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Updated almost 7 years ago, 02/24/2018

User Stats

147
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252
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Paul DeSilva
Pro Member
  • Investor
  • New York, NY
252
Votes |
147
Posts

Banks are only offering commercial loans on my 2 family refinance

Paul DeSilva
Pro Member
  • Investor
  • New York, NY
Posted

I'm trying to BRRRR a two-family I recently purchased. I'm almost to the refinance part and started shopping around for loans, so far the banks that I have spoke to are only offering commercial loans. They are saying it has to be commercial because it is not owner occupied. Is this the norm? Are there better options? TIA

  • Paul DeSilva
  • User Stats

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    Ray Harrell
    • Investor
    • Chicago, IL
    930
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    1,272
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    Ray Harrell
    • Investor
    • Chicago, IL
    Replied

    Tis true. If you aren't living there it's an investment property. What you SHOULD have done, and it's a big dishonest, but so are banks, get your mail at the rental property.

    User Stats

    147
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    252
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    Paul DeSilva
    Pro Member
    • Investor
    • New York, NY
    252
    Votes |
    147
    Posts
    Paul DeSilva
    Pro Member
    • Investor
    • New York, NY
    Replied

    Thanks Ray, it's all good I just wanted to see if this was the norm. The terms of the loans quoted are still good for my deal so far. 

  • Paul DeSilva
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    John Leavelle
    • Investor
    • La Vernia, TX
    864
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    John Leavelle
    • Investor
    • La Vernia, TX
    Replied

    Howdy @Paul DeSilva

    That is not correct!  2 - 4 unit properties are still considered Residential.  Yes an investment property, but, for loan purposes it is Residential.  You need to keep shopping.

    How long have you had it “In Service “, ready and available to rent?  Most lenders require a minimum of 6 month seasoning from when it was placed “In Service “.  If you have not met this requirement then that may be your problem.  In that case a portfolio or commercial lender might be your only option right now.

    In the future I strongly recommend you arrange for the Refinance loan prior to purchasing the property.  It makes the process go much more smoothly.

    User Stats

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    Anthony Gayden
    Pro Member
    • Rental Property Investor
    • Omaha, NE
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    Anthony Gayden
    Pro Member
    • Rental Property Investor
    • Omaha, NE
    Replied

    Paul DeSilva

    Do you own the property under an LLC? If that is the case, it is the reason why banks will only lend to you with commercial financing.

  • Anthony Gayden
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    Ryan Murdock
    Pro Member
    • Rental Property Investor
    • Maui, HI
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    Ryan Murdock
    Pro Member
    • Rental Property Investor
    • Maui, HI
    ModeratorReplied
    Originally posted by @Ray Harrell:

    Tis true. If you aren't living there it's an investment property. What you SHOULD have done, and it's a big dishonest, but so are banks, get your mail at the rental property.

    Not sure committing mortgage fraud is the best course of action here. What you are implying beyond just getting mail at the property is that you would at some point sign a statement that you would be occupying the property as a primary residence. Bad idea if it isn't the truth. 

    User Stats

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    Max T.
    • Investor
    • Philadelphia, PA
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    Max T.
    • Investor
    • Philadelphia, PA
    Replied

    Conventional loans can be made on investment properties but the rate will be a point higher than owner occ. and the LTV will be 75-80% maximum.

    User Stats

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    Upen Patel
    Lender
    Pro Member
    • Lender
    • Nationwide Lender
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    Upen Patel
    Lender
    Pro Member
    • Lender
    • Nationwide Lender
    Replied

    @Paul DeSilva The banker you are working with doesn't know anything and/or is a commercial banker. Either case, they are wrong. Residential 1-4 unit properties can get a Fannie/Freddie conventional loan even if it is not owner occupied.

    Find a different banker.

  • Upen Patel
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  • (571) 331-5161
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    Gino Barbaro
    Pro Member
    • Rental Property Investor
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    Gino Barbaro
    Pro Member
    • Rental Property Investor
    • St Augustine, FL
    Replied

    @Paul DeSilva

    What terms have they offered you?  The rate will definitely be a bit higher due to non owner occupied, do they have a term or is it a 30/30?

    Gino

    User Stats

    147
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    252
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    Paul DeSilva
    Pro Member
    • Investor
    • New York, NY
    252
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    147
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    Paul DeSilva
    Pro Member
    • Investor
    • New York, NY
    Replied
    Originally posted by @Gino Barbaro:

    @Paul DeSilva

    What terms have they offered you?  The rate will definitely be a bit higher due to non owner occupied, do they have a term or is it a 30/30?

    Gino

     So far just run of the mill 30 year pretty much. One local portfolio lender had an interesting term loan they quoted but wont give any hard numbers yet. I'm learning everyday!

  • Paul DeSilva
  • User Stats

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    Paul DeSilva
    Pro Member
    • Investor
    • New York, NY
    252
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    147
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    Paul DeSilva
    Pro Member
    • Investor
    • New York, NY
    Replied
    Originally posted by @Anthony Gayden:

    Paul DeSilva

    Do you own the property under an LLC? If that is the case, it is the reason why banks will only lend to you with commercial financing.

    Yes Anthony it is owned by an LLC.

  • Paul DeSilva
  • User Stats

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    James Kojo
    • Rental Property Investor
    • Scottsdale, AZ
    223
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    184
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    James Kojo
    • Rental Property Investor
    • Scottsdale, AZ
    Replied

    @Paul DeSilva:

    @John Leavelle and @Anthony Gayden (above) are both correct.

    Unless you have more than 10 residential mortgages, or the properties are above the jumbo mortgage limits or you're trying to finance the the properties with the LLC intact, then they should qualify for conventional residential FNMA loans.

    For the LLC situation: my strategy is to close the loan under my personal name (no LLC), then after a few months of "seasoning" to establish on-time payment, notify the lender that I plan to drop the property into an LLC strictly for asset protection purposes.

    Many seasoned pros will tell you that you don't even have to notify the lender that you plan to do so, but will warn that doing so runs the ever-so-slight risk that they may actually call the entire loan due immediately. Search for due-on-sale clauses for deeper discussion on that strategy. Personally, I think it's entirely reasonable, but you get a few outliers who disagree.

    Hope that helps!

    James

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    Chris Mason
    Pro Member
    • Lender
    • California
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    Chris Mason
    Pro Member
    • Lender
    • California
    ModeratorReplied
    Originally posted by @Paul DeSilva:
    Originally posted by @Anthony Gayden:

    Paul DeSilva

    Do you own the property under an LLC? If that is the case, it is the reason why banks will only lend to you with commercial financing.

    Yes Anthony it is owned by an LLC.

     That's what's doing it.

    LLCs get commercial and hard money mortgages, human people with pulses get residential mortgages. 

  • Chris Mason
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    User Stats

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    Brent Coombs
    • Investor
    • Cleveland, OH
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    Brent Coombs
    • Investor
    • Cleveland, OH
    Replied

    Q. Why does a Lender charge more after finding excuse to call it a "commercial" loan?

    A. Because they can!

    User Stats

    1,133
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    Tarik Turner
    • Lender
    • Hackensack, NJ
    355
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    1,133
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    Tarik Turner
    • Lender
    • Hackensack, NJ
    Replied

    IS the property fully rented or still vacant? 

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    Chris Mason
    Pro Member
    • Lender
    • California
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    Chris Mason
    Pro Member
    • Lender
    • California
    ModeratorReplied
    Originally posted by @Brent Coombs:

    Q. Why does a Lender charge more after finding excuse to call it a "commercial" loan?

    A. Because they can!

     Commercial loans by themselves are actually less profitable if rates/fees were the same. Fannie Mae might pay a point or two to buy a Fannie loan, or maybe it's above Fannie standards and a big bank pays 2.5 points. 

    Without any secondary market, all the profit must come from the borrower. 

  • Chris Mason
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    Brent Coombs
    • Investor
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    Brent Coombs
    • Investor
    • Cleveland, OH
    Replied

    A loan by any other name...