Mechanics of a private lender mortage

[Jonathan Pitts]

Hello everyone!  First post on BP and looking forward to some input.  I've managed a few rentals in the past and currently own two cash flowing properties, however, this is the first time I've looked into using private lenders to make a few deals -- specifically friends and family.  My father has jumped on board and is willing to fund a few properties.

We just closed (last month) on one of the properties which is already tenant occupied and cash flowing. Our local title company drew up the mortgage and note which I gave my father on the property. This mortgage has been recorded in the public records. The plan is to be able to rate-and-term refi out of this this later with a conventional bank so I can pay him back. Basic idea is to use him like a HML to fund the initial deals then refi out later and do it all over again.

My question is this - Is it as simple as it seems?  Am I able to take this mortgage to a conventional bank and simply refi as if it was any ordinary mortgage from a conventional lender? Anyone have experience with this scenario and had any issues I should keep an eye out for?

Thanks! :) Jon

[Anthony Susco]

@Jonathan Pitts, Welcome to BP!

Yes, it is as simple as it seems. Since you recorded the mortgage, it will come up on a title search just as a conventional mortgage would and you will just need a payoff letter and discharge drafted up for the refinance closing (your title company can help with that too).

The only caveat is that most banks will want you to season the rental for 6-12 months before refinancing any amount above the initial loan. As long as you know going in that it is for refinance only and don't expect to "cash-out" above the amount of your father's loan, it should be a smooth, straight forward process.