Portfolio Loans on Residential Rentals?

Question

Real estate friend of mine said his local credit union is offering him a portfolio loan in the mid 3s on his residential property on 30-year fixed loan terms (not just 30-year amortization, loan term of 30-year fixed).  Sounds almost too good to be true to me.  He, his lender, and the properties are all in the same state (Indiana).

I’m wondering if there are any lenders who can do that for me. I’m in Kentucky and properties are in Tennessee. 5 single family rentals currently on 30-year fixed conventional loans. I’d be interested in hearing if anyone else is familiar with this. I’d always thought portfolio loans were either for commercial property or if for residential, had “worse” terms (shorter loan term, higher rate, etc.)

Mark S. · Answer

Thanks   Would that be you?  lol

Curt Smith · Answer

Hi Mark,  I'm mid way through a Finance Of America 30yr commercial loans on 3 rentals.  3 separate loans, one on each rental.

3.85%, with $4.8k buy down.  A 3 yr break even on the buy down.  These (and most commercial) loans have pre-payment penalty periods, this one is 5 yrs with a sliding scale down penalties.   The more accurate term today is "DSCR" loan vs portfolio.  But both are in the same catagory;  commercial, fully amortizing loan on rentals.  Fin of am is one of the lower fees and good deals.  BUT they are higher expense, fees and interest rates vs FANNIE bank rental loans.  I did 2 of these with another lender 6 yr ago at 6.7% and they where great loans and the houses cash flow great.  When you buy right even high interest rate still makes for a good deal.

Today I'm cash out REFI'oing with these loans.   I'm full time REI so its hard to qualify for FANNIE bank loans.   I did start down the FANNIE path and gave up and jumped to Finance of america which is a 50 state lender.

BTW a "rental" IS commercial,,, BTW.

But you are correct if you are buying a strip mall,  a MF,  20 yr am, 5 yr or 7yr rate reset is common.  But in 1-4 door space and Fin of Am you can get 30 yr am fixed term.  Higher interest rate by a small amount 3.85 vs 3.5 or so.  But 3.85 with $5k buy down for a $180k loan.  I feel these are insanely good numbers for non Bank loans.

Fin of Am, allows lower FICO, lower reserves,  just slightly higher interest rates, but a 5 yr pre-pay penalty.   These DSCR loans are almost as good as FANNIE loans today.   Just a few yrs ago they where 5 % and I did get 6.7% int just 6 yrs ago.

Stephanie P. · Answer

Hey Mark

Since April this year when the Fannie Mae lender letter came out restricting correspondent investor portfolios to 7% of their total portfolio, lenders have increased rates to stem the flow of investor loans, but DSCR lenders have held fast on pricing (or even improved it) creating an odd scenario where a loan with significantly less documentation is priced as good or better than one backed by a GSE.

You can do the DSCR loans either in your LLC or not.

FoAC is really backed up right now, but there are others that are not with similar or better pricing.

Get yourself a good mortgage broker that does these loans and they can point you in the right direction.

Stephanie

Peter Tverdov · Answer

Run fast from Finance of America. I did one hard money loan with them and the underwriting was a disgrace. Just search their name on here to see what I am talking about.

There are portfolio lenders out there (national ones like Lima) and then local ones. You just need to call around. I might need them in another year or 2 hopefully.

Mark S. · Answer

Check out Conventus.  We’ve had issues but all have been resolved, even one major issue post closing that they were pivotal in helping me resolve with the servicer.  They were high initially, but willing to negotiate.

Curt Smith · Answer

@Esther Tama and others,   Yes Esther I've heard of local credit unions offering good terms on commercial/rental loans and not being DTI (fannie under writing).

Update on my cash out refi progress;

- finished 2 of the 3 REFIs I started with FinOfAm, they where the worst, most painful lender / underwriting I have ever done, including bank/fannie under writing.  4 months, FOUR months to close each of 2 loans.  They where such a PAIN that they gave up on a simple title issue on the 3rd door.

- I took the 3rd door to LendingHome now Kiavi and they closed quick and easy.   FinOfAm allowed buy down of the interst rates, Kiavi didn;t but still in the low 4's (today high 4's).  BTW anythiinig under 6% for commercial and you cash flow is great.  Its 30 yr fixed so you'll be glad at any current interest rate years to come.

- I have 3 more in flight with LendingOne in FL, also DSCR, 30yr, quick easy underwriting.  Getting 5%.  I could have dropped LTV to 60% and got 4.7%.

- DSCR lenders will only do lower LTV, 60, 65, rarely and at higher costs 70%.

Nows the time to pull out cash even if you just sit on it.  When the deals start flowing later this yr and next you may not be able to get the cash.  The rule is in play;  you can get cash when you don't need it, and usually when you need it you can't get it...

Esther Tama · Answer

Thanks! I’ll try Kiavi. It’s hard to know what their underwriting process is like until you go through it.

Mark S. · Answer

@Curt Smith, just send you a PM

Mark S. · Answer

One other minor detail, if it matters: loans are in my personal name and rentals are in my SMLLC. It’d be nice to have it all under the LLC to be consistent.

Portfolio Loans on Residential Rentals?

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