Banks are only offering commercial loans on my 2 family refinance

16 Replies

I'm trying to BRRRR a two-family I recently purchased. I'm almost to the refinance part and started shopping around for loans, so far the banks that I have spoke to are only offering commercial loans. They are saying it has to be commercial because it is not owner occupied. Is this the norm? Are there better options? TIA

Tis true. If you aren't living there it's an investment property. What you SHOULD have done, and it's a big dishonest, but so are banks, get your mail at the rental property.

Howdy @Paul DeSilva

That is not correct!  2 - 4 unit properties are still considered Residential.  Yes an investment property, but, for loan purposes it is Residential.  You need to keep shopping.

How long have you had it “In Service “, ready and available to rent?  Most lenders require a minimum of 6 month seasoning from when it was placed “In Service “.  If you have not met this requirement then that may be your problem.  In that case a portfolio or commercial lender might be your only option right now.

In the future I strongly recommend you arrange for the Refinance loan prior to purchasing the property.  It makes the process go much more smoothly.

Originally posted by @Ray Harrell :

Tis true. If you aren't living there it's an investment property. What you SHOULD have done, and it's a big dishonest, but so are banks, get your mail at the rental property.

Not sure committing mortgage fraud is the best course of action here. What you are implying beyond just getting mail at the property is that you would at some point sign a statement that you would be occupying the property as a primary residence. Bad idea if it isn't the truth. 

Conventional loans can be made on investment properties but the rate will be a point higher than owner occ. and the LTV will be 75-80% maximum.

Originally posted by @Gino Barbaro :

@Paul DeSilva

What terms have they offered you?  The rate will definitely be a bit higher due to non owner occupied, do they have a term or is it a 30/30?

Gino

 So far just run of the mill 30 year pretty much. One local portfolio lender had an interesting term loan they quoted but wont give any hard numbers yet. I'm learning everyday!

Originally posted by @Anthony Gayden :

Paul DeSilva

Do you own the property under an LLC? If that is the case, it is the reason why banks will only lend to you with commercial financing.

Yes Anthony it is owned by an LLC.

@Paul DeSilva :

@John Leavelle and @Anthony Gayden (above) are both correct.

Unless you have more than 10 residential mortgages, or the properties are above the jumbo mortgage limits or you're trying to finance the the properties with the LLC intact, then they should qualify for conventional residential FNMA loans.

For the LLC situation: my strategy is to close the loan under my personal name (no LLC), then after a few months of "seasoning" to establish on-time payment, notify the lender that I plan to drop the property into an LLC strictly for asset protection purposes.

Many seasoned pros will tell you that you don't even have to notify the lender that you plan to do so, but will warn that doing so runs the ever-so-slight risk that they may actually call the entire loan due immediately. Search for due-on-sale clauses for deeper discussion on that strategy. Personally, I think it's entirely reasonable, but you get a few outliers who disagree.

Hope that helps!

James

Originally posted by @Paul DeSilva :
Originally posted by @Anthony Gayden:

Paul DeSilva

Do you own the property under an LLC? If that is the case, it is the reason why banks will only lend to you with commercial financing.

Yes Anthony it is owned by an LLC.

 That's what's doing it.

LLCs get commercial and hard money mortgages, human people with pulses get residential mortgages. 

Chris Mason, Lender in CA (#1220177) and California (#1220177)
415-846-9211

Q. Why does a Lender charge more after finding excuse to call it a "commercial" loan?

A. Because they can!

IS the property fully rented or still vacant? 

Originally posted by @Brent Coombs :

Q. Why does a Lender charge more after finding excuse to call it a "commercial" loan?

A. Because they can!

 Commercial loans by themselves are actually less profitable if rates/fees were the same. Fannie Mae might pay a point or two to buy a Fannie loan, or maybe it's above Fannie standards and a big bank pays 2.5 points. 

Without any secondary market, all the profit must come from the borrower. 

Chris Mason, Lender in CA (#1220177) and California (#1220177)
415-846-9211

A loan by any other name...

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