Advice for Lender - are they &quot;messing with me?&quot;

2 Reply

OP

Realtor · Iron Mountain, MI · Member since 2019 · 18 posts · 4 votes

6y

Originally posted by @Russell Brazil:

Originally posted by @Lucas A Davidson:

Originally posted by @Russell Brazil:

Are we talking conventional financing here or commercial financing?

Apologies - conventional

Then that makes zero sense what they said. This property is owned in your personal name correct, not a corporate entity? Conentional loan is going to be 30 years, and with say 75% LTV, you should be looking at mid 4's right now, assuming good credit and low dti.

Yes, it's mine. They quoted me 85% LTV. I have approximately 760 credit and my DTI is fair - I still have 70k left I could borrow if I needed.

Their reasoning was I was "still high risk" as I've never owned a rental and their in house loan for rentals is always 20.

[email protected]301-893-4635 Podcast Guest on Show #192

Russell BrazilBusiness Member

Moderator

Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes

6y

Originally posted by @Lucas A Davidson:

Originally posted by @Russell Brazil:

Originally posted by @Lucas A Davidson:

Originally posted by @Russell Brazil:

Are we talking conventional financing here or commercial financing?

Apologies - conventional

Then that makes zero sense what they said. This property is owned in your personal name correct, not a corporate entity? Conentional loan is going to be 30 years, and with say 75% LTV, you should be looking at mid 4's right now, assuming good credit and low dti.

Yes, it's mine. They quoted me 85% LTV. I have approximately 760 credit and my DTI is fair - I still have 70k left I could borrow if I needed.

Their reasoning was I was "still high risk" as I've never owned a rental and their in house loan for rentals is always 20.

Then yes, terms on 85% ltv investment properties are terrible.

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OP

Realtor · Iron Mountain, MI · Member since 2019 · 18 posts · 4 votes

6y

Originally posted by @Russell Brazil:

Originally posted by @Lucas A Davidson:

Originally posted by @Russell Brazil:

Originally posted by @Lucas A Davidson:

Originally posted by @Russell Brazil:

Are we talking conventional financing here or commercial financing?

Apologies - conventional

Then that makes zero sense what they said. This property is owned in your personal name correct, not a corporate entity? Conentional loan is going to be 30 years, and with say 75% LTV, you should be looking at mid 4's right now, assuming good credit and low dti.

Yes, it's mine. They quoted me 85% LTV. I have approximately 760 credit and my DTI is fair - I still have 70k left I could borrow if I needed.

Their reasoning was I was "still high risk" as I've never owned a rental and their in house loan for rentals is always 20.

Then yes, terms on 85% ltv investment properties are terrible.

So, your suggestion is ask for a 75% LTV at 30 years? You made it sound as if that might equate to a mid $400 rate? Sorry for 100 questions, but the loan side of this is my weakest part of real estate transactions!

[email protected]301-893-4635 Podcast Guest on Show #192

Russell BrazilBusiness Member

Moderator

Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes

6y

Originally posted by @Lucas A Davidson:

Originally posted by @Russell Brazil:

Originally posted by @Lucas A Davidson:

Originally posted by @Russell Brazil:

Originally posted by @Lucas A Davidson:

Originally posted by @Russell Brazil:

Are we talking conventional financing here or commercial financing?

Apologies - conventional

Then that makes zero sense what they said. This property is owned in your personal name correct, not a corporate entity? Conentional loan is going to be 30 years, and with say 75% LTV, you should be looking at mid 4's right now, assuming good credit and low dti.

Yes, it's mine. They quoted me 85% LTV. I have approximately 760 credit and my DTI is fair - I still have 70k left I could borrow if I needed.

Their reasoning was I was "still high risk" as I've never owned a rental and their in house loan for rentals is always 20.

Then yes, terms on 85% ltv investment properties are terrible.

So, your suggestion is ask for a 75% LTV at 30 years? You made it sound as if that might equate to a mid $400 rate? Sorry for 100 questions, but the loan side of this is my weakest part of real estate transactions!

Yes a 75% ltv loan is going to be light years better in terms than an 85% ltv loan. If you were at even say 85% ltv on 30 years youd be looking at like almost 6% verse say a 4.5% on 75% ltv.

Lots of factors go into underwriting, so Im speaking in generalizations, not specifics.

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Tim Johnson

Lender · Grand Rapids, MI · Member since 2018 · 703 posts · 446 votes

6y

I just priced this out, and its 4.5% on 30 year fixed, so yes you can do better

OP

Realtor · Iron Mountain, MI · Member since 2019 · 18 posts · 4 votes

6y

Originally posted by @Tim Johnson:

I just priced this out, and its 4.5% on 30 year fixed, so yes you can do better

Great insight - thanks, Tim!

John KosterPro Member

Investor · Valley Village, CA · Member since 2012 · 147 posts · 142 votes

6y

@Lucas A Davidson Some banks consider investors as "risks" until they have a few properties stabilized and/or a few years of experience. They can also then start to consider you more of a risk when you start to approach the 10 loan mark or your DTI approaches their limits. I have heard varying answers about this, so it varies from bank to bank. For your reference, I am closing on a $70K delayed financing of a property that is valued at 95K and I am getting a 30 year 5.0% rate. I currently have 4 conventional loans and a 745 credit score. Shop around, you can definitely get a 30 year loan.

3 Reply

Dakota A.

Rental Property Investor · Tulsa, OK · Member since 2019 · 30 posts · 25 votes

6y

@Lucas A Davidson I closed a re-fi two days ago on a rental property- 30 year, 5.25% fixed. It’s possible with the right lender.

2 Reply

Charlotte Dunford

Investor · Johns Creek, GA · Member since 2017 · 463 posts · 488 votes

6y

@Lucas A Davidson try using a local bank, not a large national bank.

OP

Realtor · Iron Mountain, MI · Member since 2019 · 18 posts · 4 votes

6y

@Jingwen Dunford I am in a smaller community and we pretty much only have small banks! This one is a 2 branch bank that's how small!

Kathy Zickenberg

Rental Property Investor · San Francisco Bay Area · Member since 2019 · 7 posts · 4 votes

6y

@Lucas A Davidson I am a residential lender and 30 years is the norm. 75% max cash out after owning for 6 months. That scenario sounds like a portfolio/commercial lender

Scott Henrikson

Real Estate Agent · Rapid City, SD · Member since 2019 · 43 posts · 11 votes

6y

@Lucas A Davidson a lot of lenders simply don’t know a ton about the lending process. 20 year in house at 5% is in line with my area. She’s possibly pushing this loan because you haven’t held the property long enough to sell in on the secondary market which would typically give you a 30 yr fixed. 6 month hold is standard but some lenders will do less. Another option is to put this into a commercial loan. My area will allow a 25 year am with a 7 yr refi. Before you shop too hard it might be worth looking at your amortization schedule on a 20 year loan. You might be ok with less cf when you realize the principle pay down. Lots of options but shopping around to credit unions has served me best. Good luck!

Michael Noto

Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes

6y

@Lucas A Davidson The issue is the 85% LTV if you go down to 75% LTV more doors should open for you as it relates to getting more favorable terms. Have to decide which is more important cash flow with a lower rate and 75% LTV or getting more of your money out at 85% with less cash flow.

Guifre Mora

Lender · San Diego, CA · Member since 2019 · 874 posts · 355 votes

6y

@Michael Noto great answer.

Mike S.

Rental Property Investor · Huntsville, AL · Member since 2013 · 419 posts · 323 votes

6y

Shop around. Small local banks will be your best bet. I just signed the lock agreement on my 8th property at 4%, 30 year 80% LTV. Edit: 75%LTV for my last cash out refi.

Joe SplitrockPro Member

Moderator

Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes

6y

Originally posted by @Lucas A Davidson:

So, I purchased my first "flip" in June for $62k, did 33k in renovations, and now renovations are done. My broker thinks comps would come in around 145-160k. I recently decided to rent it instead of selling it, as rentals are great for weathering recession (which I think is coming)

I asked my lender about a refi. She told me they only do in house rental refinances for 20 years - not 30. Then a 5.25% rate.
With escrowed insurance and taxes, the monthly bill would be around $880...
I was intending to rent it at $1,000-1,100, so obviously this wouldn't be very profitable.

I asked her to go back to the drawing board to see if there was any way to make it 30 years, ideally a payment around $650ish.

I guess I'm seeking some advice - she told me I was a high risk when they gave me the loan, and now I've proven I can do the full remodel she says I'm a high risk, still. I have excellent credit, I am a realtor on top of a full time job in a leadership position, and did the remodel in half the time and at budget.

If she won't budge on the 20 years, should I be shopping around?
Thank you!

Generally a conventional mortgage is conforming to underwriting standards. These are Fanny Mae or Freddie Mac backed products. These type of mortgages can be sold on the secondary market. So the bank or mortgage lender may write the loan, but sell it to another processor. They may also choose to keep the loans in house. It sounds like your small bank is just writing a loan directly to you. They are requiring a smaller equity position and the trade off is a shorter term and higher rate. On the flip side, a conforming loan will require larger equity position of 20-25%. You may also find that conforming loans may be more difficult to secure if you are viewed as a risk (especially as an investment property). They will have income guidelines, will review bank statements and even may ask for your last couple years tax returns. If you can't get approved for one of these types of loans, then your local bank may be the only option.

It can be a big problem if you are self employed and have less than two years track record in particular. Successfully completing one flip is a great start, but it is hardly a track record.

You made the comment that you believe a recession is coming, so you want to hold the property as a rental. I would argue if the market is good today and you can sell, taking a healthy profit when the market is up may be a better strategy. It is better to take profit when you can. You can invest that profit into a couple more flips and worse case, hold them through a recession.

Kathy Calderini

Lender · Atlanta, GA · Member since 2019 · 58 posts · 31 votes

6y

@Lucas A Davidson Not sure of all the details but there are 30 year loans in Hard Money Lending arena and in the conventional lending.

Hope this helps and make it a great day!

OP

Realtor · Iron Mountain, MI · Member since 2019 · 18 posts · 4 votes

6y

@Russell Brazil

As an "update"/reply for everyone, I have now went to 4 different local banks and they ALL are only offering 20 year balloons at 5-6% and insist they can't do 30.

[email protected]301-893-4635 Podcast Guest on Show #192

Russell BrazilBusiness Member

Moderator

Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes

6y

@Lucas A Davidson

Something simply isnt adding up. Conventional loans dont have balloon payments. You are applying for commercial loans for some reason.

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OP

Realtor · Iron Mountain, MI · Member since 2019 · 18 posts · 4 votes

6y

@Russell Brazil

I am literally walking in or calling, telling them I have an investment property worth an estimated 140k-160, saying I want to refinance to purchase another home and then to repeat.

I'm not filling out forms at all