Hi all,
Does anyone has experience with getting conventional financing a few months after buying a property using hard money?
For example, buy a property using hard money, fix it up some, then a few months later (2-4) months, refinance using a conventional mortgage with a financial institution to get some extra cash as well as a better interest rate/terms.
Any pitfalls?
Anything to be aware of that may be a problem with getting the refi?
Thx in advance.
you just have the fees with refinancing.
I don’t think there’s any other problem with what you’re
doing. People do what you are describing…all the time.
Yes, there are absolutely pitfalls. Dont let anyone tell you any differently. At minimum, they should be describing the following. If they’re not aware of these then I’d be cautious.
We’ll assume this was meant to address an investment property since most HML dont loan on owner occ.
If you listed the property at any point after your purchased. The majorit of lenders need the property off the market 6-12 months before refinancing.
If you purchased the property in the name of a LLC. Wholesale lenders will only make loans with title vested in a personal name. So you would have to quit claim it. Sometimes this has to be done before the loan application is signed. Also, lenders may want to look at the LLC docs to make sure you were the sole owner of the LLC. If there were multiple owners the lender will question why they are not on the loan too and most of the time wont accept. Also, some lenders will consider the seasoning period on title to start over from the date the quit claim was done.
Seasoning - This will be the biggest issue. It means the length of time you have owned the property. Traditional conventional financing does not have a seasoning restriction. So if your able to qualify for a NOO loan under Fannie Mae guidelines then you should be able to get this done with any conforming lender.
However, if you have challenges in your loan such as reduced documentation, high ltv, ownership of over 10 financed properties, lower credit score (but not below 620)…to name a few, then you will need an ALT-A (portfolio loan). These types of loans are offered by most of the same lenders doing conforming loans. It’s with these lenders that the seasoning restriction will become apparent. About 95% of all these programs will require 12 months seasoning, some 6 months, some have no seasoning if the ltv is < 75%, and there are just a couple who can waive the seasoning altogether.
**Using ALT-A loans opens up a whole set of other issues as well which most brokers will miss.
I highly recommend spending some time communicating with a mortgage consultant that specializes in investment loans. These are just a portion of the loan types they can easily assist you with.
Ben,
Thans for the very detailed explanation. A lot of things to be considered. I know it can be done, but it is good to be prepared for any possible surprises. I agree that I will engage the assistance of an experienced mortgage broker that specializes in investment properties.
Good job!
Rafael
Ben,
I have to agree with Rafael that your post is one of the most detailed and informative about refinancing an investment property shortly after purchase that I have read.
I am new and you answered a lot of questions here that I did not even know I had.
Thanks,
Rick
I bought a NOO SFH in August 2006 and then refinanced four months later in Dec. of 2006 at 100% of appraised value with about $21,000 in cash paid back. All of this was done legitimately.
But it was the worst loan I’ver ever tried to get through. It took two months, but we did everything legitimately and we were able to close in December with cash back. But it wasn’t fun, so be prepared to have your pride taken away.
If you want to refy but don’t mind refinancing at 80-90% of the appraised value, then you shouldn’t have a problem. It’s just when you do what I did which was to refinance with no season and want to refy at 100% of the appraised value.
There are many pitfalls now a days because banks are scared of everything. So the best advice i can give is to document everything you do to the property because that will help you prove the increase in value. there are also a few lenders that only require a last i used them 2 weeks seasoning. Good Luck
Very informative Ben. Ok, now what about refying on multi-family (12 units) after owning only for 6 months.
I have only done a few like that but from my understanding there is no seasoning on commercial (over 4 units you are no longer financing residential). :o
I checked into refinancing for commercial. There is seasoning requirements. Their requirements loosen up with the amount of equity you have in the property. So if you buy a $400,000 12-unit apartment for $375,000 then you will find most lenders want you to wait 12 months. But If you buy low say $300,000, you are more likely to find lenders that will wave or loosen up their seasoning requirements.
Some lenders will require no seasoning, 6-months seasoning, 12-months season. But I’ve found their requirements change with the amount of equity you have in the property. So if you want to refy soon after the purchase date, then you’ll probably need to buy a property at a Great Price.
are you trying to go to a bank? i have never heard the question of seasoning on a commercial. ive had commercial clients refi cash out and it was never an issue.
I just called my mortgage broker and he gave me the equity requirements/seasoning requirements for refinancing commercial, and that is what he said. I never checked with HML.
well actually i was not looking at your numbers. those are not commercial numbers and if you bought a commerical property for 375K that is worth 400K I dont think you will be able to access that cash or refinance it at all. commercial mortgages dont normally go to 100% and you are already at almost 95%. what LTV are you trying to finance for this commercial building? I think your broker gave you the requirement for residential. I am a broker too and i have not seen a commercial lender yet do a mortgage at even 95%. who is your mortgage broker commercial banker, his uncle? Am i on internet candid camera?
Ok all. I asked this question because I am thinking very hard about an apt. building I want to get. According to GOI and NOI with a cap of 10% it is I think a steal. Now correct me if I’m wrong.
GOI=54000
NOI=35715
10% cap rate
Asking price 220k
Do you think this is workable? Because I think it could. I was thinking of refi between 6-12 months, if it was possible, according to how the value is determined. Your thoughts please.
What the are you talking about Itigue. I was giving examples not real numbers. I was stating the requirements my broker had told me when I was inquiring about refinancing requirements on commercial property.
The answer he gave me was that the seasoning requirements were dependent on how much equity you have in the property. The more equity the lower the seasoning requirements are. Like everything with mortgages, one broker says the standards are this, and then a different broker says standard are something different.
If you want to get mean with me, you just let me know!!!
oh. whew. i thought your broker gave you those figures for a commercial deal. no harm intended. just trying to have a little fun too. (tee hee hee)
Typically commercial deals have pre-payment penalties. I have looked long and hard for commercial loans with no pre-payment penalties. If someone here knows of one please post the name of the company. I have found several with one year penalties, but none with zero other than FHA commercial loans.
I will ask a few i deal with and let you know. what state are you in? Also, when i look at the prepay penalty i think of this. in some cases if you compare the prepay to the extra interest you are gonna pay in that year and beyond you are saving money with the prepay if you keep it longer. But first check with the lender to see what the prepayment is.
There are commercial loan programs that allow for 95 CLTV…
Regards,
Scott Miller
I concur; I too have looked high and low for a no PPP commercial lender and I concede that I can’t find one either (aside from FHA)…I don’t think that animal exists…
Regards,
Scott Miller