Refinance Conventional Mortgages to Commercial Mortgage

10 Replies

Hello all,

I've been a member and viewer on BP for a while, but this is the first time I am seeking some help. I currently have 3 conventional loans on 2 rental SFRs and 1 two-family rental. I'm reaching the limits with conventional financing. Does anyone have any experience with banks or lenders that will refinance a small portfolio of one to two family homes with rates that aren't crazy high? I know there are a few big players out there like b2r and colony. Does anyone have good experience with them?

Thanks for the help!

Hi @Ross Drucker ,

You know that Fannie's cap is 10 financed properties, right, not the 4 that many people claim?

@Ross Drucker I concur what @Chris replied.  FNMA has increased guidelines to support up to 10 properties. I blogged about that last week.  Most individuals believe it's capped at 4.  Also, they have increased the tolerance for risk to allow 20% up to 6 loans and 7-10 requiring 25% down.  This is an investor's dream come true !! 

Hi @Graham Parham and @Chris Mason

Thanks for the info! I am familiar with the maximum 10 properties, though the limits I'm referring to are the debt to income ratio. I live in NYC, and my rent is high. This is impacting my ability to obtain more properties. Unfortunately, since I have only owned the properties for less than one year, the rental income is not on any of my prior tax returns, therefore conventional lenders are not viewing this as actual income yet. My properties are in North Carolina and the income that I receive from them significantly outweigh the debt service. 

@Ross Drucker how many properties and what dollar amount are you talking? You can go to the commercial department of most banks and they have products available if they like you and your portfolio.

Sometimes it's just too small for a particular bank, but that might mean you need to talk to a lower level lender.

Terms are usually 5 year resets and 20 year amortization.

Try the smaller community banks and local credit unions for your best terms.

Recently Fannie Guidelines regarding LLC titled assets and LLC obligated loans changed. It used to be that anything 24.99% or higher in ownership whether the LLC was titled or obligated or both still counted as a financed property.

Currently it has changed so that if a property is titled in a LLC and the note is obliagated in the LLC's name that that property and loan will no longer count towards the "financed property," count.

So in theory if you convert your properties into a LLC and have the LLC be obligated on the note then these properties will not count towards your financed properties count. This is atleast what my underwriters have been feeding back to me lately. I was operating under the assumption of the old rule of 24.99% or greater ownership prior.

As Graham mentioned, Fannie is 10 financed properties max and Freddie is 6 max currently.

Use of commercial financing can be a means of obtaining more financed properties. Local credit unions and community banks are most likely going to be your best source of this commercial/portfolio financing when you've exhausted all of your Fannie/Freddie money or you can use them both and in conjunction depending on your preferences.

In my experience local commercial money is usually around 1.0 pt in cost to originate with rates around 4.99-6.50% with 5-10 year terms which balloon thereafter and amortization can be found anywhere from 15-30 years, with most being around 20-25 years. In WA, State I've found a 30 year AM 10 year term with .75 pts no prepay at 4.99% so not bad when I cant do conventional I can switch over.

What I like about the portfolio money is that guidelines are based more off DCR or debt coverage ratio rather than comparable sales which present certain benefits depends on the rent to value ratio in your particular area.

@Ross Drucker Have you considered the option, of a Portfolio Loan? The way it works, which varies from lender to lender, is you can refinance all your properties into into a single loan, with a refinance up to 75% of Fair Market Value. With this scenario, lenders will look at the NOI and the ability of the property, to perform over time.

Hi @Ross Drucker ,

If you are buying good properties, DTI should never be an issue.

Rental income is qualifying income, even before it has had an opportunity to appear on tax returns.

Find a REI friendly lender local to you.

@Ross Drucker  If you hold all your properties in a entity, to me it makes more sense to finance them commercially.  It allows you to free up your personal credit for things you want to do personally.  If your truly running a business you will keep business totally separate.  To me this also means debts too and for real growth past the hobby investing you'll need to resources in commercial funding. 

In the commercial financing world is not about your personal income but does the property cash flow and Debt service. DTI isn't even in the equation.

And to answer your question yes I have had good experiences in Commercial financing usually quicker and easier on 1-4 unit than conventional financing. 

Feel free to reach out if you have more in dept questions!

@Ross Drucker You don't need to have your rental income to appear on a tax return for it to be counted. Thats a internal overlay that many lenders apply. Find a lender that will give you rental income credit based on lease and rent payment verification. This will solve your DTI issue and allow you to buy additional properties using Fannie/Freddie loans.

Thanks all for the advice! Much appreciated. I will keep going conventional for now and hopefully try to refi into a commercial loan from a local bank in the near future. Anyone have any bank recommendations in NC that do these kind of loans?

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