Private Lending & Conventional Mortgage Advice

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HELP on Conventional bank loans

Posted Aug 13 2022, 08:17

What are the requirements of a CONVENTIONAL BANK for pre-approval for the following loans:

1.) Investment property

2.) Hard money loans

3.) Fix and flip loans

4.) Commercial hard money loan

5.) New construction loan

6.) Refinance / Cash out loan

7.) Bridge loan

I would appreciate any help. Thank you!

Bakersfield, California

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Randall Alan
  • Investor
  • Lakeland, FL
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Randall Alan
  • Investor
  • Lakeland, FL
Replied Aug 13 2022, 16:03
Quote from @Kristine Mercado:

What are the requirements of a CONVENTIONAL BANK for pre-approval for the following loans:

1.) Investment property

2.) Hard money loans

3.) Fix and flip loans

4.) Commercial hard money loan

5.) New construction loan

6.) Refinance / Cash out loan

7.) Bridge loan

I would appreciate any help. Thank you!

 Hi… your question is too complicated, and really will totally vary from lender to lender and product to product.   you need to pick one that represents what you are trying to do and go from there (in my opinion).  

Broadly though, any bank / lender wants to know how they are going to be repaid.  They use a wide array of formula’s to qualify a borrower, including:

Your credit score (showing how well you manage credit)

Your debt to income ratio - showing how much free cash you have to live on (and thus how much money you have to pay their loan back).  Banks have thresholds… like they don’t want to see more than X% tied up in expenses.  It varies by lender. 

Debt to equity ratio… looking at overall indebtedness versus how much equity you have in your portfolio. 

They look for cash reserves, so that if your property you buy quits performing (person squats in the house but doesn’t pay rent) can you still afford to make the payment without that income.

These are just a few of the things they look at. 

Every lender is going to want you to have “skin in the game” (ie. they aren’t going to lend 100% of the money) .  For investment  properties a conventional bank is typically going to look for you to invest 20-25% of the purchase price from your own funds.  This way if you default, the first 25% of the loss on you, and they can usually recoup their money from forclosing on the property and selling it. 

Cash out refi’s  will come at a higher interest rate (typically .5 to .75 higher than a regular mortgage) for whatever type of property you are working on and will be based on the appraised value of the home.  Most refi’s will lend up to 75% of the equity a property has in it… so if you owned a $200,000 house, and owed $100,000 on it, they would lend an additional $50,000 on it, as 75% of 200,000 is $150,000 - the first 100,000 loan counts against the total as they would pay that loan off. 

Any hard my loan will come at a much higher interest rate, and it’s typically considered a short term loan towards flipping the property. Most hard money lenders will take a percentage off the top… So on your $150,000 loan, they might only lend you 98% of that the amount, but  you still owe 100% of it back.  Then your interest rate will be considerably higher… probably 3-10% more than a conventional loan.  Typically hard my loans  are not sustainable over time, you use them just to get through the rehab process. It only makes sense to either sell the property or transition to a traditional mortgage after rehab at a more normal interest rate.  Each time you go through and do any sorts of financing, however, know  that you are probably looking at anywhere from $3000-$5000 of expenses between closing costs and government taxes etc, so those expenses can add up! 

I hope some of that helps!

All the best

Randy

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David Kelly
  • Lender
  • Nationwide Lender
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David Kelly
  • Lender
  • Nationwide Lender
Replied Aug 13 2022, 17:02

I agree with Randall.  There are way too many variables to look at for each situation.  Guidelines are not all the same.  And not all of these on your list are going to be able to be underwritten with conventional guidelines.  Hard money loans are not conventional, as well as commercial.  Every conventional lender out there may or may not offer a new construction, bridge loan, or even an investment property option.  

I would search previous posts for all of these to get an idea on what you may be looking at.  If you have a specific example, you can reach out to me or ask the BP community.