Refi issues! BRRR complete and now a bank surprise!

28 Replies

Has anyone ever run into this issue and how do we navigate it?

We bought our first BRRRR deal as a bank foreclosure. Took weeks to clean it up and months to rehab. We fixed it up and put tenants in it and got an appraisal done for the bank. All the steps that Brandon and David talk about. We were using private money and had some left over. So not wanting that money to sit idle we purchased a second house that we could BRRRR once we refinanced the first house. All is good except that the day the bank is supposed to close the refi they tell us that all of lines of credit and credit cards need to be at zero to be approved! Now not wanting to sit idle while waiting for the banks we have started the second house rehab using the lines of credits and credit cards. How are we supposed to clear those up and why is this not told to anyone before they refi?! How are you supposed to have your cake and eat it too? It's takes money to rehab a property but your supposed to have money to refi?? Any advice would be appreciated. Thanks for now

@Russ Wahl

Are they referring to a HELOC? I've never heard of a bank needing EVERYTHING at zero to refi. Even if they're concerned about repayment, zero balances wouldn't affect that.

I think it sounds like the bank has something against investors. Probably should look to getting another lender. Worst case you can leverage the offer from another bank if you really want to stay with this one.

@Russ Wahl

You have triggered their DTI limit. When banks become more contingent to loans, they look at every angle to avoid risk.

In 2008, i bought my property paying cash ( have just arrived in US) and to open a HELOC, i asked 25% of the value of the house, and bank discussed the credit card usage ( monthly bills). The amount of money was ridiculous and i paid. Two weeks later i was called to the branch. They were complaining the credit card was not zeroed. I ended up reducing the amount of HELOC to 20% cause it is virtually impossible to keep cc at zero for 2 weeks.

My suggestion is to negotiate a slightly lower refi (if you can) or tell them they can use proceeds from refi to pay down those debt.

@Jeffrey Decedue

Thanks for the feedback. No they’re not talking about a Heloc. They made us do this in order to be approved for a conventional mortgage on the second investment property as well. I didn’t think it would matter tho for a refi as we own the house free and clear.

@Nahir Solis

Hi there,

This property is in Saskatchewan Canada. For the time being we are investing in the Saskatoon area but would love to dip our toes in the US market.

They are only doing an 80% refi so we would be leaving 20% equity in the property. The numbers all worked out good except for this hiccup

@Alexandre Marques dos Santos

Thanks for your feedback.

The plan is to use the refi to pay off all those debts. The credit card isn’t at zero because we’re using it to start the rehab on the second house while we waited for the refi. Just seems like a vicious circle. May have to find a better lender.

@Russ Wahl

It does happen from time to with residential lenders and you’re so far along it may be easier to find some money for 2 weeks than to find a different lender.

I’ve run into this with TD, Scotia and CU

I agree with the commenter that mentioned the DTI issue. The bank is looking at your present total debt in addition to your future loan amount and you no longer fit in the box. Rice and beans for a few weeks to get back in financial shape.

@Russ Wahl Sounds to me like your credit portfolio changed, and the bank is not in favor of the change. Typically when you get underway of getting a mortgage or a refi, lenders are adamant about not taking on extra deaths that will negatively impact your overall credit image. I'm surprised that they did not tell you this.

If I were you I would try to find a friend or family member to borrow the money for 2 weeks from, and proceed that way. If this were in the US however, they would probably require a letter showing where the money was coming from, and would only allow up to $10,000 as a gift. I'm not sure how it works in Canada unfortunately.

@Russ Wahl I have went through a similar situation myself when doing a cash out Refi on 2 of my properties. The only difference is they allowed me to pay off the credit cards with the Refi funds. This helped lower my DTI ratio which they needed to get the loan through underwriting. I planned on paying the credit cards off anyways because they were from the renovations on the BRRRRs.

@Mark Neudorf that’s good to know. We were contemplating a mortgage broker but we’ve just spent weeks getting CU everything they’ve been looking for, now this.... plus the appraisal is $600 and only good for the CU so we’d have to pay it again with another bank. Guess we’ll have to go on the hunt for short term money again.

@Filipe Pereira

They did the same thing to us when purchasing the second property but I figured leaving 20% equity and the fact that we owned thus one free and clear would be enough. I guess we’ll be on the hunt for short term cash. Thank Filipe

@Russ Wahl did you open credit cards and these lines of credits while the initial refinance was underway? If so, that’s the problem. You can’t open new lines of credit until the loan has closed. This has been the case with every bank I’ve ever dealt with

No the lines of credit and the credit cards have been used in the business for years already. They also knew that we were using these tools to do the refi. That’s why I don’t understand the issue. We’ll have a meeting with them and see I guess 

I just completed 2 refinances and a purchase in Saskatoon over the last ~3 months. All 3 loans had those same provisions for LOC and Credit cards. It is basically because your monthly debt load is too high. They state this in their offers every time, so it should not have been a surprise assuming you received a formal "offer". Something I find fascinating is how little people read the paperwork, and simply trust what their broker/inspector/etc tell them. Start reading everything. Another thing to keep in mind, the person you are speaking to is not ultimately the underwriter, so unfortunately, them "knowing" what you were using it for doesnt matter, as they frankly have no decision making power. They are just going off a formula that their headquarters use to decide yes or no.

If possible, i would suggest seeing if they can alter the offer, and have the lawyer disperse your funds directly to the debts that they want zero'd. That shouldnt be a big deal, and then you simply pay back your private lender from your LOC (or whatever) the day after your refi has closed and funds have been forwarded.

If thats not possible, as others said, you may need to find a source for a 10 day loan or so. I would suspect your private lender can help with that. Although it may not look great to go to them with the problem that arose, that is far better than going to an outside source and not telling them of the hiccup.

Next suggestion, albeit I dont like this one myself, is you have to play the game of robbing Peter to pay Paul. That is, use CC to pay off LOC, then screenshot the balance of zero, send that off to your lender. then use the LOC to pay off your CC, and take screenshot and send to lender. I dont love this as its clearly skirting the system, but it can work in a pinch. I would really only do this if you are actually ok to pay them both to zero after the refi is complete (excluding your new debts from the 2nd refi). I should say, if your bank accounts are at the same place as your lender, Im not sure if this still works, as they can clearly check your balances. However if your mortgage is from a different lender, they dont have access to your day to day balances.

Its also pretty important not to build up additional debt or debt accounts while in the midst of a refi. the numbers you gave your mortgage specialist off the beginning should remain accurate through to closing. Of course this is difficult right now, as Refi's are taking a long time to complete. This may not be relevant if you have a way larger portfolio.

@Tyson Robertson

Thank you Tyson! Your answer was very informative. I will discuss these points with my lender. Do you mind if I ask which lender you prefer in Saskatoon? We’ve been using Affinity but their interest rates aren’t nearly as competitive as the “bigger” banks. Sounds like you also have much more experience in this game in our area then we would. I would love to connect with you to broaden my network around Saskatoon.

Honestly we dont have many rental properties at the moment, but the timing of your post was impeccable as I just went through it, and I am very thorough in terms of contract terms. There have been enough times throughout my professional career that taking peoples word for things has bitten people because they mispeak, or didnt understand terms correctly themselves, so I take that serious. Always trying to get more properties though. I have always used a Mortgage Broker (currently use Mint Mortgage in the city). Both of my refinances ended up being scotiabank (through the mortage broker), there was some unique reasoning about why they made sense in my case, their rates werent quite the lowest. The new mortgage was for our live in house ended up being through TMG (95%ltv on that one)

For those of use that dont have several million in the bank, I have never found the so called "bank relationship" worth it. Each time i ask my bank first, they give me their best/final offer, which is garbage compared to what the mortgage broker can find, and then afterwards my bank says "oh we could have matched". So I dont have the highest of trust level without shopping around. so with that, i always encourage using a broker.  Those with way higher asset quantity and net worth may think differently, but i figure if/when I get to that point, they can try to get me then  lol.

@Tyson Robertson

Very true! We have have used those cards before. Affinity said that they could refinance at 70% ltv at a 4% interest rate. We said ok but other banks will do 80% ltv at 3% and they were like yep we can do that. All we had to do was ask! Today is another example. We took your advise and called them and asked if they would just allocate those funds from the refi to pay off the lines of credit first And they said sure no problem! Thanks for input! All we had to do was ask.

On a second note, my favourite strategy for a personal house is a builders mortgage. They will lump the land and the house into one mortgage and get in for 5% down as long as it’s your primary. Then with sweat equity you build/contract it yourself and you have major equity built in! We just finished our second house and we now have $160K in equity! I have an Amazing wife who hasn’t left me because the house takes 2 years to build so it may not be for everyone.

@Tyson Robertson

Great stuff guys, question Tyson how did you get a 95% LTV on your principle residence? I also use a mortgage broker and she also got my last 2 deals with Scotia as well, but I was informed of only getting 80% LTV on my principle residence and that was in June!

Honestly Ryan I have never had issues using a 95%LTV for my principal residence. In fact, I have used it on all 4 properties I have purchased. To be clear, I have actually utilized all of them as my principal residence, so I wasnt lying or doing anything fraudulent. I lived in each of the houses for 2+ years (I know CRA doesnt have a legit timeline).

My one this summer was no different. In terms of timing, I refinanced one rental through Scotia (80% LTV), got a good return so then decided to purchase a long term home for our family. That house was a 95% LTV through Merix. and then following that, i refinanced the other property at 80% through scotia again. All 3 loans were through the same mortgage broker, and I had no issues or anything, it seemed to be a given thats how we would structure it. This Principal residence is not a flip or rental or anything in the future, we expect it to be our 10+ year home, unless I win the lottery or something). With that in mind, its likely the last 95%LTV loan I will be able to get, aside from finding some seller/3rd party financing. I wonder why yours had been different, maybe did a different 95% too recently that it just looked off?

Russ, good tip about the builders mortgage. I believe my Brother in law did that as well for their Principal and I know it worked well. I havent done a build from scratch, so it hasnt really been a route we have been able to take yet.

@Tyson Robertson just wondering if you had to move out of your personal house and rent it to tenants before they let you purchase another primary? Or can you purchase it with intent to move in before you rent out your personal house? I would just like to move as little as possible. We’ve moved 5 times in the last 7 years already