Banks are only offering commercial loans on my 2 family refinance
16 Replies
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Paul DeSilva from Brooklyn, New York
posted 2 months agoI'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
Ray Harrell Investor from Chicago, Illinois
replied 2 months agoTis 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.
Paul DeSilva from Brooklyn, New York
replied 2 months agoThanks Ray, it's all good I just wanted to see if this was the norm. The terms of the loans quoted are still good for my deal so far.
John Leavelle Investor from La Vernia, Texas
replied about 2 months agoHowdy @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.
Anthony Gayden Investor from Omaha, Nebraska
replied about 2 months agoDo 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.
Ryan Murdock (Moderator) - Investor from Bangor, Maine
replied about 2 months agoOriginally 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.
Max Tanenbaum Investor from Philadelphia, Pennsylvania
replied about 2 months agoConventional 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.
Upen Patel Lender from Vienna, VA
replied about 2 months ago@Paul DeSilva The banker you are working with doesn't know anything and/or is a commercial banker. Either case, they are wrong. Residential 1-4 unit properties can get a Fannie/Freddie conventional loan even if it is not owner occupied.
Find a different banker.
Gino Barbaro Investor and Professional Coach from St Augustine, Florida
replied about 2 months agoWhat 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
Paul DeSilva from Brooklyn, New York
replied about 2 months agoOriginally 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!
Paul DeSilva from Brooklyn, New York
replied about 2 months agoOriginally 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.
James Kojo Investor from San Jose, California
replied about 2 months ago@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
Chris Mason (Moderator) - Lender from Oakland, California
replied about 2 months agoOriginally 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.
Brent Coombs Investor from Cleveland, Ohio
replied about 2 months agoQ. Why does a Lender charge more after finding excuse to call it a "commercial" loan?
A. Because they can!
Tarik Turner Commercial Loan Broker from Englewood, New Jersey
replied about 2 months agoIS the property fully rented or still vacant?
Chris Mason (Moderator) - Lender from Oakland, California
replied about 2 months agoOriginally 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.
Brent Coombs Investor from Cleveland, Ohio
replied about 2 months agoA loan by any other name...
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