How to make the financing work for this deal?

Ok, so in the process of closing on a duplex (bank owned) for 125k and I need to get some financing ideas. It needs about 10k in repairs. Let me start out by saying that I have 20% for down payment and extra for repairs, BUT it is cutting things close and if I can get any kind of money back for repairs at closing, then that would be ideal so I have some cash reserves.

  1. Conventional financing - 20% down and have to come up with the repairs cost out of pocket. My broker mentioned I could get about $3800 back in seller concessions that would help pay for repairs…
  2. Commercial loan through local bank - Still needs 20% down + will probably cost a little more and then need to refi but they will give me 10k to pay for repairs.
  3. HML - Not sure of current requirements for HML. What is the current rates/down payment on HML? Also, is there any kind of title seasoning?
  4. Private money?
  5. HELOC? I do have a house with equity I could borrow against to help with repairs. How easy is it to set this up?? How long does it take to get a HELOC setup? If I do this, then I could do conventional financing and use HELOC to cover repairs cost?

Any other ideas? thanks.

BTW, this is for a long term rental property.

For a commercial loan thru the local bank we use, the down payment percentage would be based of the selling price. If there were repairs needed, we would fund that ourselves and we could then re-fi based off a new appraised value to pull our money back out. No seasoning associated with this, but we would have to fund the repairs initially. I know that doesn’t really help you for getting money back at closing, but if you completed the repairs quickly you could pull money out soon after that.
Might get a better response over in the Financing Forum.

So you’re saying you are able to do a CASH OUT refi if you did the financing through your local bank without getting money for repairs??

My local bank will give me 10k to cover repairs, HOWEVER it seems from the people I’ve talked to so far that for me to do cash out refi (to get my down payment back), there is 6-12 months title seasoning waiting period.

So basically, you’re saying you can pull your down payment back out without waiting on any kind of title seasoning??

I haven’t done this yet, but I was asking some questions because we were looking at potential properties that would need a few grand of rehab to be rentable.
Here’s the way it was explained to me:
Our normal down payment is 15% using a comm loan. This is 15% of the selling price (they’ll roll closing costs into the loan to help us out).
We can re-fi up to 80% LTV based on appraisal. If we do some repairs and raise the appraised value, 80% of the new higher appraised value might be high enough for us to pull out some or all of our rehab money.
No seasoning time for this since our loan is held and serviced in house.

What about a HELOC? I have equity in my own personal property and could pull out money for repairs?

You may want to check with your broker as most lenders will only allow 2% seller concessions on investment property. This amounts to $2500 not the $3800 you were hoping for.

As for the HELOC since you are located in Texas you are capped at 80% LTV or CLTV on a homesteaded property. This means that you would have to be at around or below 75% LTV currently to make it worthwhile. Most lenders have a minimum loan amount of 10K.

I would say go with the commercial loan if they will give you money for repairs.

Ok, so here is a little more detail on the financing type/terms that are available to me:

1.) Conventional financing
- 20% down (which equals 25k)
- possible seller concessions of 2-3%
- can buy interest rate down to 5.5 (I think it was?) for 2-3 points.

2.) Commercial loan
- I have to put up $33,750 into a collateral cd at the local bank to cover 20% down + extra.
- $135,000 loan amount (125k purchase price + 10k to cover repairs
- 12 month term
- Monthly interest only payments
- WSJP + 2.00% (WSJ Prime is currently 3.25%) floating daily, but with a 7.00% floor rate (your rate at closing will be 7.00%)
- 1.00% origination fee
- There is a max LTV (loan to value) ratio of 70%, so the “as improved” value needs to be approximately $193,000.

What are the pros/cons in each? It seems the good thing about conventional is a cheaper interest rate and less money borrowed. However the upside to the commercial loan is they will loan 10k to cover repair costs. Either way I will refi in the future to pull money back out as soon as I can.