Quick question about re-financing
Los Angeles, CA · Member since 2013 · 169 posts · 27 votes
OK, I can't seem to use the search function today, or the answer is just too vague... Here's my dilemma: underpriced condo in rapidly progressing neighborhood of very desirable city. No rent cap, so no conventional loan, BUT I actually want it as my summer home. ( 4 months a year ) owner is in a bind and wants to cut losses, I'd give my left arm for the condo, just don't have the cash (126k ) and don't want to flip it. It's definitely a buy-and-hold cash flowing property.
Question: once I own this property, will a bank allow me some kind of re-financing to get out of a HML within 4-6 months? Or does it's status as an income condo mean a bank will never touch it?
If I'm renting it out 8 months of the year, and living in it 4 months, does that put it in a different classification?
I need to know how to make this work, it's just too perfect to let go of.
@Corey Davis lending is harder as a NOO property, but not impossible. Most lenders won't do these, but a few will.
If you're wanting to use a new appraisal rather than the price you paid you should plan on holding it at least a year. You might do it in six months, but a year is a safer number.
HMLs usually will not lender if you're going to occupy it. That's because that moves it into OO territory and those loans are MUCH more highly regulated.
How about doing it subject to?
You should verify the project qualifies for conventional lending. Not all condos do. Fannie Mae Approved Projects List
Partial use by the owner and partial rental makes taxes more complex.
If you're wanting to use a new appraisal rather than the price you paid you should plan on holding it at least a year. You might do it in six months, but a year is a safer number.
I would be doing a new appraisal IF a conventional lender will re-fi. That's my question though, will a conventional lender re-fi on a condo below rent cap?
How about doing it subject to?
I'm trying to understand the terminology, "subject to?"
You should verify the project qualifies for conventional lending. Not all condos do. Fannie Mae Approved Projects List
I must be reading the wrong list, I can't find an indicator as to whether or not my project applies.
Partial use by the owner and partial rental makes taxes more complex.
My thinking at this point is rent it out to pay down, then move in and occupy after.
I have about 24 hours to move on this, open house is tomorrow. I'm glued to my IPad ...
My thought is you will have a much harder time renting it if you occupy it 4 months out of the year. By occupying it 4 months out of the year, you're basically limiting yourself to weekly (and maybe Nightly and/or Monthly rentals). So it's a "vacation" rental so to speak. You can charge higher rents weekly than monthly or yearly of course (but it probably won't rent every week), but I also assume the 4 months out of the year you want it are the prime months. That means it will be even harder to rent because the "easy to rent" months you aren't renting it and those 8 months (even if fully booked) could be the same or less in rent than the 4 months you're in it.
I'd say the first decision to make is this. Do you want a vacation property or an investment property. If Investment is the driver, then I'd say you need to rent it out on a year lease (or at least rent it out year round as a vacation property and maybe take a week or 2 for yourself). If you're only considering it because you will be there 4 months out of the year, then just do the numbers and see if you're ok with the loss you'll be taking because it's almost assured there will be a loss :).
I mention all that because it affects what the bank will do for you. As a "second home", you will get a better rate and better down payment. Make sure to verify that what you want to do qualifies as a second home (I'm sketchy on those details since I have never bought one, just investment properties). As an investment property you will tend to have a higher rate and more of a down payment will be required. So if you can't afford a higher down payment, that may be your answer right there. But also keep in mind, your purchase agreement can stipulate you can back out if you don't get adequate financing (so you don't have to lock that down right now). Also, Jon is right on the money, you typically need to hold a property for a year before the bank will lend based on an appraisal and not the purchase price. If you have to move in 24 hours, I'd say make your offer and just have it contingent on financing. You'll typically have 30 days to get it worked out. If you can't find something that works, back out, get your earnest money back and move on. Regardless of how "perfect" a property is, if the numbers don't work to your liking, never do it.
Conventional lenders will do refis on condos, provided its a "warrantable" project. Not all projects are. Typically because of HOA issues, too many units owned by one person (often the developer), or too many rentals.
Rent is not relevant because you won't be able to consider it in qualifying for the loan until you've had rental income on two tax returns.
A $126K price (no doubt plus some rehab) with $2800 a month is a good deal. However, if you're going to occupy it four months a year you won't get a normal, long term tenant. So, this would be a vacation, short term rental. Is that allowed in this project? By the city? Is using a PM required?
Subject to means subject to the existing mortgage. Buy it, leave the existing mortgage in place and start making the payments. At some point in the not-too-distant future, refinance and pay off the old mortgage. There are very real risks, but it is a technique people use. Lots of posts here on that topic.
@Justin B. thank you, I should have mentioned I have renters in place, month to month. I'm realizing its worth much more to me as income than second home, my girl just really really likes it...
@Jon Holdman that's my problem, is trying to determine within the next 24 hours if a conventional lender WILL re-fi. Condo needs no rehab, it's a finished property, owner has to split properties with spouse in a divorce, deal is cash only, as the condo has renters currently, and banks won't lend, so I have to go through a HML if I want it before everyone else gets a chance. (It went on market this morning).
My main fear is that I use a HML to secure the property, and can't refi out of the hard money loan within 6 months.
Owner will not do subject to, or lease options, she wants cash, Monday, period... (Hence the asking price, which is just stellar for that area)
If the banks won't lend up front, I don't think you can count on them to lend 6 months to a year from now. I'd say if you can afford the HML for at least 3 years and still cash flow, then I'd say go for it. If not, then I'd consider not doing it (regardless of how good it is)
Also, I haven't bought a condo before so why does no rent cap mean the banks won't lend conventionally? The loans I get from my bank are technically not real estate loans, they are business loans. The property is still collateral, it's just an in house loan (not an FHA or backed by Fannie/Freddie, etc). I can't imagine any situation where my bank wouldn't lend to me even on a condo, but maybe it's different where you are.
I ended up with a whole different gameplan. The HML would have put me at about break even on the deal, my partner and I now have investors. Our investor funds are paid back at almost what the HML rates were, but on a much longer payoff schedule, giving me the same profit margin as having financed conventionally.