Sorry, this is a little long winded.
I am having issues refinancing on my first BRRRR.
I already had two single family properties that I had lived in and turned to rentals prior to purchasing this third property.
I bought this one as a strict investment. I borrowed 36k of private money at a very low interest rate on a 24 month balloon loan. I used the private money plus cash on hand to fund the repairs in full. The property was a HUD foreclosure that I got for 38k, 51k total after repairs. It appraised at 82k and rented out in two days.
I tried to refinance before 6 months under the delayed financing exception. The bank would only loan 75% of purchase price even with an 82k appraisal. So I waited the 6 months seasoning period.
I am currently in the refinance process again and was supposed to close next week, taking out the 51k and having a cash flowing property. The bank called today and said that they can't complete the loan because underwriting can't source the funds, as in they don't know where I got the money to buy it. They never asked for bank statements from the purchase or anything.
Even though the private loan is not tied to the property as a lien, the bank is saying that they can't loan because it wasn't my money that I used to buy it.
My credit score is over 800, I have over 30k cash in the bank, and a debt to income of around 31%. I also have great rental history on my other properties since 2010 and 2014 respectively, with no vacancy exceeding one week.
I really want to close on this so that I can roll it into another deal. I have my, hopefully, fourth property under contract and we are scheduled to close at the end of the month and I need the cash out. My private lender is letting me reuse the same money and buy another then pay back after that refinance as long as it is within the terms of our two year written agreement.
I just don't understand why the bank won't loan when the property is already rented and will cash flow $150 per month after budgeting 34% for expenses (property management, capex, repairs, vacancy).
Please provide insight.
Ask around BP for some investor friendly local lenders. Especially ones that do portfolio loans.
I’ve had lenders pull the “source the funds” card on me which was a pain when using funds from multiple sources (private loan, HELOCs from different banks). But all I did was gather all those statements and I was good to go, it definitely wasn’t a deal breaker.
I would like to add that the property I am trying to refinance is in Oklahoma, I moved to Kansas after I bought it.
I spoke with some local lenders in Oklahoma, but it is a little late to refinance with them because I need to close within two weeks to fund this deal in Kansas.
I started this refinance in November, almost two months in and they are just now saying they can't source the funds.
Is there a reason you need to go with the delayed financing program? You stated you only have 2 properties and that one would be the third then? You can do a cash out refi at 6 mos with fannie or freddie conventional mortgage.
I'm reading between the lines a bit (i.e. guessing). But I think the problem with sourcing the funds has to do with the fact that you're doing the refi under the delayed financing program. And I'm pretty sure that program requires that YOU paid all cash for the property.
Ask the lender to just a regular conventional cash out refi (fannie/freddie) since you are under the 4 or 6 limit mortgage and they should be able to close that without showing where the money came from.
If they still have to see it, then show them the private lender's promissory note/mortg that I have to believe was done. Then show them how you got the rest of the money (from your heloc?).
But I'm pretty sure you won't be able to do that and still qualify for the delayed financing program. But you should be able to qualify for a normal cash out refi regardless of whether you borrowed the money to purchase the home or not.
As far as the two week timeframe, I think you're out of luck there. I don't know of any conventional mortgage thats going to move fast enough on a closing given where you're at.
You might want to ask for an extension on the new purchase and see if they ok it. At this point, thats about the best you can do - not unless your hard money lender wants to lend on the new deal as well.
Someone told me about delayed financing. I tried to use that to get into a fourth property faster to keep the ball rolling and start acquiring properties faster. I didn't realize that banks wouldn't loan on appraised value without seasoning, so it wasn't going to work out.
I am no longer doing delayed financing, I waited the seasoning period and am doing a conventional loan.
There isn't an official promissory note on the private loan. Just an amortization schedule and a written agreement that essential just covers the fact that if I pay it off early, I still have to pay the full interest of the 24 month loan. The rest of the money, I had saved up.
I could likely get more money from the private lender for another deal, but I don't want to ask for it and lose credibility with the lender. I had talked to him the day before the bank called and said that the refinance would be done in a couple weeks.
Maybe the bank is considering the property as unseasoned because I started the loan process about a week before hitting 6 months seasoning. I was told by the processor that the seasoning just had to be met by closing. Maybe if I talk to the bank, I can see if they can look at it again. I wish I could talk directly to these mysterious underwriters that the loan processor keeps blaming for hold ups in the process.
I would ask to talk to the underwriters directly. Normally banks resist allowing that access, but if you press you can generally speak to them, or to their supervisor. Just ask to have a call with that groups supervisor and your mortgage officer. Have all your documents ready and ask them what specific documentation you need, then email it to them while they're on the phone to see if it meets their needs. I've done something similar before and it vastly sped up the process.
@Shawn Q. (I figured out how to tag people)
The bank wouldn't let me speak with anyone from underwriting. I did speak with the manager of the loan processor. He agreed that the loan should not be cancelled since I meet the seasoning requirement. It has been escalated to "tier 2 underwriting" for a final determination and they said they will let me know within 24-48 hours.
There seems to be so much red-tape with this stuff. It's crazy the bank is this hesitant when there is a 25% equity stake, the property already cash flows, I have great credit with a good DTI, and above average W2 income with two other performing properties.
Thank you all for the input. In the future, I think I will stay away from big banks, unless this is the case with smaller banks as well. I only wanted to use this bank since I have one of my other mortgages with them and I thought it would be easier to track everything with one login.
I would agree - in future definitely go with a smaller/local bank. They are more able/willing to provide a personal touch and make exceptions. Big banks don't have the ability to step outside their systems, and really don't have any motive to help you (unfortunately).
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