All Forum Posts by: Stephanie P.

Quote from @Wade Luhman:

What is a good general strategy for thinking about when to refi a rental property to pull out equity that you can use to continue to scale your business? Are you doing it based on time and the current financial product you have? Or when you hit a certain equity amount? I understand the real answer is “it depends”, so I’m not really looking for that. I’m closing on my first property in a month with cash and plan to finance it after that to pull my cash back out for the next one. I like the comfort of a 30-year conventional, but in reality, I expect to refi well before the 30 years is up. I’m currently thinking a commercial loan with a 7-year fixed rate and a 25-year amortization and just refinancing before the 7 years is up.Thanks.

 Hey Wade

Welcome to BP!

Using a DSCR loan is good (to answer your question) but a conventional 30 year fixed is going to get you the lowest rate with the lowest fees. We always recommend borrowers exhaust the opportunity to get the least expensive financing and then work their way into a commercial or business purpose loan. From there, you can do the math and your tolerance for debt to depend on whether you want a 20, 30 or 40 year loan. Many investors that we service are going with the 40 year interest only option. They are aware of the prepayment penalties associated with DSCR and want cash flow for the long term hold.

All the best

Stephanie

Quote from @Kaitlyn Robinson:

Quote from @Account Closed:

Hello, Kaitlyn! 

There are private money lenders that lend hard money, being your 3rd option. I work for a private lender that lends hard money. The positives about using a hard money/private lender is that we do not require the same documents that a public bank and/or mortgage company does. We do not need proof of income, tax returns, etc. 

Now, with private money lenders we typically do need to see some "skin in the game". Meaning you have to be able to come forward with some sort of down payment. I have seen some lenders lend up to as much as 95%. Us, personally, we need to see 85% at max and that is dependent on experience and FICO score. With having a lower FICO and no experience I have seen new investors start with house hacking with an FHA...low down payment, FICO can be as low as 580, etc. You can even start with that on a multifamily and get you some rental income while you live there. Just a thought.

Hope this helps! 

 Hi! I did consider house hacking first, but unfortunately, there aren't any multi-family homes in my local market for sale. (I'm still always looking of course!)

I may use a hard money lender then? I know the interest rates are higher, of course, but I might be a little too enthusiastic to get started. I have also thought about wholesaling to raise capital as well.

 Kaitlyn

Hard money won't work for an owner occupied property.  House hacking is still your best way to get started, even if your market doesn't have multi-family houses.  Rent rooms in your house. Rent the basement.  Rent the attic.  Get creative. Rent the garage or a space over the garage.  Owner occupied money, by far, has the lowest barrier to entry.

Start with owner occupied and go from there.

Stephanie

Quote from @Bart Lucas:

@Stephanie P.

Thanks, Stephanie. We bought the property October 2021 and based on some comp sales I found, it is probably worth $200,000 now especially with all we did to it. We did just pay $20,000 car off and $19,000 of the $23,000 credit card. My score had dropped to about 650.

I will check out the credit report for a what if scenario. Thanks again.

I originate DSCR loans, so my answer has more to do with that in comparison to conventional which I assume is what you're getting at 6%.

You're in about the right spot. If the value of 200K holds, you should be at a 150K loan amount or 75% LTV. That's your max for cash out. If your score is 650+, you're probably in the low 8% range as of this morning for a DSCR loan, so if you're looking at 6% (as I said, I'm assuming it's conventional financing), take it. I just originated a loan from a competitor where they were quoted 9.5% on a 30 year and the borrower has a score similar to yours (hers was a 663 middle score). If your score was 750+, the rate would be mid 6's on a 30 year fixed for a DSCR loan.

Paying off the car and credit card may not have been the best use of your cash.  The "What if" scenario tool would have told you whether that was necessary or not.  I've found that a 28% debt load will pump up your score more than anything.  It may seem odd, but creditors want to see that you can responsibly use credit and hold a balance rather than gather it and then pay if off.  

You've just passed the 6 month mark on title seasoning, so you should be good to go.  I'd try to get credit fixed before refinancing, but if you can get 6% right now, that's not a bad deal.

All the best

Stephanie

Quote from @Soraya Welch:

Is it true that 6 months of mortgage payments is needed as an emergency fund before the closing of your loan on a multi-family property? If so, is there any way around this requirement? Is this requirement for every lender or just some? 

Hey Soraya,

The short answer is no.  Many lenders require 6 months reserves, but there are some that don't.  Rate's a bit higher, but to say it's an absolute must is not accurate unless you're going conventional.  

Having a mortgage broker that can interview your borrower and then find the lender that meets their particular situation is paramount.  All lenders have different requirements; some don't care about source or reserves, some require 6 months, some require a year on title and others have no seasoning requirements and still others require some kind of fixed equity position at close and others will maximize the loan to value regardless of the equity position that's left.  It's important to work with a broker that knows what's out there.

Hope that helps

Stephanie

Quote from @Bart Lucas:

We purchased our first investment property, a 2/1 house for $80,000. We put $20,000 of our money down and financed the rest for 30 years @ 4.75% with a payment of $450. Then took out a HELOC against our primary residence for $30,000 @ 3.95% with a payment of $300. Then a personal loan of $15,000 @ 3.95% with a payment of $450. Then last, we used $20,000 on a credit card to finish. (I know, not real smart)

My question is do I refinance to consolidate everything ($145,000) to get all my money from the down payment and credit card (which is almost paid off)? The rate is 6% and closing costs of about $7,500. My payment would be about $1,100 which is $100 less than my current payments. I am trying to get my savings money of $40,000 back to continue investing but my credit score and the number of credit inquiries tanked my score so the refinance option is not great. My lender recommends to wait a few months and try again when my score goes back up but I am afraid the interest rates will continue to go up and it won't matter.

Hey Bart, to finalize the numbers and see what you can do, when did you buy the property and what do you think the new value is?  Cash out on an investment property (using DSCR financing) will cap you at 75% of the value.   Your interest rate is going to depend on the credit score, so you may want to take a breath, look at one of the credit reports and see if they offer a "what if" scenario.  The directions are usually toward the back of the report.  You may have to pay some things off or down to increase your score, but if you can increase your score 40 points, it MAY offset any increases in interest rate that are imminent.
Just a thought
Stephanie

Quote from @Olubunmi Odole:

Hi, I have about $200k cash that i want to use to invest. I do not have a w2 anymore, I have a business that is just about a year old. and i havent built business credit. What is the best route for me to use in investing this money and what market would you suggest. pls advise. Thank you. 

Use your cash as down payment and reserve money and get a DSCR loan on multiple properties. Don't buy in a very rough area, but don't buy in an uber wealthy area either. Go for good cash flow in decent neighborhoods.

Quote from @Anthony Vargas:

@Moshe Romand google Visio Lending, they're legit.

 Visio is legit, but they won't do rural or construction loans on commercial properties that I know of.  Catskills is probably considered tertiary market at best and ultimately rural.

@Moshe Romand

You've got a couple of things going against you here.

The loan size is too small for regular lenders. The cost of the renovation is 1.5 x the cost of the property. It's in the Catskills so it's more than likely going to be considered rural and the LTV is pushing past 70% of the ARV

If you can't get the numbers lower and then get financing from a local bank or credit union, I'm not sure this one gets done.

Best of luck

Stephanie 

Quote from @Pablo Flores:

What do you guys think. Have a bank that can do a cash out refi with no points at 4.875% 5/1 ARM 75% LTV and another bank that can do 4.875% 5/1 ARM at 80% LTV but with 1.25 in points? Value of the home is approximately 800k. I'll be able to pull out 40k more with the 80%LTV but $8k of that will go to pay points. Thoughts???

 It's math

How will the difference in ltv affect the cash flow and will your use of the extra 32K make up for it.  Only you can answer the question.

Quote from @Pablo Flores:

What do you guys think. Have a bank that can do a cash out refi with no points at 4.875% 5/1 ARM 75% LTV and another bank that can do 4.875% 5/1 ARM at 80% LTV but with 1.25 in points? Value of the home is approximately 800k. I'll be able to pull out 40k more with the 80%LTV but $8k of that will go to pay points. Thoughts???

 It's math

How will the difference in ltv affect the cash flow and will your use of the extra 32K make up for it.  Only you can answer the question.