Today’s question comes from Jorge and he’s really asking about being unemployed and investing during COVID. His question is I’m recently unemployed due to COVID and want to start investing in passive real estate. I heard about the government allowing COVID impacted people to pull up to $100,000 from their 401ks and retirement accounts. And I want to use this as startup funding. How feasible is it to get financing without an income or job? I have an 800 plus credit score.
Well, Jorge, I appreciate the question. You’ve got a couple of things in here first and foremost. I want to just apologize for the unemployment due to COVID. I feel bad. This has literally impacted multiple millions of people and, uh, for some people it’s going to be permanent unemployment or displacement for others. It’s going to be temporary with tourism and the service sector being impacted the most. I can understand how this would affect anybody’s ability to not only live from month to month, but also qualify for financing when you are focused on building a real estate portfolio. So that is a subject for another day. But for now, to your question about being unemployed and investing during COVID, you’ve got two things going on here. First of all, let me just quickly touch upon what they call the CARES Act. So what they call section 2202 of the Coronavirus Aid Relief and Economic Securities Act, which is just a long title for the short acronym CARES. So I’m sure you’ve heard of it as the CARES Act. So section 2202 of that basically provides a special distribution option and a rollover, rule for retirement plans and IRAs. So what it does is it expands the permissible loans from certain retirement accounts, which means that essentially you can lend to yourself, you’re essentially borrowing from your plan.
And what that section allows for is distribution options and favorable tax treatment for up to $100,000 of what they refer to as coronavirus related distributions from eligible retirement plans. In plain English, that just means that if you qualify which most, if not many or all people do, you’re able to borrow up to $100,000 from your plan without paying a penalty or a fee. And you are able to repay that back in part or in whole over the course of three years. So for someone who has a situation, a financial situation or hardship, and they need, they need to tap into that in order to be able to survive or get by or hold them over. This is a great option or opportunity that has been passed as part of the CARES Act. The key thing to keep in mind here is that although you can repay part or all of it back over the course of three years, there may be tax implications and penalties. If you don’t repay the full amount after that three-year period. So my suggestion there is to talk to your tax professional or tax advisor because these laws tend to get amended and changed, especially now in this very fluid and dynamic environment. So what they have as one thing may change tomorrow, I highly doubt that this is going to be changed in the negative, meaning that if any changes come along, it’ll probably be very lax and they’ll extend the term or what you’re able to do with it. So I don’t foresee it being constricted or tightening up. I think if anything, it’s going to be relaxed and loosened and that’s to your benefit. So, all right, I just wanted to touch on the CARES Act and how this applies to people listening to this because if you have a 401k or an IRA or some other retirement account, you may be able to borrow monies from that tax-free fee-free for up to three years, possibly more and up to $100,000.
Okay. With all that said your real question here is how do you qualify for financing without income or a job short answer and long answer. Short answer is, generally speaking, you can’t, but the longer answer is if you’re talking about conventional financing, a Fannie Mae, Freddie Mac loan, basically what is widely used and the largest, most popular type of financing available in the United States for people who are borrowing, whether it’s for their principal residence, second home, or for an investment property that is not available to you, probably their most important criteria is income. So they’re going to look at your income and check your debt to income ratio and check your credit scores. So the income actually is more important than credit scores because you can have moderate or slightly weak credit and still qualify, but without the income, you wouldn’t. So what do you do?
There are options out there they’re loosely referred to as commercial loans, what they are, are portfolio loans, or they come from portfolio lenders, or what is in the industry referred to as a non-qualified or non-QM mortgager mortgage lender. So I’m getting ahead of myself here, but I have mentioned it already a couple of times in previous episodes recently, but we are on the cusp of launching Norada Real Estate Funding. And that’s exactly what we’re going to be lending is these non-QM loans. So that would cover bridge financing fix and flip financing. Long-term 30 years fixed rate loan financing, which is essentially for buying and holding portfolio properties. It is not contingent or dependent upon your income. It is primarily based on the asset, the property, and your credit score. So it’s not that you need to show income. It’s much like a stated loan product in many ways, but you do need to have good credit, good credit quality investment property, and a few other little metrics in there, but you are able to get literally up to 75% or 80% loan to value on that purchase as well as having a 30 year fixed rate term at a very competitive rate, which you can also adjust slightly up and down and what they call, you know, buying down the rate.
Anyway, there is going to be more information forthcoming in the next week or two. So just hang tight. You don’t need to be emailing us right away because I will be posting that information and also announcing it on the show here. So for you, Jorge, just circle back with us in about a week or two, we’ll have more information up on the website on noradarealestate.com, our main website, not the podcast website, and that should be able to help you, especially if you have credit that is as high as 800 or more than this should not be an issue. So it sounds like you’re in good shape. I hope this has been helpful. Thank you for listening to everybody. Remember to subscribe, and if you have a question, just go ahead and submit that at passiverealestateinvesting.com or just go straight to AskMarco.com and it’ll take you there.
That’s it for today. Thank you for listening. And we will see you on our next episode.
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