Commercial Loans for a SFR??

Question

Hey all!!! Thanks for your help ahead of time! So my question is about the benefits of using a commercial loan for a SFR. Here is some information on my situation.

We are nearing the end of the rehab on a SFR with the ARV of 50-55K and are looking to refinance. This property is in Michigan, all banks in this area do 15 year mortgages around 5% interest rate for rental homes with traditional mortgages. When speaking with the banks they are pushing us to explore commercial loans. Their terms, depending on negotiation, range from 5 to 10 year balloons (possible renegotiations of terms after this timeframe) and 15 to 20 year amortization schedules with 75% LTV.

Okay so now that I'm done blabbing, do you see benefits to using commercial loans on individual residences? Building rapport with the lender?   Positioning us to move on bigger deals more quickly since we have a track record? Am I missing something important?

Thanks for your help!!!

Owen Dashner · Answer

I have gotten dozens and dozens of commercial loans for SFR from small local banks. The benefits are looser underwriting guidelines, more loan structure flexibility, they loan to LLC's/Corps not just individuals, in-house valuations vs. full appraisals, WAY less paperwork, no hard and fast rule limiting the number of loans you can get, and the speed of getting deals closed is way better.

But most importantly, I don't have to bare my financial soul and get questioned about every bit of income/expense every time I want to get a mortgage.

Account Closed · Answer

I have a 4-unit under contract in Ann Arbor with a locked-in rate of 4.625% for a 30 yr conventional. Could've probably gotten it down to close to 4% for a 15 yr. If you can go conventional, you should absolutely do it.

Honestly, i'd be surprised if a bank was even willing to do a commercial loan on a property with a $55k ARV since that's end up being such a small loan assuming a 75% LTV.

Tom S. · Answer

@Chad Lamb  I've done a few commercial loans on SFR, mainly because they needed enough work they wouldn't qualify for conventional financing.  The bank advanced purchase + rehab financing, and terms were about the same as your post.  The advantage for me was that it's far less expensive than HML, and yes, developed a relationship as well.

Chad Lamb · Answer

I would definitely do conventional if they offered a 30 year mortgage. Our cashflow would be amazing! I'll push for it more. We are in rural Michigan, 60K houses all day. With that, the banks are used to it out there. Who does your financing out there??? We plan on checking out Ann Arbor soon! Good luck with your 4-plex!

Account Closed · Answer

Lake Michigan Credit Union

Commercial Loans for a SFR??

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