Lender · Frederick/Montgomery County, MD · Member since 2019 · 56 posts · 46 votes
6y
I will speak on my bank's timeline assuming you are using traditional financing. In my case, if I have all of the information I need (tax returns, PFS, property information, etc...) I turn these around in about 30 days - and have done quicker if my borrower is in a rush. I would need a copy of the executed lease showing that the DSCR covers at 1.2x or better. To determine if your properties would cover the DSCR, most commercial banks will calculate the properties' net income at 70% of the gross rental income (vacancy and expenses). If it's a newer property and significant renovations have been done, we will sometimes use 75% of gross rents. We do not require the property to be seasoned for a certain amount of time if that's your question. As long as the property is leased, we will reimburse/refinance 75% of the appraised value. If you do this right you should be recouping the majority of the cash you have invested. The 30-35 day period would be common for any commercial deal. That accounts for underwriting, waiting on the appraisal, getting the loan approved, collecting due diligence items, and have loan documents prepared for closing. In your case, if the properties are already renovated and leased and the bank is still making you wait to refinance, I would recommend searching for a different bank. but id suggests calling some local community banks and asking to speak to a commercial lender and ask those specific questions. I hope that helps.
Lender · Frederick/Montgomery County, MD · Member since 2019 · 56 posts · 46 votes
6y
I will speak on my bank's timeline assuming you are using traditional financing. In my case, if I have all of the information I need (tax returns, PFS, property information, etc...) I turn these around in about 30 days - and have done quicker if my borrower is in a rush. I would need a copy of the executed lease showing that the DSCR covers at 1.2x or better. To determine if your properties would cover the DSCR, most commercial banks will calculate the properties' net income at 70% of the gross rental income (vacancy and expenses). If it's a newer property and significant renovations have been done, we will sometimes use 75% of gross rents. We do not require the property to be seasoned for a certain amount of time if that's your question. As long as the property is leased, we will reimburse/refinance 75% of the appraised value. If you do this right you should be recouping the majority of the cash you have invested. The 30-35 day period would be common for any commercial deal. That accounts for underwriting, waiting on the appraisal, getting the loan approved, collecting due diligence items, and have loan documents prepared for closing. In your case, if the properties are already renovated and leased and the bank is still making you wait to refinance, I would recommend searching for a different bank. but id suggests calling some local community banks and asking to speak to a commercial lender and ask those specific questions. I hope that helps.
Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
6y
@Matty Foley Good info in your post. Seems like your bank offers a good product for refinancing. I think what the OP was asking is what the seasoning period a bank looks for before you can begin the refinance process you outlined. Any thoughts on that?
There aren't a ton of active lenders here on BP (I would imagine the ones that are absolutely kill it with leads) it is always great to get a peak under the hood of how the financing end of the business looks at things.
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
6y
For conventional residential loans in your name (not an LLC), my bank says 6 months if just rate and term, 12 months for cash out.
So for one direct lender, seasoning of a cash out BRRR would be 12 months but I've certainly heard of 6.
This same bank was quoting me a 30yr fixed rate of 4% with 2 points on a quad buy with 25% down for reference. Not sure what commercial terms would be. Speed usually costs and reporting your financials to them every year sucks.
Lender · Frederick/Montgomery County, MD · Member since 2019 · 56 posts · 46 votes
6y
@Michael Noto thanks Michael! I know it’s was lengthy post, but I did mention that we do not require any seasoning period. We feel if the owner has gotten the property leased, they have added value to the property. As soon as I receive a copy of the signed lease I will order the appraisal and get started on the refinance process. Like I said, it’s common that 75% of the appraised value, after renovations, will reimburse the borrower close or all of the amount they’ve invested in the property (assuming they’ve bought and renovated the property in cash). *I know that many banks do not offer this product and will only advance 75% of the purchase price. It’s about finding the right community Bank. Let me know if that all makes sense.
Lender · Frederick/Montgomery County, MD · Member since 2019 · 56 posts · 46 votes
6y
@Matty Foley Last thing: Of course the Borrower(s) would need to be credit worthy and the loan would be subject to underwriting. The subject properties cash flow is the main requirement in starting the process, but we would make sure the Borrower has the financial standing and global cash flow to pay the debt if secondary source of repayment was needed.
Im closing on a refi to a property i bought 5 months ago in a week or so. Paid $135k, appraisal came in at $610k & my lender is giving me 80%. Thought it was worth more from a cashflow perspective, but im glad my bank allowed such a large equity gain in such a short time.
Lender · Grand Rapids, MI · Member since 2018 · 703 posts · 446 votes
6y
This depends on the product your select. Conventional or commercial loan and number of units- I will use 1-4 unit size.
Products we use:
Commercial= no seasoning- rate is about point to point and half higher than typical conventional loan but they will lend 75% LTV 1-4 units They use a section 1007 market rent appraisal, so cost is about $150 higher then typical appraisal. Needs DCSR at 1% the lowest in the industry on the market in my area. Investment property only, 3 year pre payment on it. No tax returns or personal DTI comes into play. Cash out has to be used for business purposes only. Higher closing costs, but still works- Appraisal are coming in decent not many low ones. Min loan amount is 100k- 3 week close. You can close in LLC name or personal name. They do 30 year, 5/1 arm or interest only
Conventional loan- if purchased with cash- you have to wait 6 months- Anti money laundering law, actually alot of medical pot guys are doing this and getting stuck on REFI so having them go commercial. Pot is big in Michigan rate now, the money is flowing. Lowest Fees, best rate on this product. Appraisals are coming in decent, if you your doing some value add. Make sure you document it well. List of repairs nice little folder for the appraiser to document scope of work will get the value higher and LTV. Fannie Mae website is great for guidelines on this one. LTV varies on unit size. Works well 30-45 day closing, no pre payment, we set a 75k loan min. Property needs to be in personal name, all loans are full doc, so tax returns, bank statement, DTI comes into play. They do 5-30 year terms fixed only.
Just an example of my favorite 2 products on market for BRRR, lots of lenders in the market but these 2 close the easiest and quickest that I have used.
Loan Officer / Processor / Life & Health Agent · Rancho Cucamonga, CA · Member since 2014 · 1k+ posts · 757 votes
6y
@Raul Quezada
Then if you're looking for conventional financing you'll need to wait 6 months for new appraised value. Other private and non qm lenders will only have you wait 30 to 90 days.
Investor · Greenville SC/ Carlsbad, CA · Member since 2019 · 6 posts · 1 vote
6y
@Matty Foley is this after 180 days after purchase? I have been told by most they won’t refinance with a new appraised value until 6 months after the purchase.
Investor · Rochester, NY · Member since 2017 · 206 posts · 175 votes
6y
@Raul Quezada
We started the refinance before we actually owned the property.
Once our offer was accepted we began the refinance with our lender, a local credit union. We expect to only hold it with hard money for a month or two before the refinance is complete.
It was a 12 unit motel with a 3br single family attached and a 2 car commercial garage in the rear. I added 2 more bedrooms to the 3br house and converted the garage into 2, 1br suites.
I am currently leasing 12 ex motel units as efficiency units with full kitchens, all utilities and cable/internet included for $650 per mo
The newly constructed 1br suites are renting for $850 per mo everything included
And the 5br single family is currently being rented for $1200
Total yearly gross rents are $128,400. Will net about 90k.
Purchase price was 135k and I put around $120k into it.
Also created a laundry room and vending area which I hope will bring in equivalent to an efficiency unit.
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
6y
@Raul Quezada you've got some good responses above but you can probably see that answers could swing WILDLY. I'll break down 2 areas of focus for you just to better your understanding of what type of a lender you should be seeking...and here's a hint: you should know MULTIPLE lenders. Networking will always be a part of your development in real estate and lenders are no different. I would suggest knowing 4 different lenders early in your career. And don't be surprised if the lenders you use in 5 years are different from the lenders you use today.
Generally speaking there are 2 main types of loans for investors: "Conventional" and "Portfolio"
Conventional - I'll define these as loans that come from Fannie Mae and Freddie Mac (if you recognize those names). These loans are all 30 year fixed rate loans. They have the lowest rates we can find and since they are 30 year fixed...they allow us to cash flow better...which helps us qualify for other loans later. The draw back to these loans is that they are more paperwork heavy than the other "portfolio" types of loans....but if you have ever received a loan on your primary home, it's likely that you will go through the same type of paperwork here with conventional lending. Fannie/Freddie money = Fannie/Freddie rules. NOT the bank's own money.
Portfolio - I'll define these loans as loans that come from the bank's own "portfolio" of money. Sometimes referred to as "commercial" loans. These loans are a lot more flexible than "conventional" loans. Bank's money = Bank's rules. If they like you, then maybe they will lend to you. But since there is a limit to how much money the bank has access to....their rate will be higher...and usually a shorter term. The most common portfolio style loan in Texas is a 20 year adjustable rate loan. These loans are easier to get but the terms are different.
Fannie/Freddie types of loans will be available everywhere and those rules might change SLIGHTLY between lenders. Portfolio loans can run the gambit. Since each lender controls it’s own money you will have to call around to ALL the banks to learn about all the programs. A mortgage broker will help with this some…but even the best mortgage brokers don’t’ have access to ALL portfolio loans out there. I say this because what's the seasoning for each? How do you know which loan type is best for you? And these are the questions you should be asking your lenders as you interview them. To help with this I created a list of questions for you to ask potential lenders:
Questions for Lenders
When do you start using rental income to help me qualify? (the answer needs to be immediately)
When do you start using “After Repair Value” on my property? (also needs to be immediately)
How long do you need me to be on title to refinance? (this is important if you do need a short term loan to purchase then refinance out - and the answer should be 1 day...very important that it is 1 day on title is all that is needed to refinance)
What is my minimum down payment required? (if they only require 15% down on a single family home that is usually a good sign that you are working with a flexible lender)
How many loans can I have with you?
Can I change title to my LLC?
Do you sell your mortgages?
What is your loan minimum?
Can you explain to me what your reserve requirements are?
*WHEW* I know this was a lot of information but hopefully this will help with what to expect and even what to ask. Feel free to post anything else that you might need. Thanks!