Say I purchase a house for $100,000 through a private money lender. They also contribute $25,000 towards repairs. ARV is $165,000. Once the home is ready to go on the rental market, how would I then put that home down on my own conventional mortgage with no money down? Is it common practice in this situation to get a mortgage for $125,000, to repay the PML? Then that would keep the mortgage at around $750/mo leaving more room between rental price and mortgage.
What am I missing? What are other ways should I consider looking at this?
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
6y
@Jeremy Morton so if your REFINANCE step lender can lend 80% of the After Repair Value then you don't have to bring any money to closing. Just make sure they can lend that high AND that they will count the ARV of the property with NO SEASONING (meaning, no waiting).
Investor · Tucson, AZ · Member since 2017 · 394 posts · 178 votes
6y
@Jeremy Morton It's called a refinance. To get the full 75% Loan to Value to recoup the cost with a conventional lender, you will need to wait 6 months. You may be able to get a 80% or higher loan to cost refi with a portfolio lender after 3 months or so. You would need to make sure that the rental is providing enough to cover the refinance mortgage monthly payment, hazard insurance, taxes, maintenance, property manager, etc..
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
6y
@Jeremy Morton yes, this is EXACTLY what most investors strive to do on a property. In your example, you would ask that the private lender extend their original loan to $125,000, but 75% of $165,000 is $123,750. So you would bring money to closing in this scenario if your REFINANCE loan would only go to 75%. There are some loans that will go up to 85%. So if this is a route you are considering taking then you must get PREQUALIFIED with a lender so you know how it will affect your deal. Hope all of that makes sense but feel free to ask anything additional if you need. Thanks!
@Andrew Postell awesome! So how does the transfer of title work? If a private money lender agrees to work with me, will the title be under their name until the point of refinance? Then the deed would be transferred upon a second closing?
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
6y
@Jeremy Morton think of this like when you purchase a car - your car lender does not OWN your car. You own it. Now, if you stop paying...then can REPOSES your car. And with a mortgage, even if it's a private one, you OWN the property and there is a loan against the title of the property. You buy it in your name, with a loan. When you refinance, you remain the owner still. I hope that makes sense.
@Andrew Postell yes that makes sense! Always a fan of a good metaphor.
So when I go from the private lender to a conventional loan, how does one make that happen without having to pay 20%? Or would I need to get a different type of loan?
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
6y
@Jeremy Morton so if your REFINANCE step lender can lend 80% of the After Repair Value then you don't have to bring any money to closing. Just make sure they can lend that high AND that they will count the ARV of the property with NO SEASONING (meaning, no waiting).
@Andrew Postell solid! That finally made the light bulb turn on for me. Thanks for explaining that. Definitely have to put a lot of weight in the pre-approval process.