A friend (really) is scheduled to close next week on a tear down property with a construction loan. She was relying on cash from conforming cash-out refinances of two other properties to provide down payment / construction lender minimum down. Refi lender “discovered” late that my friend needs higher reserves due to number of financed properties.
Biggest problem with delaying refinances is being unable to close on new property with NO finance contingency. No issue with current rates on existing loans.
What ideas do you have that we have not already thought of?
-Negotiate with seller - get out of contract vs. new terms to acquire property and buy time to get reserves for refi.
-Find a money partner to get into the new deal.
-Refinance the two properties with some other loan (commercial or even hard money) along with negotiating delayed close on new purchase.
Negotiate with seller. If no dice, Close on new purchase with hard money and count it a learned lesson to never rely on a re fi to close on time or at all for that matter. Hard money is fast.
Thanks Allen. Can you recommend a HML in Tennessee? My friend is actually in Chattanooga.
@Doug McLeod I think I might be missreading this but here's what I understand:
- Friend is taking 2 "cash out" loans
- Cash out loans will give friend cash
- Lender is saying that friend needs more cash? As in, more cash to do the 2 cash out loans?
- Is the lender not allowing the cash out loans to count as the reserves needed to do the actual cash out loans? Am I hearing this correct?
Or are you saying the CONSTRUCTION lender is saying she needs more cash?
Let me know which one it is and I can maybe advise a little better. Thanks!
The cash out loans are conforming Fannie/Freddie loans so borrower must meet reserve requirements before final approval. Borrower has 5+ financed properties and didn’t realize (and loan officer/broker didn’t catch until late) that reserve requirements are higher in that case. So short on the required reserves to close the refinance loans. (Cash proceeds from close does not count for qualifying for the loans - apparently. What she did have toward reserve requirement was coming from 401k balance, so not really accessible. )
New property with construction loan requires some cash down. She was counting on the refinances to provide all of that cash.
@Doug McLeod so here's what I need you to ask the current lender please:
- What is the amount of reserves that are needed?
- What loan type are you using? Meaning, Fannie Mae or Freddie Mac?
- Are you able to use the cash out amount from either property to count towards the reserve requirement?
If you can grab those answers that will help me advise you a little better. Thanks!