All Forum Posts by: Sasha Mohammed

@Sean Chua i love this question because there is no one-size-fits-all answer. 

without knowing you, your specific goals other than what you've included in the post, its hard to give you a definitive answer. a few things to consider, but my TLDR right back: yes, I think you should in this situation. 

You've done the right math - figure out how long it would take you to recuperate the points after monthly savings. Looks like about a 5k differential up-front to break even on the rent (theoretically, indefinitely). 

Normally i would tell you that if you plan to refi within the next 3 years, you should consider not buying down. But the truth is we don't know when rates are going to come back down again. it could be in 2 years, it could not be for another decade. 

If it benefits you now, and a small cost differential ($5k in the grand scheme of things is not the end of the world)... even if the opportunity presents itself in 2 years, and you'd be throwing a bit of money away by refinancing before you've met your recoup.... you can look at it then and see if it's worth it. Point is, door is still open. 

You can't go into it banking on the rates to come down in order to break even on your investment. you dont want to kick yourself down the road and wish you had. i'd say the path of least pain is to buy it down. BUT that is just my two-cents, and if the scenario were different or I had more info, i might have a different answer. 

Hope this helps! 

find your locked LE. see what that says, and when the lock expires. if the rate expired, its possible you were subject to worst-case pricing, which would likely be now. if you dont have a copy of your locked LE, ask for it. you can also ask for your "lock con" or lock confirmation, but i think that's typically internal. 

LO's close your eyes for this next part -- i do know of a broker that would refund you like this post-closing. its because they're trying to soften the blow by at least making the cost go away, but in order to do it the right way (flipping to borrower-paid compensation and reducing their fee) it creates a logistical nightmare for compliance purposes. much easier to just cut you a check post-close, but it is a big no-no. 

sorry you're dealing with this. i would confirm on the locked LE/ Lock con about the pricing from your lock. if its in writing they should absolutely honor it. if not, your best option is likely to close anyway and then you can write them a really nasty review. people would love to know about 'bait and switch' tactics.

best of luck!

Its not bad. i just did a quick calc off a rate sheet I already had open - theoretically (because i don't have ALL the info), I have a 30 year fixed in that same rate window (high 7's/ low 8's). 

Your bigger variable lender by lender/ broker by broker will be the fees -- this would shake out to more than you've outlined above in total fee, even if a better rate. 

It's all a trade off. I would say, definitely compare terms, but also check out reviews from others who have worked with them as well.

Also, if you go with lower down, be prepared for a higher rate. ballpark on 80% LTV for this one shakes out to about mid-8's (30 fixed, same terms)

My assumption is you're looking for that rate specifically so that the property WILL cash-flow? Correct me if i'm wrong?

If that's the case, maybe consider a higher rate, but going IO on the payments in order to cash-flow? OR I just came across a lender today doing 40 year am on DSCR... maybe stretching out the payments even on a higher rate could resolve your issue. ... IF cash flow is the issue?

If the need for a 6.75% is not due to cash flow, let us know what it is! Maybe there is another solution here. 

Lima is not a bad option but there are better options out there for F&F. I would recommend you reach out to an experienced broker, specifically an investor-focused one, who has these relationships and can guide you toward the lender best suited for your needs. 

Which is a better strategy? Really, you just have to do the legwork to compare to determine which is going to be a better deal - your self-funded HELOC, or using Lima's capital (or another similar lender specializing in F&F).

Personally, I would be hesitant to utilize HELOCs just due to their adjustable nature. You're introducing more variability into an already variable market/ project type. That's not necessarily my preference for risk tolerance, but to each their own. 

That's a good point about credit cards. i think the differential is the HELOC is tied to the house, so has the ability to force a foreclosure on default. Credit cards don't.

Anyway, point was there may be an option out there. Let us know if you find one!

Depends how tiny. Private money is probably going to be your best bet in this day and age. 

I suspect in the future this will begin to be more commonplace, just not yet that i'm aware of. 

I would think they all do that if they are calculating DTI. It wouln't make sense not to, if you have access to the capital, they'd want to run numbers off a worst case scenario.

Alternatively, there are lenders that will do 2nds (not sure about HELOC specifically, but maybe a closed ended 2nd) using alternative qualification methods, or alternative doc methods (DSCR, Bank statement, P&L, etc.), maybe that could help?

i think more importantly is to see what the terms are on acceleration clauses. 

The reason the purpose of the loans are so important are to protect the lenders from violating different laws. I'll give you a super simplified example: if you buy a property and say you're NOT living in there, and then you do move into it; now the lender could be in violation of a litany of laws, including consumer protection laws, just based on what disclosures they did or didn't send out to you during the loan process, the rate, the fees, the terms, etc. Now they get in trouble because you told them one thing but did another. Not saying that's the case here, but there's a reason they are so particular about the use of funds. 

sounds like a step-down prepay, which is typical. But see if you can get an idea of reasons why the lender could call the note due (AKA "acceleration clause). If they find out you've changed your mind and started converting to residential, are they going to stick their hand out and immediately demand the entire balance from you?

Added: it will cost you a lot more to refi out of this once you close on it. It might be smarter to stop this loan and start a new loan for what you intend to do. I'd hate to see you throw good money after bad, with a 5% prepay in year 1, that's likely what would be happening, and that's not even taking into consideration the origination fees and transactional costs (title/escrow) you'd be paying AGAIN on the new transaction. 

Fannie/ Freddie would likely be your best bet due to loan size, however, they just moved to a 12 month cash-out seasoning requirement as of i think mid-March (for informational purposes for others reading). 

If you purchased about 4 months ago, you likely are grandfathered-in to the 6 month cash-out seasoning. 

It's a small one, so be prepared for a lot of "no's" just off the size alone. Private money is not a bad option either, and terms are whatever you can negotiate. Or, maybe you consider a cross-collateralization across your other properties as well?