Can I do better than my current lender on a ReFi? Here are their terms:

Question

I walked into equity on my first property (and only, so far) then forced the rents with a cosmetic rehab.

Now I'm ready to do a cash out Refi, which my current lender is willing to do at around 6.5%.

The appraisal is no charge. I know thats unusual, but so is my lender's approach to appraisal. They basically just send someone by to verify that its worth in the ballpark of what you are trying to get. So they don't do a full blown appraisal, per say.

I'm also considering making one of the units my permanent residence, which would lower the interest rate by default.

So my question is, regardless of whether I make one of the units my permanent residence or not, could I do better than 6.5% on an investment loan considering the historically low interest rates that we are experiencing (for now)

Thanks!

C L. · Answer

I'm a Mortgage Consultant by day and I have to say you have not given all the facts in order to answer your question. What rate you can get is affected by a host of things like your credit score, exactly how much equity you have, escrow (no escrow), and the loan amount. If your current lender is willing to do the loan w/o a full appraisal, then I have to presume you are working with a portfolio lender (meaning your new loan will NOT be Fannie Mae/Freddie Mac). No way you're going to get a Fannie/Freddie loan w/o a full appraisal - with one exception and that couldn't apply in your situation. And what that entails is you will probably pay a higher rate w/o Fannie/Freddie backing. The lender may be saying the appraisal is no charge, but they have that price all wrapped up in your rate. If someone is driving by your house, you will pay for it in the end - unless you cancel the transaction. You also did not mention how long you have owned the property. For Fannie/Freddie, you cannot do a cashout refinance and use the appraisal value until you have owned the home for at least 12 months. It matters a heck of a lot whether the loan will be primary or for an investment property. Its apples and oranges. If you want to refi a primary, the rate COULD be much lower depending on everything else on your app. Deciding that a home is or will be your primary residence can be a nightmare these days because underwriters tend to disbelieve the borrower. Borrowers have been caught being dishonest about this countless times. Be prepared for a whole new can of worms if you intend to "say" it will be your primary while you still own and live in another property. Sorry I can't be more helpful about the rate. I can only say that for an investment property, if you have great credit (over 720), at least 25% equity (AFTER) the cashout, a loan amount if at least100k, with taxes/ins escrowed, and a non-portfolio loan, the rate could be lower than 6.5% as of Friday, 2/18. But sounds to me like you are working with a private lender and they might be giving you "their" deal. That makes it more difficult to compare from one bank to the next. Get the Good Faith Estimate and look at the fees. That's a start. Realize that if you have not owned the home for 12 months, do not have a high credit score, and do not want to have a complete appraisal, you will pay a higher rate for that portfolio loan. That bank's process might get you into the loan quicker and easier, but it will not be cheaper. Lastly, new Fannie/Freddie/FHA loans require the borrower to give a copy of the complete tax return for the prior year. A portfolio lender might not require it. Oftentimes, people have entries on a tax return that kill the mortgage approval. Nothing easy about mortgages in this environment. Good luck.

C L. · Answer

After Feb 28th, you could qualify for cashout under Fannie/Freddie. It does not matter if the original loan was Fannie/Freddie. You can refi under whatever program you now qualify for. The issue with financing as a primary residence is not what you might be doing later. The issue at time of application is what is your "intent" at that time. You will have to satisfy the lender that you "intend" to move from your current residence and make one of the newly financed units your primary residence. Whether you have someone basically house-sitting your unit while you are away is not paramount. You must keep in mind that since you are dealing with a private, portfolio lender, they can do almost whatever they want - under the law of course. They are not operating under Fannie/Freddie/FHA rules, so a third person (like myself) would be hard pressed to say/know what they will do These credit scores will not get you a great rate. We must go by the lowest mid score of both borrowers. So, the score that would determine your rate is 650. Your wife's score would be meaningless. No, you could NOT get your own appraisal. Never, ever. As the lender, we MUST order the appraisal from a licensed appraiser accepted by the lender. Having a buyer get their own appraisal would open up wide scale fraud. Or I should say, "more wide scale fraud." There are a few items on your tax return that could call for income recalculations IF not revealed at time of application: lower allowed self-employment income, lower allowed rental income, unreimbursed employee business expenses, alimony, dividend and interest income, wide variations in commission/bonus income from prior years. You have a nonstandard transaction that a nonportfolio lender would carefully scrutinize. You haven't said how much equity you have. Unless you have a LOT of it, some lenders will deny your loan as an investment/cashout at a score of 650. Shopping around for bare bones rates might get you nowhere except for a drop in your score as more and more lenders pull credit. For mortgage pricing, credit scores are tiered and you could easily find yourself facing a higher rate if the score drops by a mere 10 points. If I were you, I would instead find a good deal and take it Every borrower wants the lowest rate Josh, but you have to be in the drivers seat in order to find low pricing. You also haven't stated what the loan amount would be. That could change things too if it's jumbo. And you didn't say how many units. All these details affect rate. Again, for a portfolio lender, no third party can tell you what they are going to do. They are lending THEIR money and they make the rules. I would suggest you contact a Fannie/Freddie lender and get a quote. Then compare. Your situation is not the norm and you owe yourself a consultation with a professional. There are far too many ifs/ands/buts for you to get all the "right" answers here. You can try putting in a request for a rate quote at www.zillow.com. Be sure to provide them ALL the details of your transaction. Bad input, bad output.

Josh P. · Answer

Wow Thanks! A few more details. I will have had the property for exactly one year come Feb 28th. The lender is a bank, but I don't think it was a Fannie/Freddie loan to begin with because I didn't buy it originally with it as my primary residence. The situation now is my wife and I travel all over the country with our jobs. For tax purposes, one of the units in the building will be our tax home. When we are gone, we rent it as a furnished rental. We will live in it when we come back to our home town between jobs. I would be up front with the lender about this and see if they will let me count it as my primary residence. Her credit is 750+, mine is around 650. If it could qualify as primary residence, could I pay for my own independent appraisal and show it to different lenders? I'm also wondering what entries are dis favorable on a tax return. I've already filed my taxes, so I hope we didn't have any :-( I'm loyal to the best interest rate, and I would certainly be loyal to a fixed interest rate. If that's even possible.