Refi frustration in Old Louisville
So four hours before we were scheduled to close out on a cash-out, lower-ate refi of our Old Louisville home Tuesday, the lender called with some questions about our third floor and now we're in limbo.
Here's the situation: our house is a three story like most others in Old Louisville, with interior and exterior access to the third floor. We run a licensed short term rental on the third floor as well as in our detached carriage house. We applied for the refi with Better.com, as they're one of few lenders who will accept Airbnb income and I explained our somewhat unique arrangement to my first point of contact, including sending her photos by way of this article about our home. The 3rd floor Airbnb has a kitchenette with this vintage stove I had restored and put in here basically as an Instagram moment -- people almost never cook, but they like to think they will.
Everything was fine, we were approved, signed the initial closing disclosure ... then wait! Tell us about that third floor again! I've talked with several people now, explaining the vagaries of Victorian architecture, and gone so far as to send them some 1889 blueprints of my house to explain that it's just a big house with a third floor. But apparently now I'm waiting on a dispute that's been filed to say they should make the loan even though Fannie Mae won't lend if there's an appliance on the third floor. The last person I spoke with actually asked me if I could hide the stove, which seems a little sketch.
I don't expect the dispute to work, so we're back to the drawing board, with a goal of lowering our 5.25 rate and ether cashing out an additional 100k or so of the 300k we have in paper equity, or separately doing a HELOC so we can get started on our BRRRR plan. When we went through the refi process last year for a major reno, I ran into endless roadblocks getting financed with this weird house set-up, and finally got a loan with Benchmark here locally. I didn't enjoy working with the person there, so am looking for other lender suggestions. Also, just want to share this as a cautionary tale for anyone else in my part of the city. You can bet when we go to sell that stove won't be in there -- I don't want a buyer to have *their* closing fall through last minute!
I hear the best for cash out refi or just refinancing is Transcend Credit Union. I haven't personally used them, as this is a new development. Might be worth a shot! I'm sorry you are having to deal with this!
Thanks for sharing. That's painful. I'd be interested to know the reason behind this. My only concern would be the fact that the ceiling is so low over the stove. Possible fire hazard, but more-so just a high potential for steam to ruin the paint and such. I wonder if they'd be okay if the stove was just for decoration...
Originally posted by @Patrick Kinsella:Thanks for sharing. That's painful. I'd be interested to know the reason behind this. My only concern would be the fact that the ceiling is so low over the stove. Possible fire hazard, but more-so just a high potential for steam to ruin the paint and such. I wonder if they'd be okay if the stove was just for decoration...
I actually told them the stove is for decoration. Like, literally it's just to be pretty on Instagram 😂. I doubt they'll buy that though!
And thanks Rob!
Could you show them that the cord is cut off, or the gas is not connected to anything (not sure if it's gas or electric)? Just a thought, though maybe something obvious you already tried, lol.
@Dana McMahan
I agree with @Patrick Kinsella on this. There's got to be a way to officially prove the unit has been disabled? Maybe have an appliance repair technician remove all connections from the unit and provide you something in writing. Hell, you could even go as far as removing all working components, and installing a custom counter top on the stove. This keeps the look and gives extra counter space, plus you could provide a plug in 2 burner unit. I BELIEVE this isn't counted as an appliance. I say this because I have a friend who added on to her house and the city said she couldnt have 2 kitchens, but they were ok with the burner.
I guess if they're not willing to approve either of these options you could just remove it? I know it looks cool but I think pulling out $100k in equity looks even cooler! :p
@Justin Ellis @Patrick Kinsella ... It seems they may have found a solution without my having to do that. I'm standing by, but unfortunately in the meantime lost out on a house that came on the market yesterday and is contingent today. Lesson learned here about appliances and accessory units!
@Dana McMahan
Yep! Lesson learned for all of us who've read this. That's what makes BP so great! I get to NOT make the mistakes you've made and vice versa, hahhaha!
Glad it all worked out though, you'll find an even better deal now and be glad you missed that one.
@Dana McCahan
Sorry to hear that you are having issues refinancing your property Dana. I do want you to know that you are not the only ones having issues with refinancing a home where you are doing Airbnb. Unfortunately, this has nothing to do with any particular bank's lending guidelines, as you are finding out it has to do with Fannie Mae which is a quasi government entity. This entity classifies residential properties into three buckets Primary Residence, Secondary Residence and Investment Property. Prior to the Airbnb phenomenon any residential property that was generating income was considered an investment property (Which have completely different lending guidelines) and that used to be fine because 99% of the time that was true. Now that isn't true but since government rule changes tend to happen about a decade or two after the problem arises we are currently in limbo. It appears that some national lenders are finding workarounds (Bending the rules) which I would personally have no issues with using to finance a property I owned if the lender was willing to do it. There is no negative effect on the owner, it just adds risk for the lender.
The pitfall you have ran into with this loan is one I haven't heard mentioned on BP before which is giving too much information during the application process. It is extremely easy to unintentionally give information that adds an entirely new level of scrutiny to a loan when you were only attempting to be helpful by telling your lender how responsible you are and/or how wonderful the home is that they are writing a loan for. Once information is added to a loan file it is considered the absolute truth and can never be changed without providing a signed letter of explanation stating what is true and why the previously stated information was not and may also require third party verification depending on what information is being changed.
If you are going to look for a lender locally you will find some options for a home with Airbnb income but based on what I know is available you will have to make some compromises to get it done because you will have to go with a lender that does Portfolio loans. This is a loan type of loan that the bank has chosen to not sell to Fannie Mae which gives them the ability to change the standard guidelines they are comfortable changing. The compromise on your part is that you are not going to get a rate locked in for 30yrs. You are going to get a rate lock for 3,5,7, or 10yrs depending on the bank. The best rate is going to be the 3yr lock and goes up from there. The loan amortization period varies as well from bank to bank and may be 20, 25, or 30yrs. There are advantages to the 20/25yr as well but don't want to get into the weeds any more than I already have on the forums. I'm glad to help give you some options if you aren't able to close with your current lender.
Thank you @Brian Stephens-- that's helpful to hear. I've definitely found most lenders (and insurers for that matter) to be way behind in terms of the sharing economy.
I don't think this issue was that I gave too much info, it was that the appraiser photographed and noted the presence of the stove on the third floor. It was the appliance in conjunction with an exterior entrance that flagged it. I was frustrated because the person who first took our application knew about the stove from my photos and didn't raise it as a concern before we were weeks into the process. Anyway, lesson learned! Thanks for the info, and I'll definitely reach out if this doesn't end up working out. As of this afternoon we're suddenly clear to close again.
@Patrick Kinsella - I doubt it has anything to do with the ceiling height. I've run into issues before with stoves/ovens in basements that were included in bars or kitchenettes. In this instance, since they are counting the Airbnb revenue it is weird because it was my understanding that the red flag is usually thrown because they DON'T want to lend on what essentially might be an unapproved rental unit inside the home... and the stove top/oven is a tipping point or them on making that determination.