixed rate.
How does the loan approval process for rental properties differ from traditional home mortgages?
- Underwritten in-house: All of our loans are underwritten in house. Our pre qualifications are thoroughly done at the onset, so when you go under contract there is minimal documentation needed.
- People ahead of profits: As a relationship bank, our loan Officers are NOT paid on commission, but are instead incentivized to cultivate long-term relationships.
- One point of contact: Borrowers also have one point of contact throughout the entire process even after loan origination.
- Human decision-making: Because we’re locally owned and operated, real people (not financial systems) provide decisions on your loans and stand by you when things get tough.
What are the typical down payment requirements for rental property loans? Are there any strategies for minimizing down payment costs?
- Rental property purchases require a 20% down payment. But we offer rate options without origination points. Both rates and fees are competitive.
- I would also add that real estate investors can consider other strategies if they want to minimize upfront costs/their down payment. They could consider buying a duplex or multifamily (1-4 unit), moving into one unit and renting out the others. Or they can move into a SFH property for period of time. Both options would help qualify them for an owner-occupied loan, where they could take advantage of a potentially better rate and less money down. Also, they could consider partnering with friends and family on the deal to contribute towards the down payment and offset expenses.
Are there specific credit score requirements for rental property financing?
- No, we look at the full credit picture.
How does FirstBank determine the maximum loan amount for a rental property? Are there any income requirements or debt-to-income ratio considerations?
- We consider if the loan is for a purchase, refinance, or a junior lien (Home Equity Loan)
- We consider a debt service coverage ratio (DSCR) which is the inverse of a Debt-To-Income (DTI) ratio. Debt service coverage ratios look at the total cash available vs. the cash required to service the debt. It also looks at the residual income, which is any money left over after paying your mortgage and additional obligations (i.e. taxes, insurance, HOA, maintenance, etc.).
What are the current interest rate trends for rental property loans, and how do they compare to traditional mortgages?
- We offer competitive interest rates on both our portfolio mortgages and agency loans.
- We also service all of our loans, including loans sold to the secondary market. This makes us your one point of contact for payments, payoffs, or for any questions regarding the loan.
- On our portfolio loans we allow title vesting to be in the name of an LLC which can be beneficial for investors who like to keep their real estate separate.
What are the common challenges or mistakes that rental property investors face when seeking financing? How can they overcome these challenges?
- Not shopping the rate: It is important to explore your different rate and fee options so that you can maximize your profit on a rental property. According to a study by Freddie Mac, buyers who shop around for multiple mortgage rate quotes can save an average of $3,000.
- Thinking they need to get a 30 year fixed rate mortgage: Considering an adjustable option allows you to lock a competitive rate for several years.
- Focus on Cash Flow: In addition to ensuring there’s enough cash flow and a sufficient amount of income to cover the mortgages plus any property related expenses, investors need to have access to capital or a plan in place if there’s no tenant occupancy or major expenses are incurred.
Are there any strategies or tips for leveraging existing rental properties to expand an investment portfolio? How can landlords maximize their borrowing power? Does FirstBank offer favorable terms for those who have other products or history with FirstBank? What’s the best way to get a hold of you if they have further questions?
- One strategy would be to leverage your existing rental properties, by tapping into their equity to grow your investment portfolio or to add value (more rentable living space) to your current portfolio. This can be done with a HELOC or a scatter site line of credit. You can also consider a cash-out refinance to purchase a property or make property improvements.
- Borrowers can maximize their borrowing power by increasing cash flow or profits on their rentals (i.e. renting out unused space, creating more beds/baths, ensuring rent prices are at market), as we typically count that as income on your loan application. We also add back expenses such as depreciation, mortgage interest, and non-recurring expenses. It is important to keep a detailed record of all expenses and inform us if any of your expenses were non-recurring.
- We do not offer different terms for existing bank customers. However, we would be more familiar with you and your financial picture, which would streamline the process and make your future deals easier
Assistant Vice President
NMLS ID 1758333
FirstBank – Southwest
550 S Wadsworth Blvd | Lakewood, CO | 80226
Work 303-742-3018 Cell 720-408-0447 Fax 303-742-300
Disclaimer: The information presented in this blog is intended for general informational purposes only and should not be considered as personalized financial advice. Every individual’s financial situation is unique, and the content provided may not be suitable for everyone. Before making any investment decisions or financial choices, readers are strongly encouraged to assess their own circumstances and consult with qualified professionals for tailored advice. The author and publisher do not assume responsibility for any actions taken based on the information provided in the blog.