Some lenders are not ready to work with Investors

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Some lenders are not ready to work with Investors

Jay J.
Investor · East Haven, CT · Member since 2016 · 53 posts · 25 votes

Recently was trying to do a cash-out refi on this property. And have been working with this lender for the past 2 months. 

Now I am so frustrated that i am thinking if i should close on this loan at all.

1. This lender never heard of Actual Cash Value insurance policy so they "forced" me to change insurance to replacement value based policy, increasing the premium per year by more than 600 USD

2. The appraisal cost is $650 (WTH!!!!)

3. Despite the fact that I have fully paid one year of insurance premium, i have fully paid 6 months of real estate tax, they still require me to pay 3 months of tax and 5 months of insurance premium at CLOSING , AND escrow the tax and insurance each month.  

I have 750+ credit score, I have strong and stable W2 income, I am the best credit banks are fighting for, yet this lender is giving me challenges every turn of the process and i am so frustrated with them now.

Thinking about not close on the loan, i don't need cash now anyway. 

Sorry for the venting. Maybe I am asking for too much, but as investor, I am putting my own money to work, every dollar counts. I am not going to pay someone $650 to do such an appraisal when market price for such appraisal is $450. 

If you think I am too unrealistic and unreasonable, tell me so I can learn my lesson. 

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Stephanie MedellinBusiness Member
Mortgage Broker · CA · Member since 2014 · 1k+ posts · 644 votes
9y

@Jay J.  1.  In my opinion, actual cash value insurance is awful, but sometimes it's all you can get (I've found that with vacant properties.)  I would never voluntarily choose that if I could get replacement value.

2. Is this a multi-family building? Those appraisals cost more than single family homes, and $650 is not unreasonable. If it's an SFR, then yes it's high.

3. Are you over 80% LTV? Requiring impounds is standard practice if you're over 80%. If you're under, you should have a choice.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    9y

    then don't close the loan... dail for dollars but pre paids are part of most of these deals.

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  • Franco Li
    Vendor · New York, NY · Member since 2017 · 217 posts · 88 votes
    9y
    It's not atypical for lenders to require you to set aside liquidity or prepay other fees, and do another appraisal. From their perspective, you have a great credit score and solid income, but you're still a human being. If I were you, I would look for another lender if you think this one doesn't suit your needs (more on pricing really). Are you working with a national lender or a local?
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  • Jay J.
    OP
    Investor · East Haven, CT · Member since 2016 · 53 posts · 25 votes
    9y

    thing is I have prepaid the taxes and insurance literally last week, yet they still require me to prepay more. 

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  • Jay J.
    OP
    Investor · East Haven, CT · Member since 2016 · 53 posts · 25 votes
    9y
    Originally posted by @Franco Li:

    It's not atypical for lenders to require you to set aside liquidity or prepay other fees, and do another appraisal. From their perspective, you have a great credit score and solid income, but you're still a human being. If I were you, I would look for another lender if you think this one doesn't suit your needs (more on pricing really). Are you working with a national lender or a local?

     It is a local lender, i thought it was going to be easier. 

    0Reply
  • Jeff Rabinowitz
    Investor/Landlord · Farmington Hills, MI · Member since 2011 · 1k+ posts · 1k+ votes
    9y

    He who has the gold makes the rules. If you don't like the terms don't take them.

    1Reply
  • Jay J.
    OP
    Investor · East Haven, CT · Member since 2016 · 53 posts · 25 votes
    9y
    Originally posted by @Jeff Rabinowitz:

    He who has the gold makes the rules. If you don't like the terms don't take them.

     yes. i need to take it easy.

    0Reply
  • Stephanie MedellinBusiness Member
    Mortgage Broker · CA · Member since 2014 · 1k+ posts · 644 votes
    9y

    @Jay J.  1.  In my opinion, actual cash value insurance is awful, but sometimes it's all you can get (I've found that with vacant properties.)  I would never voluntarily choose that if I could get replacement value.

    2. Is this a multi-family building? Those appraisals cost more than single family homes, and $650 is not unreasonable. If it's an SFR, then yes it's high.

    3. Are you over 80% LTV? Requiring impounds is standard practice if you're over 80%. If you're under, you should have a choice.

    [email protected]
    Stephanie Medellin, Loan Factory58 Reviews
    WebsiteView Page
    2Reply
  • Jay J.
    OP
    Investor · East Haven, CT · Member since 2016 · 53 posts · 25 votes
    9y
    Originally posted by @Stephanie Medellin:

    @Jay J.  1.  In my opinion, actual cash value insurance is awful, but sometimes it's all you can get (I've found that with vacant properties.)  I would never voluntarily choose that if I could get replacement value.

    2. Is this a multi-family building? Those appraisals cost more than single family homes, and $650 is not unreasonable. If it's an SFR, then yes it's high.

    3. Are you over 80% LTV? Requiring impounds is standard practice if you're over 80%. If you're under, you should have a choice.

     1. I was only insuring the amount of cash I put into the deal. and actually the market value I thought it is worth. but the replace cost of this house is twice as much as the all in purchase price, (according to insurer's model)

    2. it is a 3-bedroom single family house

    3. my LTV is 66%

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  • Stephanie MedellinBusiness Member
    Mortgage Broker · CA · Member since 2014 · 1k+ posts · 644 votes
    9y

    @Jay J.  Well then I'd have to agree with you on being a bit frustrated!

    I see what you mean about the insurance.  I have a solid brick building and they wanted to insure it for much more than I thought was necessary.  Actual cash value scares me because they want to give you the depreciated value, even if it doesn't cover the full cost to repair something.  There are a lot of places where a home's market value is less than what it would cost to rebuild the same home.

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  • Shaun Weekes
    Loan Officer / Processor / Life & Health Agent · Rancho Cucamonga, CA · Member since 2014 · 1k+ posts · 757 votes
    9y
    Originally posted by @Jay J.:

    Recently was trying to do a cash-out refi on this property. And have been working with this lender for the past 2 months. 

    Now I am so frustrated that i am thinking if i should close on this loan at all.

    1. This lender never heard of Actual Cash Value insurance policy so they "forced" me to change insurance to replacement value based policy, increasing the premium per year by more than 600 USD

    2. The appraisal cost is $650 (WTH!!!!)

    3. Despite the fact that I have fully paid one year of insurance premium, i have fully paid 6 months of real estate tax, they still require me to pay 3 months of tax and 5 months of insurance premium at CLOSING , AND escrow the tax and insurance each month.  

    I have 750+ credit score, I have strong and stable W2 income, I am the best credit banks are fighting for, yet this lender is giving me challenges every turn of the process and i am so frustrated with them now.

    Thinking about not close on the loan, i don't need cash now anyway. 

    Sorry for the venting. Maybe I am asking for too much, but as investor, I am putting my own money to work, every dollar counts. I am not going to pay someone $650 to do such an appraisal when market price for such appraisal is $450. 

    If you think I am too unrealistic and unreasonable, tell me so I can learn my lesson. 

     Is the property an investment home?  If so the appraisal has a rent roll or better known as a 1007.  This will cost an additional $100 - $200 dollars on top of your appraisal fee.

    If you currently have an escrow account this will be refunded back to you approximately 1 - 3 weeks after your funding.

    The lender is probably selling this loan on the secondary market so they have to follow Fannie and Freddie's rules.  The loan officer should have prepared you for all the items needed to get this done.

    2 months is too long!

    0Reply
  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    9y

    You call the person you are dealing with a "lender" but in reality they are the originator and they will sell your loan at closing. It's an investment property, right? And you are getting cheap government money. Subsidized by other taxpayers. Like Jay said, don't do It. Then call another "lender". They will take you down the same path because ALL "lenders" for property like yours quote cheap government money loans and package them up for sale and collect their origination fees.

    0Reply
  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    9y
    Jay Ji None of what they are having you do sounds particularly bad. Yes, the appraisal is a little high but not awful. Not to mention you're really at the mercy of the bank as they are supposed to be blind when choosing a qualified appraiser to prevent fraud. So they can't really "shop around for a better price" and maintain that neutrality. Who knows, they may pay $650 because they want the appraisal turned around quicker that the appraiser(s) that will do it for $450. The net result is that, if anything, be frustrated that the costs and terms of the loan weren't explained to you up front. My personal opinion/experience (I'm not involved in the loan/mortgage industry) is that cash-out refi's get scrutinized more that other loans. It's more of a hassle, they want to see seasoning, etc. Not to mention they usually take a little something into the rate.
    0Reply
  • Jay J.
    OP
    Investor · East Haven, CT · Member since 2016 · 53 posts · 25 votes
    9y
    I think the frustration is just that they don't call a spade like a spade. Just tell me all of these upfront and no sneaky 100, 200, 300 etc here and there and closing and no road blocks like "if no replacement cost estimate from Insurance company then no path forward " . Lure me in then show all the stuff along the way and cost at closing is just not the sales practice I want. For example, in original loan estimate there was a lender credit of 500 plus now it becomes 200 credit and even that is used to offset much higher appraisal related charges 650+150(investment cash flow schedule) And to be clear, I made it clear this is investment property upfront, not like I want to take advantage of cheap government money by pretending this is a primary residence Anyway, this ranting was partly due to dealing with them and with insurance along the way accumulated enough negativities and it just pushed me over the edge even by smaller deal surprise at final closing statements. Thanks all for chiming in sharing your experience
    0Reply
  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    9y

    Regarding "And to be clear, I made it clear this is investment property upfront, not like I want to take advantage of cheap government money by pretending this is a primary residence..." LOL! I think you need to spend some time to understand the real estate financing business. FNMA has a mission to ensure liquidity and offers cheap money for primary and investment properties. Compare your FNMA rates with a commercial lender, hard money lender, or most private lender's rates.

    Sounds like you didn't get a GFE. Tell your broker that you need to see the cost, like what you would see in a GFE, so you can find out how line item detail including how much he is making.

    If you call having hazard insurance with replacement coverage for a rental property a "road block", maybe real estate investing isn't for you. Here's the that all originators must follow for GSE loans.

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