Portfolio Loan Question - Does this seem typical?
Hi All,
As I have been expanding my portfolio in different markets, I am have been evaluating different financing options (especially as I cycle through all my and my wife's personal mortgage slots as well as buying all cash).
In one of my main markets, I have developed a strong relationship with one of the regional banks there. They were willing to provide me a personal line of credit as well as issue a decent line of credit in the name of one of my businesses. They also are willing to make portfolio loans straight to my LLC. My game plan was to scale a bit by being able to use the lines of credits to continue to acquire and rehab purchases for my buy and hold portfolio and then when rehab was done do a cash-out refi portfolio loan to remove my own capital as the bottleneck.
Since I am about to potentially move forward on a couple of potential purchases I went over all the details with the bank today:
- The potrfolio loans can be issued in the name of one of my LLCs (so no more QCD)
- There is no seasoning requirement at all
- They offer fixed and variable offerings (and variable would be prime + 1 percent for me which is currently 4.25% total)
- They can do up to 90% LTV
Sounds great right? Well here seems to be the catch and I am not sure if this is typical:
- They only have a 15 year loan ammortization options, no 30 year ammortizations so that does affect annual cash flow compared to a normal 30 year loan I would use
- The property needs to meet their debt to income coverage ratio. Essentially Net rent divided by mortgage service has to be 1.4 or greater. They define net rent as total rent less 30% for vacany and operating expenses. And the mortgage is based as mentioned off a 15 year ammortization so that is not the easiest hurdle and that is why I am sure few loans actually happen at the 90% LTV and may end up closer to 50-65% to try and hit the ratios for SFHs (which I focus a lot on) but probably fine for Multis
My question is are these terms typical? Do most portfolio lenders only offer 15 year ammortizations (which I could see as similar to commercial loans where it is hard to get 30 year ammortization) or have some of you seen 30 year? Does the debt coverage ratio seem pretty high? I have seen 1.2, but maybe that is because they start their LTV at 90% and others start lower?
They did mention there a few ways around like using a different asset / collateral to cash out and then apply that cash to a purchase, etc.
Appreciate any insight. Wondering if I just figure out how to best make this work or if its worth the time to look at other banks in case people have seen better criteria / terms (would really like to use this bank as I have developed raltionship, but 30 year ammortization would obviously increase cash flow and annual return).
Thanks!
Eric