How do you pay for Repairs..... With a Portfolio Loan ?
Olive Branch, MS · Member since 2013 · 452 posts · 10 votes
Hi B.P. Community,
I have recently been on a Portfolio Loan fix , in trying to research and learn all that I can about these type of Loans.
This morning though, I remembered that I left out a few Important questions
Here are those Questions .....
1. How do you Pay for the Repairs / Upgrades to the Property that you are trying to get a Portfolio Loan on ?
2. Will the Lender Loan you X amount for Repairs ( Put in an Escrow account )?
3. Do you and the Lender both come up with an Estimated costs to get the Repair work done, and then you spit the costs 50/50 ( They add 50% of the repair costs to the Loan, and you yourself pay the other 50% in Cash out of your own pocket ) ?
4. Is there such a thing as a " Reno Loan " that you can tie to the Loan for the Property ?
5. As far as Repairs go to a house that is purchased with a Portfolio Loan .... Does the Lender decide What " Has to be " fixed , as well as gives you a timeframe to have the work completed ?
Thanks very much for all replies and discussion to this Thread
I have a few portfolio loans (kept in house by the small local banks I work with), and the terms were purchase + rehab all in a commercial loan.
To summarize your questions: the lender may lend for purchase + rehab up to a set amount, based off the value of the house. In my most recent case, $50k purchase, $23k rehab with an ARV of $110k. The $23k rehab was based off a list I put together (note I had history with the lender showing I've done rehabs before, so my numbers were fairly accurate).
One closing and I would do draws (rehab funds kept in escrow) as the work was completed and inspections done. When the rehab funds were fully disbursed the loan converted to a standard loan with monthly payments, 20 year term. Yes, there was a deadline to get the work done, typically 3-6 months, but again , with small local banks there can be flexibility when getting approved. Even though it's a commercial loan, still had to submit personal financials along with the above paperwork, personal guarantee on the loan as well.
Hope that helps!
- Tom
I have a few portfolio loans (kept in house by the small local banks I work with), and the terms were purchase + rehab all in a commercial loan.
To summarize your questions: the lender may lend for purchase + rehab up to a set amount, based off the value of the house. In my most recent case, $50k purchase, $23k rehab with an ARV of $110k. The $23k rehab was based off a list I put together (note I had history with the lender showing I've done rehabs before, so my numbers were fairly accurate).
One closing and I would do draws (rehab funds kept in escrow) as the work was completed and inspections done. When the rehab funds were fully disbursed the loan converted to a standard loan with monthly payments, 20 year term. Yes, there was a deadline to get the work done, typically 3-6 months, but again , with small local banks there can be flexibility when getting approved. Even though it's a commercial loan, still had to submit personal financials along with the above paperwork, personal guarantee on the loan as well.
Hope that helps!
- Tom
I really appreciate your reply
I'd like to ask a few questions regarding what your wrote if I may....
1. So if I purchase a Property for $60,000 ( a foreclosed and or distressed property ),
and I assess the Rehab work to cost $15,000 ( includes labor and materials )
The ARV in my area on a house like this would likely come in at $110,000
So ARV of $110,000 x 75% LTV = $82,000
$82,000 - $75,000 ( are All In costs on the property ... purchase price + the money for the rehab work ) = $ 7,000
If I wanted to do a Cash-Out refi. as Soon as the Rehab work was completed ..... Would I only be able to get $7,000 in cash out from the refi. Or would I be able to get $35,000 ( $110,000 ARV - $75,000 ( my All In costs ) ?
2. I do Renovation work / residential house repairs for a living, and my Lender is well aware of this, so this seems that it would be a big plus ( The property I just purchased with this Lender ..... I did most of the Rehab work )
3. Did your Lender base your Portfolio Loans off of the ARV for the Cash-Out Refi?
4. Will they usually allow you yourself to do some of the work ( as Long as they know you're history, and know that you have the skill set to do the work ) ?
5. Did you get 75% LTV ?
6. Was there any Seasoning Period that you had to wait before you could do a Cash-Out refi. ?
7. How many Points did you have to pay upfront ?
8. Given that the Interest Rate currently is .... 3.75% , what would a likely Interest Rate be " Today " on a Portfolio Loan would you say ...... double? So around 7% Interest ?
9. You mentioned you converted everything into a 20 year Conventional Loan ..... Did you initially have a 5 or 7 year ARM ? And could you have rolled it into a 30 year Conv. loan vs a 20 20 year if you had wanted to ?
10. How much do they want to see in your savings account ?
11. What type of Credit Score to qualify for a Portfolio Loan ? 680+ ?
Tom, thank you again for taking the time to help me ,
I really appreciate that
Responding to your questions:
For almost all of them, it depends on your bank and what their terms are, since they make the decisions "in house" (usually just a loan committee).
1. Cash out - ask your bank. I did not ask for any cash out for any of my loans.
2. Agree if you can do most of the work yourself that's a big plus. However in my area all plumbing and electrical has to be done by a licensed contractor.
3. Cash out question: N/A - see #1 above.
4. Ask your bank.
5. 70% of ARV.
6. Cash out seasoning question: N/A - see #1 above.
7. No points upfront. Very low closing costs, under $1k. Had to pay the standard inspection and appraisal costs.
8. 5.25% for me.
9. No, it's interest only unless the draws and work is complete, then it automatically converts to a 20 year amort commercial loan, resetting every 5 years.
10. Ask your bank. For me they wanted to make sure I could complete the job even if I ran out of money on my draws (I did go a few thousand over and did use my savings to complete the job).
11. Ask your bank.
Also, as @Percy N.mentioned, you'll still need a downpayment. For me, 20 or 25% of the purchase price.
Hope that helps!
- Tom
Thanks so much. I really appreciate your reply to all those questions. Helps put in perspective the important aspects of Portfolio Loans,
Still unclear about one Important thing with these Loans...... I know that you said you didn't do a cash-out refi. with the properties you purchased using Portfolio Loans
But how would the Cash-Out refi. aspect work with these Loans?
Example:
ARV = $110,000 x 70% LTV = $77,000
My All-In costs to purchase the property = $72,000 ( $63,000 to purchase the property , $8,000 for all the repairs ... Materials and Labor , $1,000 in closing costs )
So on a Cash-Out refi, would I be able to get $5,000 in cash OR $38,000 ?
$110,000 x 70% LTV = $77,000 - $72,000 ( My All-In costs ) = $5,000
OR
$110,000 ARV - $72,000 ( my All-In costs ) = $38,000
Thanks again
Forgot to add...... It seems like, that with a Portfolio Loan and a LYV of 70% , that as Long as you keep your All-In costs ( Purchase Price, Total repair costs and Closing ) below the Number from the 70% LTV x the properties ARV , that it makes getting a Portfolio Loan on a property, that much more easy
You're essentially purchasing ( All-In costs ) a property .... 30% below Market Value , which Lenders love, with having this much protection ?
Hi Michael - in response to your cash out refi questions: I can't speculate on the policy of the bank - you'll just have to ask them. Some lenders may not allow cash out on an investment property at all, some might, and what valuations they use are all up to them.
- Tom
Thanks again for all of your help
I really appreciate it
I'm going to call the Lender and see what their terms ad rates are for Portfolio Loans