Difficulty refinancine

[Carin Kveton]

I have a duplex I am trying to refinance. I purchased and rehabbed it, using a short term loan. I now need to refinance to a longer term loan. A local bank initially seemed interested. It cash flowed with just one tenant, but has two leases, so I'm cash-flowing over $1000/month, after all expenses. The bank decided to turn us down because our debt/income ratio didn't meet their criteria. This was AFTER the bank stated they looked at the property financial first. If they had "concerns", then they looked at our finances second. Since it was cash-flowing so well, and fully leased, (and owned by us for just over 2 years), I didn't think this would be  a problem. Our debt/income took a hit because we just got into RE Investing almost 4 years ago. I don't get it. It's like the banks WANT you to fail. I used non-traditional funding because the place needed rehabbing, and was empty. A bank wouldn't loan on the property as it was. Now that it is a performing asset, the bank finds other criteria to say no. I plan to seek out other banks, however, how do I interview THEM, so I don't waste my time gathering all my paperwork up front. How do you get them to tell you what they are REALLY looking for? Any tips on how to tactfully work with banks to effectively communicate with them would be appreciated!

[Brie Schmidt]

Originally posted by @Carin Kveton:

I have a duplex I am trying to refinance. I purchased and rehabbed it, using a short term loan. I now need to refinance to a longer term loan. A local bank initially seemed interested. It cash flowed with just one tenant, but has two leases, so I'm cash-flowing over $1000/month, after all expenses. The bank decided to turn us down because our debt/income ratio didn't meet their criteria. This was AFTER the bank stated they looked at the property financial first. If they had "concerns", then they looked at our finances second. Since it was cash-flowing so well, and fully leased, (and owned by us for just over 2 years), I didn't think this would be  a problem. Our debt/income took a hit because we just got into RE Investing almost 4 years ago. I don't get it. It's like the banks WANT you to fail. I used non-traditional funding because the place needed rehabbing, and was empty. A bank wouldn't loan on the property as it was. Now that it is a performing asset, the bank finds other criteria to say no. I plan to seek out other banks, however, how do I interview THEM, so I don't waste my time gathering all my paperwork up front. How do you get them to tell you what they are REALLY looking for? Any tips on how to tactfully work with banks to effectively communicate with them would be appreciated!

 Here are your possible options:

Conventional financing - 30 year fixed around 4.5%. This will require your DTI to be 45% or below no matter what bank you work with. This is going to be hard if you do not have a W2 income and have been doing this for just 2 years.

Asset based financing - 30 year fixed around 7.5%.  This loan looks more at the cash flow of the property and less at your personal finances, but the rates and fees are pretty high on this.  Expect to pay a few thousand more in closing costs.

Commercial financing - 5 year fixed around 5%.  This loan is based off the performance of the property and your ability to run a business.  The closing costs are more in line with conventional but the terms are usually 5 years and have pre-pay penalties

This is why I ALWAYS tell people looking to rehab and hold to get prequalified before they buy. The qualification terms are the same if you are buying new or already own and you need to be well versed in what they are looking for. DTI is the hardest obstacle to overcome as you grow as an investor and how you prepare your taxes becomes crucial. I also suggest you check out the financing videos here https://www.biggerpockets.com/courses/a-beginners-...