Investor · Boston, MA · Member since 2015 · 26 posts · 9 votes
I paid cash for a duplex in Pittsburgh, then applied for a mortgage under the delayed financing exception that I learned about here on BP. I am trying to figure out if it is even worth it to go through with the mortgage.
Here are the numbers I received from the bank and I am wondering if this mortgage is too expensive for the size of it.
Lender · Las Vegas, NV · Member since 2015 · 2k+ posts · 1k+ votes
10y
The loan size is what is not in your favor. Have you talked to a small community bank or credit union or savings and loan? Try them before you decide. If you do not need the money for something that is going to return you more than the cost to get it...leave it alone.
Lender · Las Vegas, NV · Member since 2015 · 2k+ posts · 1k+ votes
10y
The loan size is what is not in your favor. Have you talked to a small community bank or credit union or savings and loan? Try them before you decide. If you do not need the money for something that is going to return you more than the cost to get it...leave it alone.
Rental Property Investor · Lindon, UT · Member since 2015 · 862 posts · 438 votes
10y
It ALL depends on how long you plan to keep the property and your opportunity cost with the cash you get back. For a 30 year loan at 5% - most of the time the answer will be YES! If you are thinking of flipping this property in the next six months to a year, then the answer will be NO.
Private Money Lender · Buena Park, CA · Member since 2015 · 80 posts · 41 votes
10y
Assuming that this is best 30 year loan one can get in your area and assuming that you are not going to hold the property as a rental then it strictly depends on what would you plan to do with $42,000 in next 12 months. If you can flip another property and make about $12,000 than it would be worth it because you would be making about 16% return on your money. However if you were asking if it is too expensive for a long term hold the answer is definitely NOT! Young generation thinks that 4% rate is normal because they never have experienced 8%, 9%, 10%, 11%, 12%, 13% and yes 16% rates for conventional loans. So if the duplex makes good cash flow with 5% loan I would keep it.
Investor · Boston, MA · Member since 2015 · 26 posts · 9 votes
10y
@Charlie Fitzgerald Thanks for your input. I had called a couple of local banks and they had no idea what I was talking about when I mentioned the delayed financing exception--or they said that they did not do that.
I can try contacting a few more--or since soon it will be 6 months since I purchased, maybe I can get a regular mortgage (maybe with better terms?)
Investor · Boston, MA · Member since 2015 · 26 posts · 9 votes
10y
@darren
@Darren Eady Thanks. I definitely plan on keeping this property as a rental. It has really good cash flow. I purchased it for $55,000. I've put in about $5000 in repairs, and I get $1435/month in rental income.
Investor · Boston, MA · Member since 2015 · 26 posts · 9 votes
10y
@George Krajacic Thanks for your comments. I definitely plan on keeping the property for a while. It has great cash flow!
I don't really know if these terms are the best I could get, b/c this is the only bank that I got the figures from. I actually wonder if I could do better, mainly because I have excellent credit and wonder of my interest rate could/should be lower.
Based on the comments so far, though, I will probably go for it. Then, I can look for a different bank with better terms for the next property.
Deerwood, MN · Member since 2014 · 184 posts · 122 votes
10y
I am refinancing next week on a property I bought for cash on Sept. Just ask the banks if they will offer you a loan that the bank will hold. That is what my new bank is doing for me. They can loan like this with bank money, but in my case it had to be an adjustable rate mortgage.
Toronto, Ontario · Member since 2015 · 3 posts · 0 votes
10y
I think it's when the need for a mortgage is at it's peak. When we need it at the moment, the mortgage will be too expensive and we don't be able to manage it. I had once this same problem and what I did was consulted a mortgage refinance in Innisfail called The Place to Mortgage and they did the refinance for the mortgage without much expense.
Lender · Las Vegas, NV · Member since 2015 · 2k+ posts · 1k+ votes
10y
Now is not the time to take on an adjustable rate mortgage for a long term hold property. If you are going to be beyond the 6 months for the delayed refinance program, I would wait 12 months and refinance it based on the new appraised value at that time.
Now is not the time to take on an adjustable rate mortgage for a long term hold property. If you are going to be beyond the 6 months for the delayed refinance program, I would wait 12 months and refinance it based on the new appraised value at that time.
Charlie, what makes you say now is not the time for an ARM? Just curious as I don't have or know much about ARM's and don't plan on getting one...but ya never know! Thanks.
Lender · Las Vegas, NV · Member since 2015 · 2k+ posts · 1k+ votes
10y
@Troy Sheets We're entering into a phase in the cycle of lending where interest rates are going to be on the rise. The FED just inched them up 25 bps (.25%) for the 1st time in almost a decade. Further raises will come in the months/years ahead is my bet. Adjustable rates (although most have SOME period of stability where they are fixed for 1 year, 3, years, 5 years etc.) will begin to be more volatile as the indices behind them will begin to rise as well. Additionally, lenders will start to move their margins on ARM loans up. The combination of higher margins + higher index = Higher Interest Rate. Most people do not calculate the ARM loans they go into on a "What's the worse rate it can go to" basis and determine their forward risk in the loan if it adjusts. They always look at the initial low rate and find a deal that with that low rate, pencils out. So, when the rate begins to move on them, they are either losing traction on their cash flow, or are forced to refinance and incur those costs again. I LOVE adjustable rate mortgages overall...I use them personally on my own home and many of my rentals. I also know how to calculate them to make sure I am not in a pinch when they move up and I normally cash flow my loans with ARM's to be paid off prior to the first opportunity for the ARM loan to reset and my interest rate to rise anyway.
Real Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes
10y
Local banks are not going to use the term "Delayed Finance Exception" on any type of regular basis. That is a place hold term for Cash Out Refinance after six months title seasoning. (program that has been around for decades) Just ask about cash out refinance and leave the Fannie Mae terms out of the discussion. Small local and community banks may not sell their loans to Fannie/Freddie and don't casually use the same terms. Heck, even those who do may not know that term as the industry simply refers to it as a Cash Out Refinance not Delayed Finance Exception.
Cash out refinance loans are available at every bank everywhere. Each will have guidelines as to how a borrower and a property qualifies for those loans. Do not expect them to be overly similar to Fannie Mae's guidelines but they will be to some degree close.
I don't think you will see all to much variance on the programs you get offered. My initial reaction to your terms was the closing costs seemed high at $3k+. Rate and term seemed reasonable.
@Troy Sheets We're entering into a phase in the cycle of lending where interest rates are going to be on the rise. The FED just inched them up 25 bps (.25%) for the 1st time in almost a decade. Further raises will come in the months/years ahead is my bet. Adjustable rates (although most have SOME period of stability where they are fixed for 1 year, 3, years, 5 years etc.) will begin to be more volatile as the indices behind them will begin to rise as well. Additionally, lenders will start to move their margins on ARM loans up. The combination of higher margins + higher index = Higher Interest Rate. Most people do not calculate the ARM loans they go into on a "What's the worse rate it can go to" basis and determine their forward risk in the loan if it adjusts. They always look at the initial low rate and find a deal that with that low rate, pencils out. So, when the rate begins to move on them, they are either losing traction on their cash flow, or are forced to refinance and incur those costs again. I LOVE adjustable rate mortgages overall...I use them personally on my own home and many of my rentals. I also know how to calculate them to make sure I am not in a pinch when they move up and I normally cash flow my loans with ARM's to be paid off prior to the first opportunity for the ARM loan to reset and my interest rate to rise anyway.
Great explanation Charlie, thank you very much! If I may bother you with one more question, why do you love ARM's? I've always been very leery of them, probably because I don't know much about them. What would some of the advantages or uses be? Sorry, that's two questions!
Real Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes
10y
One other thought, I didn't see the thread here which discussed DFE but any property owned for more than six months is eligible for refinance. Only property owned less than six months are not eligible. That is standard practice at most lenders. So there is no "window" of time the refinance has to take place in. It just has to occur AFTER 6 months.
Lender · Las Vegas, NV · Member since 2015 · 2k+ posts · 1k+ votes
10y
ARM's allow me to have the lowest possible cost on money I have borrowed. ARM's normally trail fixed interest rates by 1-1.5%. That's an extra 1-1.5% that I don't spend on interest. ARM interest rates also can go down...and so does your payment! Can't get that with a fixed rate without refinancing...which is why everyone does. Refinance means more money. ARM monthly payments get lower as you pay down principal amount owed. Fixed rates don't do that either. ARMs make me track my investments more properly and keep an eye on my positions. Fixed rates are a set it and forget it (which is why banks LOVE them) financing vehicle.
ARM's allow me to have the lowest possible cost on money I have borrowed. ARM's normally trail fixed interest rates by 1-1.5%. That's an extra 1-1.5% that I don't spend on interest. ARM interest rates also can go down...and so does your payment! Can't get that with a fixed rate without refinancing...which is why everyone does. Refinance means more money. ARM monthly payments get lower as you pay down principal amount owed. Fixed rates don't do that either. ARMs make me track my investments more properly and keep an eye on my positions. Fixed rates are a set it and forget it (which is why banks LOVE them) financing vehicle.
Good to know Charlie, I had no idea they could go down! I also didn't know ARM's got lower as you paid them down. If I got an ARM 2 years ago and it was locked for 3 and interest rates went up over that next year, what happens after year 3? If it was a 5 year ARM and locked for 3, you're riding the rising interest rate for the next 2 years? How often can it adjust? After the 5th year, what happens? Do you need another loan or a typical ARM is longer than 5 years or?
Lender · Las Vegas, NV · Member since 2015 · 2k+ posts · 1k+ votes
10y
Arms are adjustable on a annual basis every year after their period of fixed rate expires. Subject to a lifetime cap (in nearly all ARM products of 5%). So if you have a 3/1 or a 5/1 ARM today at 3%. The worse it can rise to is 8% over the life of the loan (30 year amortization). If it got to 8%, that would mean that 30 year fixed rates were pushing 10%.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
10y
If you applied for re-financing last month, you're probably getting last years taxes added in the settlement as well as reserves if the escrow for taxes and insurance. Look at the itemized estimate of loan costs, taxes are not a loan expense but will be need to be paid at settlement if they aren't now for last year.
If taxes were not in the costs of settlement, then it looks like you're a good 2 to 2.5 points higher on the loan, junk fees, origination, funding, underwriting type fees. Never heard of a lender only charging an eighth of a point, that's your discount to the interest rate you pay them at that rate.
Your use of that money is a big deal, if it sits in a CD I wouldn't pull it out now, if you're buying 2, 3 or even 4 more properties, that can be some pretty cheap money to use! :)
Investor · Boston, MA · Member since 2015 · 26 posts · 9 votes
10y
@dion
@Dion DePaoli Local banks are not going to use the term "Delayed Finance Exception" on any type of regular basis. That is a place hold term for Cash Out Refinance after six months title seasoning.
But the delayed financing exception allows you to "refinance" before six months if you paid cash, and if certain other conditions are met. No seasoning period. That's the benefit.
Investor · Boston, MA · Member since 2015 · 26 posts · 9 votes
10y
@Jerry Padilla My credit score is stellar--it hovers pretty close to the max. Should I try to negotiate a better rate based on my score? Do big banks do that?
I paid cash for a duplex in Pittsburgh, then applied for a mortgage under the delayed financing exception that I learned about here on BP. I am trying to figure out if it is even worth it to go through with the mortgage.
Here are the numbers I received from the bank and I am wondering if this mortgage is too expensive for the size of it.
FAppraised Value: $60,000
Mortgage of $42,000 (LTV=70%)
30 Yr. Fixed Conforming
5.00% with -.125 pts.
Closing costs are approximately $3,140
Thanks for your thoughts.
Hello and welcome! My opinion is that any deal has an option to go for what you get. Just use the real numbers and that will tell whether or not you can do it. It will either work or not. Just go with the numbers, right or wrong. If they tell you to walk away, wacky away. It is plain and simple. Do not cut it too close. It is black and white.