Refinancing a home that is free and clear?

8 Replies

I have 2 properties that I own free and clear and would like to do a cash out refi, I would prefer they stay in my company name, but the only problem I have heard from lenders like that is my properties do not meet the minimum requirements for the cash out refi. Are there any lenders who would refi properties whose values are below 75,000 but they cash flow very well.

I know the question is going to be if they cash flow so well why do you want to refi because I would like to pay some things off and then repeat the cycle to grow my business.

Lima One will do a refi for that amount I believe.  Many commercial lenders will also combine the two to make a $150K loan which would meet most lenders minimum.

Originally posted by @Ned Carey :
Lima One will do a refi for that amount I believe.  Many commercial lenders will also combine the two to make a $150K loan which would meet most lenders minimum.

In my name or business? and just go to their website?

 

Good afternoon. For single property rental loan minimum property value is 75K. For portfolio loan of 2+ properties, minimum property value of 60K.

Originally posted by @Quentin Mitchell :
In my name or business? and just go to their website

They will do loans in your company name. We close on 2 loans tomorrow in two LLCs. The may actually require the properties to be in an LLC.

 

@Quentin Mitchell this is always a challenge for people who invest at these price points. These property types do cash flow better (although the maintenance % is higher) but always the challenge is the lender aspect since so many lenders will have "loan minimums". As if you notice above, most lenders will comment "you can't borrow less than X"....but what they really mean is "you can't borrow less than X....FROM US". It sounds suprising but Fannie Mae and Freddie Mac don't have loan minimums. But most lenders will place a minimum. Likewise with other rules too. In the lending industry we call these "overlays". Rules that are put OVER the Fannie/Freddie rules to help a company be more conservative with certain areas. Now, do not take this personally....investment properties foreclose at a higher rate than primary homes. Likewise, lenders don't make as much money on lower loan amounts....and sometimes will even lose money at lower loan amounts. So these "overlays" are business decisions. Kind of like how we won't invest in "this" or "that" or "that area" or "above this price point because they don't cash flow as well". Those are all of OUR business decisions too. So what we need to do is get you in front of lenders that have NO OVERLAYS. So here's my suggestions:

  1. if you know the product you need but just need it in a specific state try posting in that state forum. Bigger Pockets has some great state forums and usually there are good locals that monitor those. Also, try some local real estate meetup groups. Meetup.com is a good resource for those but some post here on Bigger Pockets too.
  2. Calling all the smaller lenders in your area.  If they have one location, and you've never heard of them.  That's a great start!  But be prepared to call a lot. Now, most of these smaller banks may only have 12 employees or so. So don't get frustrated if they don't return your call or aren't in the office. Just call back and be friendly. Maybe play dumb a little "I don't know if I'm in the right place..." "I'm sorry to disturb you, you may not be the right person for this....", etc. Maybe someone can get you to the right person.  Keep a spreadsheet of lenders who you've called and who you spoke with.  Dial for Dollars!

Then when you do have a lender that seems like they will lend, ask these questions to make sure they are friendly in the OTHER areas that some places put overlays on:

Questions for Lenders

  1. When do you start using rental income to help me qualify? (the answer needs to be immediately)
  2. When do you start using “After Repair Value” on my property?
  3. How long do you need me to be on title to refinance? (this is important if you do need a short term loan to purchase then refinance out - and the answer should be 1 day...very important that it is 1 day on title is all that is needed to refinance)
  4. What is my minimum down payment required? (if they only require 15% down on a single family home that is usually a good sign that you are working with a flexible lender)
  5. How many loans can I have with you?
  6. Can I change title to my LLC?
  7. Do you sell your mortgages?
  8. What is your loan minimum?
  9. Can you explain to me what your reserve requirements are?

*WHEW*  I know that's a lot of information so feel free to ask anything additional if you need to.  Thanks!

Originally posted by @Andrew Postell :

@Quentin Mitchell this is always a challenge for people who invest at these price points.  These property types do cash flow better (although the maintenance % is higher) but always the challenge is the lender aspect since so many lenders will have "loan minimums".  As if you notice above, most lenders will comment "you can't borrow less than X"....but what they really mean is "you can't borrow less than X....FROM US".  It sounds suprising but Fannie Mae and Freddie Mac don't have loan minimums.  But most lenders will place a minimum.  Likewise with other rules too.  In the lending industry we call these "overlays".  Rules that are put OVER the Fannie/Freddie rules to help a company be more conservative with certain areas.  Now, do not take this personally....investment properties foreclose at a higher rate than primary homes.  Likewise, lenders don't make as much money on lower loan amounts....and sometimes will even lose money at lower loan amounts.  So these "overlays" are business decisions.  Kind of like how we won't invest in "this" or "that" or "that area" or "above this price point because they don't cash flow as well".  Those are all of OUR business decisions too.  So what we need to do is get you in front of lenders that have NO OVERLAYS.  So here's my suggestions:

  1. if you know the product you need but just need it in a specific state try posting in that state forum. Bigger Pockets has some great state forums and usually there are good locals that monitor those. Also, try some local real estate meetup groups. Meetup.com is a good resource for those but some post here on Bigger Pockets too.
  2. Calling all the smaller lenders in your area.  If they have one location, and you've never heard of them.  That's a great start!  But be prepared to call a lot. Now, most of these smaller banks may only have 12 employees or so. So don't get frustrated if they don't return your call or aren't in the office. Just call back and be friendly. Maybe play dumb a little "I don't know if I'm in the right place..." "I'm sorry to disturb you, you may not be the right person for this....", etc. Maybe someone can get you to the right person.  Keep a spreadsheet of lenders who you've called and who you spoke with.  Dial for Dollars!

Then when you do have a lender that seems like they will lend, ask these questions to make sure they are friendly in the OTHER areas that some places put overlays on:

Questions for Lenders

  1. When do you start using rental income to help me qualify? (the answer needs to be immediately)
  2. When do you start using “After Repair Value” on my property?
  3. How long do you need me to be on title to refinance? (this is important if you do need a short term loan to purchase then refinance out - and the answer should be 1 day...very important that it is 1 day on title is all that is needed to refinance)
  4. What is my minimum down payment required? (if they only require 15% down on a single family home that is usually a good sign that you are working with a flexible lender)
  5. How many loans can I have with you?
  6. Can I change title to my LLC?
  7. Do you sell your mortgages?
  8. What is your loan minimum?
  9. Can you explain to me what your reserve requirements are?

*WHEW*  I know that's a lot of information so feel free to ask anything additional if you need to.  Thanks!

Thanks alot

 

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