I'm on the third R in the BRRRR strategy (Refinace)

17 Replies

I have a property in Florida where I have a tenant moving in this coming Friday. The property was purchased through an LLC. I reached to the hard money lender that I used to purchase the property (Lima One) and was a bit disappointed with the interest rates on a 30 year fixed refi. With a 700+ credit score, the interest rates are 7.25% at 75% LTV and 7.8% at 80% LTV (I'm looking to do 80%).

I'm not exactly an expert in this area, however, the interest rates seem rather high. My next step was going to be to basically call a bunch of the hard money lenders on the BP list to try to find better rates, but before I go through that lengthy process I thought it would make sense to see if anyone on BP could point me to a lender or two that might be more competitive on refi's out of hard money loans. I rather tap into someone else's good experience than call a bunch of random lenders.

You are most likely paying a interest rate hit for LTV, and seasoning on the property and income doc type. Have you owned it more than 6 months?

I'm assuming you don't qualify for conventional financing?

If you do then you should refinance into a traditional Fannie/Freddie agency loan.

If not then you should call all the small local banks and credit unions in the area.

Ask to speak with whomever handles their commercial/portfolio loans and compare the terms.

Originally posted by @Tim Johnson :

You are most likely paying a interest rate hit for LTV, and seasoning on the property and income doc type. Have you owned it more than 6 months?

Sept 22nd is the 6-month mark, however, I wouldn't be refinancing prior that date anyway if it would affect any of the numbers. It's less than a month away so I can wait at this point if I need to.

 

Originally posted by @Brian Garrett :

I'm assuming you don't qualify for conventional financing?

If you do then you should refinance into a traditional Fannie/Freddie agency loan.

If not then you should call all the small local banks and credit unions in the area.

Ask to speak with whomever handles their commercial/portfolio loans and compare the terms.

I purchased the property through an LLC. I'm not interested in trying that process I see people talk about on BP where I would close in my personal name, and deed it back to the LLC. The due on sale clause is not something I'm interested in messing with. I do like the idea of reaching out to small local banks and credits unit though. Thanks for the suggestion.

 

 

@Bobby Valcin

I would wait till the 6 month mark because you will get better rates, i'm seeing mid 5's on stuff right now when it's seasoned 6 months with a tenant in place

@Tim Johnson mid 5’s to very low 6’s is what I was anticipating, however, I haven’t seen those numbers as of yet. Where are you seeing that if you don’t mind me asking? Also, is that for properties purchased through an entity?

@Bobby Valcin I wouldn't even go through a HM lender to do the refi (I'm doing a refi on a BRRRR now and as you said the interest rates are higher). I would recommend calling every local bank and credit union within 30 miles of you to see if they have a product that fits your needs. That's what I did and I found the bank but will do my refi that doesn't have a seasoning period that goes as high as 80% LTV. the banks to do your refi out there you just got to find one, I would recommend asking for a bank referral on the local REI FB page for your area.

Bobby, 

This is the exact type of situation where a mortgage broker can help you out immensely. This is why mortgage brokers exist in the first place. Finding products to fit borrowers is a time consuming task. The banks and private money lenders out there target mortgage brokers and advertise to them constantly. I'm not in Florida so this isn't an attempt at selling you, but I've got a list of lenders begging for my Non-QM business daily. They all want brokers to sign up with them and they're always looking for new brokers to contact. If you've got a good broker around you go talk to them about what they can find.

During the crunch back around 2008 and the following 5 years the broker model struggled because many banks closed their wholesale lines down but the mortgage broker business is booming again because many people are starting to understand the value of an independent mortgage broker. The way brokers are paid is roughly the same as any bank pays its employee MLO except most brokers are able to select lower margins and sell lower rates/fees because they have lower overhead and less risk in their business model so it makes ensuring low origination costs easier. I suggest talking to a local broker, there are many reasons I set up a brokerage instead of continuing to manage a team inside of a bank or "direct lender", but mostly it comes down to being able to offer better rates/fees, a more diverse product line, and ensuring more control over the process because I can take my business elsewhere if underwriting turn times hit the ceiling or other service issues arise. Some people think banks treat their own loans more favorably than that of their broker partners, but that's backwards and shortsighted to think so. If I'm worth a $100,000 or $200,000 a year in revenue for them why would they do anything to jeopardize that business? It's much easier for me to move future loans to another lender than it is for an employee of any company to take their business elsewhere.

Let the broker shop your loan for you; they are way better at it.  Take some extra time to yourself and stop calling around.

@Daniel Henne thanks for chiming in. When I was looking for a lender for my own personal home that is exactly what I did. I have no problem doing the same for this loan, however, I’m running into some issues.

I’ve searched some BP contacts in the the section allocated for that, I’ve called multiple credit unions, and some small banks and it seems I’m getting a lot of run around, transfers to different people and referrals. I’m not even exactly sure what I should be looking for specifically.

When I say I need a commercial loan I’m told it needs to be five units to be commercial or that I’m too small of a potato to work with.

Maybe you can me get more defined with what I should be looking for. Based on what your saying should I be looking for a Commercial Broker, or is it more specific than that? I want to keep the property in the LLC that it was purchased in.

You might try using this link for the National Association of Mortgage Brokers.

https://mms.namb.org/members/directory/search_namb.php

or google "namb find a broker" and select the second result if you don't like clicking links people post.

A lot of mortgage brokers are going to do both QM business, referred to in the past as Prime, and Non-QM, referred to in the past as sub-prime.  Have you contacted the broker that did the deal on your home for you?  That would also be a good place to start.  Even if they don't have a product for you right now, it might give him/her an opportunity to find a new lender to work with.  They might not be able to set up new products themselves but they might be able to find one and convince their boss to sign up with that lender.

Sounds like you may have gone down that road though if you've gotten referrals?  I would call other mortgage brokers and look for people who specifically advertise themselves as a broker.  You're not looking for a "direct lender" or a "hard money" lender, you're looking for an independent broker that can submit loans to multiple investors.  We can have as large of a product line as we can effectively handle so it's up to each broker to decide how far they are dipping their toes in the non-QM pool.  I have my email blowing up almost daily from private money investors looking to sign me up so there's got to be someone around you that knows something and I suggest your best bet at finding it is to use an expert at finding it.  There can be a lot to sift through on all these products I'm bombarded with daily and they have their special features.  

A good MLO is going to show themselves to you right away by not leaving you hanging, making sure you don't get the run around, and promptly responding to your communications even if they can't help.  Unfortunately there are a lot of MLOs that give the industry a bad reputation so if they're not calling you back don't hesitate to move on because you probably don't want to work with them anyways.

@Daniel Hennek thank you for the link. I’ve reached out to a few people from the website and I’m waiting to hear back from a couple of them. This is definitely a learning experience for me. Thanks again.

Well, after careful consideration, I've decided to go with refinancing in my personal name instead of the LLC. I just couldn't stomach how high the interest rate would be if I kept it in the LLC. I will probably end up getting some kind of umbrella policy at some point to be better protected. Maybe after the next property. I've seen people mention in the forums that there is a way to still put the property in an LLC without the issue with the due on sale clause by forming a trust of some kind. I may explore that too at some point.

All in all, though, I've learned a lot through this experience. Thank you all for comments, encouragement, and advise.