Mortgage Broker or Community Bank?

Question

I have been speaking with some Hard Money Lenders in an attempt to fund my first BRRRR deal. I found one that seems like a one stop shop. For both Residential and Commercial properties they offer Hard Money, Traditional Loans, and Portfolio Loans. If I use this company wouldn't I be missing the opportunity of establishing a relationship with one bank?

I hear alot on the podcasts and on BP that establishing a relationship with a local community bank who offers portfolio loans is the way to go which I agree. However if I use the HML I described above does't that defeat the purpose and in the long run could hurt my buying potential?

Would I be best to use a HML for ONLY Hard Money and then find another source for the cash-out refi and begin building with a long-term relationship with a local bank?

Here are their numbers for those curious:

Property Types

1-4 single-family properties

Market

Houston, Austin, San Antonio and Dallas/Fort Worth, Texas

Loan Amounts

$50K-$400K (Minimum $100K outside of Houston)

Term

6 months

Amortization

Interest-Only

Rate

12%

Fees

3% (can be rolled into loan if LTV allows)

LTV

Up to 75% of the “after-repaired” value

LTC

Up to 100%

Qualifying

Must be able to qualify for conventional financing

Recourse

Yes

Harjeet Bhatti · Answer

@David Olson One stop is good way to go.  10 is the max finance residential property you can have under conventional loan.  Portfolio loan has their own set of guidelines   that will wary from lender to lender.  Portfolio lender some time go higher in property count.

David Olson · Answer

@Will Pritchett I do not have any loans at the moment. This will be my first BRRRR. Your two cents is much appreciated!! You are correct that I plan to use as many conventional Freddie/Fannie that I can (10) until I have to use a portfolio. I would think if I have 10 rentals under my belt and I walk into a local bank they would be hoping I choose them as my portfolio lender and the bank I decide to grow my portfolio with. I also plan to use my wife buying power and having her get her (9) that she has left. Our house is in her name. Although I have time to figure that out so for now I ma just focusing on my first deal. Your last statement is kind of what I plan/hope to do. Use Private or Hard Money and then cash-out refi into a conventional loan. My big concern is the appraisal. Having a Private Lender or HML provide the appraisal before works are complete then the bank providing me a separate appraisal and just praying the two match.  Then there is the seasoning period too.

Will Pritchett · Answer

How many loans do you have now?  I'd recommend using the lender that has the best rates and terms at this time.  I am in the situation of searching for Portfolio type loans now and I'm not finding it a huge disadvantage that I don't have a relationship with any yet.  I am planning on moving my business account to the one I choose once I decide who I'll use.

If you are just starting out, the banks with the best programs for Portfolio lending may offer different programs by the time you need them.  As you create a track record, you will realize that you offer something to lenders as much as they offer something to you.

I am making the assumption that you are using conventional lending until you use them all up.

Just my two cents.  I use Private Money and refi into conventional loans.  Hope this helps some.

Good luck

-Will

Harjeet Bhatti · Answer

@David Olson We have 85%ltv on 1 unit  for investment loan.  If you are cashing out after 6 month its 75% of appraisal value  for 1 unit and 2-4 units 70%.  When you want to cash out after rehab(delayed financing exception)  you will get 70% of appraisal value or  your initial purchase  price  which ever is lower.

David Olson · Answer

@Harjeet Bhatti That makes sense. I see you offer 95% LTV. That's incredible. Best I've seen is 80% down here.

I have one question. I think I am getting my numbers mixed up on the HML to Cash-out refi process. At which point do I need the 20% down? Do I need a % down to obtain the HML and then another % down to obtain a cash-out refi?

David Olson · Answer

@Harjeet Bhatti you mean establishing a relationship with a bank and using them for the cash-out process form the start is the way to go? Or you mean using the HML and Mortgage company I described that is all under one roof is the way to go?

So use the HML for just that....Hard Money. Then use a local community bank for my cash-out process but try to find a bank that allows portfolio loans from the start. I just don't want to get myself in a situation down the road where I've maxed out my Freddie and Fannie loans and then the bank doesn't offer portfolio.

Harjeet Bhatti · Answer

This is the right way to go if you want to cash out later and refinance with conventional or commercial loan under llc. You do need to get a bank in your contact list.  Most of the bank do not offer portfolio loan so need portfolio lender also.

Mortgage Broker or Community Bank?

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