New to Real Estate · Jacksonville, FL · Member since 2020 · 23 posts · 6 votes
Hey guys, my head is spinning trying to understand this whole concept. I would really appreciate it if someone could give me a hypothetical deal example running all the numbers involved with refinancing an HML/PML loan into a conventional bank loan and how I would end up profiting. Thank you so much!
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
5y
@Josh Corby have you ever applied for a mortgage before on a primary residence? It's similar. You apply, the bank will do the underwriting, and if successful, the bank will provide you with the loan. You will then use the loan proceeds to pay off the HML/PML.
Keep in mind that the bank doesn't care about how much your HML/PML is for. You might owe more than you get. And the bank will usually subtract closing costs. Here's an example.
You owe $100K to an HML. Your property appraises for $120K, less than what you hoped for. A bank loans you $84K (70% of $120K). Closing costs are $6K. You'll receive $78K. You now need $22K of your own cash to cover the HML.
New to Real Estate · Jacksonville, FL · Member since 2020 · 23 posts · 6 votes
5y
@Nicholas L.
Makes a lot more sense now. Thank you! I guess my next question would be, how do you get those funds for 22k? Are you out of pocket mopping up the costs or is there another strategy?
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
5y
@Josh Corby out of pocket... unless you somehow got a private money loan for those costs. But then you'd be in an endless cycle of loans and continuously paying interest. The whole point of doing the refi and taking out the conventional loan is to be totally done with higher interest, shorter term loans and move on.