Having problems with a refi of a townhouse rental property

4 Replies

I have a 7/1 ARM with a balloon payment of approx. $100K due 02/19 for an rental/townhouse in MS. Current value is approx. $130K.

I would like to refinance this loan into a more traditional loan so as to get out from underneath the impending balloon payment and hopefully lower my current interest rate of 6.5%. My current lender only offered to place the loan into another ARM and four other traditional banks have denied me altogether because our HOA only puts 8.5% of dues into reserves and they all require 10%. I have informed the HOA of this issue and there is no appetite to raise the contribution to 10%.

I am now considering selling the property as my $1,000 in rent only gets me to break even (high interest rate, HOA fees, property taxes) and there is no appetite to raise the contribution. I do not have $100K in cash to payoff the loan but do have another investment property that I own outright and is worth around $85K with $800/mo in rental income.

I am just beginning to learn and about hard money, etc. lending and am curious as to your thoughts on the best way to proceed.

Thanks in advance!

@Trent Dang

This is the reason lots of people hate condos.

You'll probably have a hard time selling the condo because it's "non-warrantable" and your ltv is too high to get a lender that doesn't care about whether it's warrantable or not.

Take the deal from your current lender so you don't get stuck with the balloon and pressure the HOA (even if you have to sue them) to get the budget up to an acceptable amount.

Stephanie Potter

    Originally posted by @Stephanie Potter :

    @Trent Dang

    This is the reason lots of people hate condos.

    You'll probably have a hard time selling the condo because it's "non-warrantable" and your ltv is too high to get a lender that doesn't care about whether it's warrantable or not.

    Take the deal from your current lender so you don't get stuck with the balloon and pressure the HOA (even if you have to sue them) to get the budget up to an acceptable amount.

    I agree with Stephanie Potter on this one. If you're having a hard time getting a loan due to the issue of HOA reserves, the majority of potential buyers are going to run into the same issue. The HOA is very likely devaluing your property with this policy, as they are reducing the number of buyers that will be able to buy your condo. I would also go with your current lender.

    Not sure how big your complex is, but it might help to educate the other owners what the low reserves is doing not only to their ability to qualify for conventional financing, but also the value of everyone's property.  If more people are on board, it might influence the board to change.

    @Stephanie Potter @Stephanie Irto

    Thank you, Stephanie and Stephanie!

    The HOA actually had no reserves at all until I began the education process with them describing everything you referenced (e.g., devaluing because of being limited to cash investors, etc.). They then voted to increase dues by 8.5% despite my telling them that five banks quoted 10%! I reiterated that to them yesterday.

    I actually just reached out to my current lender who said they were no longer interested in refinancing (despite 6 years of on-time payments and a 700+ FICO score) so I already reached out to an agent to put the house on the market. 

    I appreciate your help with the matter!

    You can avoid the reserve issue if you find a buyer who is using Freddie guidelines and putting down 10% or more. You then obtain a "limited review" and avoid the reserve question all together.

    Join the Largest Real Estate Investing Community

    Basic membership is free, forever.