Send me your financing questions

113 Replies

We are in some unsettling times and many of you have questions about financing options available for investors. Others have questions about the lingo/structure of RE financing. Opening up this forum to send me all you questions you have. I'll do my best to answer all questions submitted here. 

Lets hear them!

HEY @Jonathan Taylor ,

if I have a four unit rental property which I buy for cash, rehab and get fully rented out - is there any minimum time I need to hold before a conventional bank will refi? Thanks

Jonathan-- I’m not sure this is the right question for you , but I’ve been in contract for 55 days now and the seller is telling me he’s still waiting for the loan approval which is taking longer because of the virus . 
 I really don’t understand since everybody is working from home on computers . does it seem reasonable to have a two month closing waiting period instead of one month? 
thanks for offering to help

@Brian Whelan Good question, Traditionally, a 90 day seasoning period (time when the property is fully occupied and operational) would be needed for an investment loan program but those options are on hold as of the time of this writing. If you are looking to refi right now, I would wait a few weeks as we hope there are more loan programs available for investors with favorable terms. Does that answer your question?

@Marci Stein One aspect to consider is all the secondary businesses that operate from RE transactions. (title and escrow companies, appraisals, recorders offices, etc) These companies have, at least in my state of CA, have limited their operations due to Covid. That isn't to say business is stopped but we have experienced delays in closings due to this. 

Also, commercial multi family (5 or more units) or mixed use buildings can take longer to close due to complexities, what type of property is this?

@Jonathan Taylor

How many time can we use our VA loan? (purchase with a VA loan and refinance into a conventional loan)

Also what would be the cheapest method to purchase a non-owner occupied multi family home (4 units and under) in CA?

Thanks so much. 

Our current home is financed through a VA loan. We have decided that we need to upgrade and we are currently looking to find a fixer upper. We plan on using the VA rehab loan. We plan on staying in our current home until all the renovations are complete.

In my mind our best bet is to refinance out of our current VA loan to free up our eligibility. Are there any other options you could see working better for us?

- Current loan 260k with 240k remaining - house value 300k

- Budget for new home will be 450k

Thanks for all your help!

@Andrew Menkes . Could you provide a bit more details? What is the project scope? Are you purchasing and renovating or is this a property you own and are refinancing with cash out to cover rehab?

@Jonathan Taylor

It's a SFR we want to purchase, rehab, and resell. I have good credit however with my current liquidity, experience, and current times I'm finding it difficult to get a lender on board. I know if I thought about this more creatively I could think of something.

Considering purchasing my first property potentially using a HELOC as a down payment for a traditional loan. More than likely something that does not need work, so not a BRRRR. I understand that I could use the HELOC to purchase the whole property like cash and avoid the financing all together as well as making my offer more competitive to the seller. Of course that HELOC would be my 2nd mortgage with a non fixed rate. Some people are not interested in that. Also the bank could ask for the funds back at anytime although I am unaware if that is a term with my HELOC.

Question is if I were to make this move could I at a future date go to a traditional 30 year traditional loan in order to pay off the HELOC and free up the equity in my primary residence? If so do I need to have 20% equity in the rental property? How easy is this process and are the banks normally willing to do this. Any ideas or suggestions are welcomed. Thanks.

@Jaafar Mirlohi

To be frank, VA loans have many specifics that I wont cover here because of borrower and county specifics but an overview is provided below.

You can use the VA loan as many times are you'd like as long as you are within your entitlement limits which are dictated by your DD214 (discharge papers). While the VA allows it, some lenders may have some overlays (additional conditions set forth by the FHA/VA approved lenders) that may limit what you can do. Also, current market conditions may limit what you can do with a VA loan. I don't have solid answers on this strictly due to the constantly changing market place but short answer, yes, long answer, there's specifics needed to give you a better idea of what is possible.
Link explaining how VA loan entitlements work:

https://www.benefits.va.gov/HOMELOANS/documents/docs/guaranty_calculation_examples.pdf

To elaborate your 4 unit or less question in CA, Are you asking what is the lowest amount of out of pocket cash to purchase the property or what is the cheapest money you can borrow? Because that is an important distinction to make.

For you situation, say you put 30% down and borrowed 70% LTV. That may be cheaper in the long run because you can get better Interest rates but costs more up front now versus borrowing with a HML at 90% purchase and 100% rehab costs covered. The latter option is less out of pocket (technically cheaper now) but more expensive in the longer term because of the points the lender charges and the costs of borrowing that money. So elaborate a bit more on what you are looking to do and I can guide you on what products are out there.

Hope this helps! Send any followup questions if I missed something

@Nelson Van First, VA rehab loans exist and the amount you are eligible for depends on your DD214 (link explaining eligibility below) Also needing Consideration is your county purchase limit set forth on VA website. This is an upper purchase limit determined by the FHA. (link below)

Now, current market conditions may not have any lenders offering VA 203k loans at this time because they are riskier than standard purchases. I do not know of any local Virginia VA lenders but you can revisit with the lender whom you had your loan with to answer more locale specific info.

eligibility explanation: https://www.benefits.va.gov/HOMELOANS/documents/docs/guaranty_calculation_examples.pdf

County limits: https://www.veteransunited.com/education/tools/va-loan-limit-calculator/

Does that help? Follow up questions are welcome 

@Jonathan Taylor

How are real estate purchases being made? I noticed if you have an LLC you will only qualify for commercial rates. If we buy in our personal name and then transfer title to an LLC, won't this transfer trigger the due on sale clause?

It seems like this is a recurring issue with a lot of investors.

@Andrew Menkes Most lenders have lower loan limits, they vary by lender but if you are seeing 60K for purchase AND rehab that is too small of a loan amount for the lenders I work with. As of this writing, lower loan limits are 100,000. For your situation, local credit unions have a better pulse on the market and sometimes can offer tailored programs for members or locals. Your best bet is shop around the area you intent on buying and building relationships with bankers there. something to consider, and may be the issue you are running into now, is that flipping is risky. Flipping on small loan amounts is riskier. Current market is volatile. Don't be discouraged but we hope to have some clarity in the coming months. 

@Jonathan Taylor If I receive private money to fund my full down payment, will most banks allow this private lender to take a second position lien or will they still require any additional capital from me? Would the building in that scenario be underwritten with a heavier emphasis than usual, or will they still look at my personal finances and repayment ability as well?

Let's assume a $1M small apartment building. I borrow $250k from a private lender, which they require taking a second position. I would think they take the terms of the private note into their underwriting decision making as well. 

If I continue doing this, does it become much harder to get approved for the second, third, etc. no-money down purchase I try to get financed by the bank? It would be a lot of debt, with no personal equity in the deal. What are ways to offset coming off as being over-leveraged to a lender?

Thanks in advance!

@Jonathan Taylor

Hey,

Thanks for the follow up. All this information definitely helps. I think my best bet is reaching out to my lender and seeing if

1) They are funding 203k loans

2) If they are still willing to lend over the “guaranteed amount” with all of the things going on with Covid.

What are the unemployment terms now specifically due to covid?  Will lenders look at facts or just blanket unemployment?  A lot of people are unemployed right now but may be recieving 100% compensation for the time being and will be right back at work when shelter in place plans end.  Would it be different for a loan in process vs starting a new loan.

@Taylor Farrington

You can use a HELOC to purchase a property all cash. HELOC contract details vary so read all the fine print. During 2008, over-leveraging was rampant and limits have been put in place to restrict it. Since you pay interest on only the money you borrower in regards to a HELOC and the length of the term varies it would be a question for your lending institution. Banks offer HELOCs so start with the bank you have an existing relationship with.

You can refinance out of the new purchase to repay the HELOC (but make sure you know if there is a Pre pay penalty on the HELOC) You would need a MINIMUM of 20% equity to refinance into a 30 yr. The more equity, the better as lenders are tightening their belts in terms of LTV requirements.

But what did you mean 'some people are not interested in that'? 

Does that help? 

 

Thank you Jonathan. I already have the HELOC secured. In my research it seems like many times you can get a better deal if you purchase the whole property with the HELOC like cash. No financing, better offers accepted, etc. So if I were to make that move I could essentially snowball the HELOC until 20% of it is paid off and then go to a bank to try and get a conventional 30 year loan? Are they normally willing to do this? My wife and I have Excellent Credit and own our primary residence in California with a 40% LTV. Let me know and I appreciate the response.

@Rik Patel

Depends on what you are looking to do. Purchasing under an LLC initially would qualify under commercial financing.

If you purchase under your name and quit claim deed into an LLC or living trust MAYor MAY NOT trigger a due on sale clause because it depends on the loan details. Lenders need to comply with truth in lending guidelines. This carries all the way to the borrower because when you apply for a loan you are stating what the purpose of the loan is for. If the myriad of Housing regulatory departments catches a borrower who claimed one thing and did another, the LENDER can be held liable for this. Investment properties are purchased under the guideline it wont be owner occupied. When the loan closes, what the owner does is their decision but as a Broker, we have to disclose the occupancy and intended use of properties. So if you buy a SFR as an Owner occ but after the sale closes, you quit claim to an LLC and rent it out you may be violating the loan terms.

There are ways to do it though, send me more specifics on the scenario or a situation where this happened and I can break it down for you. 


Originally posted by @Jonathan Taylor :

We are in some unsettling times and many of you have questions about financing options available for investors. Others have questions about the lingo/structure of RE financing. Opening up this forum to send me all you questions you have. I'll do my best to answer all questions submitted here. 

Lets hear them!

Hi Jonathan,

I own a number of rentals that are free and clear. What's the best way to pull equity excluding an umbrella (expensive) or individual HELOCs (PITA + callable). Thanks!

 

@Ujwal Velagapudi

You're correct on Lenders taking the terms of the private note that is directly connected to an asset into their underwriting decision. Some lenders have reserve requirements and ask for the sourcing of the downpayment. 100% financing a property isn't impossible but lenders like to see the borrower have 'skin in the game', as in their own cash invested in the subject property. Whether they take issue with a PML having a second position is bank dependent. Some yes, some no, depends on your relationship with the first position holding bank and their loan programs. 

With your $1M scenario, Id have to take a look and see since the current market right now is tightening their belt. If you DM me the specifics I can give you an idea of what is possible through my lender channels. 

As for over-leveraging, Im seeing some lenders on Non QM products have DTI requirements and 24 month bank statements being required to prove liquidity. So we will get some answers in the coming weeks but the lending programs are discouraging over-leveraging in a risky market.

Did that help? Send me any follow up if I missed something.


@Taylor Farrington

You can do this from my experience. You just incorporate a payoff demand for the HELOC into your new loan. It would be cleaner to get 30 yr financing from a different lender than the one who under wrote the HELOC. If you used the same lender as the HELOC you'd be asking a lending institution to borrower money from them to pay them.

As long as the numbers of your deal pencil out and your are not over-leveraging yourself. That is being discouraged at the time of this writing being the market is more volatile. By over-leveraging I mean buying on thin margins and using ambitious comps for ARV. Run conservative numbers is all Im saying.