I'm currently shopping around for a commercial line of credit with local banks in the Syracuse,NY area. I was informed that any bank considering giving me a LOC against the equity in my properties would want me to refinance all my loans with them because no bank will want to take a second position. Is this typical? I would rather not pay all the closing costs and end up with a higher rate. But if it means getting a line of credit for 500k it might be worth it?
Hi @Robin Casper - Generally that is correct, especially with single family and 2-4 unit buildings.
I spent a few years in commercial lending and that was common practice. Granted, some "higher risk" lenders would be willing to take a look at it, but the amount you'd pay in interest at those places would likely exceed any closing costs at the bank you're already in discussions with.
Did they give you an estimate of the closing costs?
At first I was offer 15% at bofa but then I opted for private money which offered me 8.99% commercial LOC on my current rentals.
I work at a community bank in California and have done deals where we have taken on second positions as long as the firsts aren't too large. These deals typically stay under a 65% Combined LTV. Its always better for a bank to take over all the debt but if you reach out to enough lenders you could probably get one that will take a second position.
Try to find a small community bank because they are more likely to take the risk. Rates will be higher but between 5.5% - 8% is better than bigger banks & hard money. (Watch out for origination fees)
If you can't find one, it is worth refinancing as long as the terms are favorable. Revolving LOC often have annual fees.