All Forum Posts by: Alex Bekeza

Be careful with any cash out refis over 80% LTV. Your interest rate will not only be pretty high but your also toeing the line of over leveraging with that.

80% is the highest cash out refi LTV I've seen from commercial lenders who have non hard money type rates. Everyone is noticing lending standards loosening up but beware of max LTV cash out refis at the height of a market cycle.

Sounds like one awesome project though!  How long is the process until you have the building finished and rented out?

Lenders will want to see the property rented out and will want you to have met their specific seasoning requirements.  When basing the loan off of the appraised value rather than purchase + construction costs they will have seasoning requirements of 6-12 months although we are starting to see some of these get reduced.  

I'm assuming the mortgage guy who does 85% LTV Cash Out Refis pretty often is most likely doing owner occupied properties.

@Nicholas Bybee Yes and no. Some will require a certain amount of reserve funds but none will calculate your debt to income. Credit affects where you land on their tier of interest rates and experience willl generally determine the max LTV you can get.

@Ron Willbanks Buying more properties or making renovations to the subject property is exactly what they want to hear. The point is to have you put in writing that it is for business purposes and not personal expenses.

Lenders all have minor differences within their guidelines and criteria in order to compete with one another.  But Davian has a point, they want to know that the mortgage is going to get paid and in the even that it doesn't get paid that at least they will be able to recoup a property which will earn them their money back.  

In general, lenders want to see

-Skin in the game

-Ability to repay the loan

Tips:

Be able to provide as much detail about the deal as you can (budget, property history, rent roll, future performance, etc)

Be able to highlight your strengths as a borrower even if you don't have a lot of experience

Although Davian, I would advise against taking a loan from anyone who doesn't check your credit.  Many HMLS and commercial lenders are very lenient with credit and some even have no minimum score requirement.  However, put yourself in the lender's shoes.  What sense does it make to not examine the borrowers history of repaying his debts?  

Commercial Loan products are available for a commercial cash out refi at 80% LTV.

However, with the ones I'm familiar with, they will require 3 years of real estate investing experience and have a minimum loan amount of $100k. 30 year fixed is also possible but you may need to consider an ARM which is still 30 years and full amortized by only fixed for the first 3, 5, 7, or 8 years.

@Justin Holley

Well second home has its own guidelines but what I will say is that lenders are asking you to state your intention. (intentions change). Investment properties immediately get grouped into "NOO" or "Non-Owner Occupied". This is where things change.

Bigger Pockets spends a ton of time talking about house hacking. Which is an awesome technique! But certainly does not work out for everyone's lifestyle. The way so many people have been able to put down less than 20% on an investment is typically by occupying one of the units OR by using an individual private investor to hold the lien. You may want to consider that because they may be willing to accept a lower down payment. Also I'll say that many commercial lenders require 25-30% down but will allow a CLTV (combined loan to value) of up to 80-85%. Meaning they will loan 70-75% and allow you to get an additional 5-10% from another source as long as that second source holds a second position lien and is subordinate to the lender.

A residential mortgage is defined by your intention to occupy the home when under 4 units.  When you intend to live in a building 4 units and under it is governed by a whole different set of laws RESPA, TILA, DODD FRANK, etc as well as different underwriting standards.  The fact that you are not going to live in the building is what makes it a "commercial mortgage".  

Besides having others pay your rent, the whole point of house hacking is to get those residential mortgage rates on an investment.  

That doesn't mean you can't get great rates if you're a very well qualified borrower.  

The lenders point of view is that someone living in the building has a much greater incentive to not go into default since it would mean losing the roof over their head.  

@John Hamrin Getting a feel for how underwriters operate is a great idea.  There are different types of loan programs for all types of investment strategies and all types of borrowers.  Based on the little we know about your strategy I would say you'll want to study up on different hard money lenders.  Hard Money is the most common form of lending for flipping houses. 

A "Hard" Money Loan is based on the "Hard" asset (the property) more so than the borrower.  These are often companies who have pooled money from investors (doctors, lawyers, etc) looking for a good return.  They lend at higher rates but are also willing to fund deals for borrowers with poor credit, income, debt levels and experience.  They're also willing to fund deals on buildings in need of serious renovations which traditional banks and even most commercial lenders won't.  

They are able to make quick decisions and close deals in 1/3 of the time it takes to fund a standard RE deal.  They often put together interest only payment deals with the entire not becoming due at the end of a short term, typically 1 year but sometimes 2, 3, or 4.  

All they really care about is the deal. If you can demonstrate a clear plan via a scope of work, contractors bids, and budget and give a compelling argument for an ARV which would allow for the loan to be repaid then you can get a Hard Money Loan.

When comparing hard money lenders you're going to see a wide range of offers. You'll see 100% financing at crazy high rates with lots of hidden strings and you'll see what is obviously more prudent lending such as 80% LTV on purchase + renovation costs disbursed in draws as the work is completed. HM rates have a huge range (8%-15% is all possible). There's also a wide range of points or origination fees among HML. Anywhere from 2-5 pts is possible. Try to find programs where you can be on the low end of both of those.

Best advice would be to partner with a broker who works with multiple hard money lenders, understands their guidelines, and can help place you in the right program for your situation and needs.  

Long Term financing for multifamily is a whole different beast.  One quick thought on multi unit underwriting is that you'll always want to be able to get a rent roll and profit and loss report from the seller.  The bank will require it since the loan is going to be based largely on the apartment's ability to generate income.  One guideline that is pretty consistent with MF lenders is that they want to see at least 70% occupancy.  

Hope this helps a little.  Feel free to reach out anytime.  

@Sameer Jain

Many lenders are competing with one another over their cash out refi seasoning guidelines. Many will do them right away but restrict the loan to be based off of the purchase price + rehab costs rather than the appraised value until either a 6 or 12 month seasoning period.  However, a few are coming out and going off of appraised value much sooner (2-3 months) as long as the person on title remains the same.  

I used Allied Business School.  They had competitive prices and good support staff.  I'd consider it ideal for a do-it-yourself style learner because there wasn't any face to face lectures.  You had to grind through the material, take the practice tests, and get it done yourself.  I used them to get both my RE Salesperson License education as well as my required coursework for the MLO endorsement. I passed both tests the first time.  They're based out of Laguna Hills.  Here's a link:  www.alliedschools.com