Is this quote for a no-doc jumbo 30-yr fixed loan competitive?

Question

Hi All.  Newbie here and would like some advice.  I have 2 rental properties both on 1-year ARMs at 5.25% amortized over 25 yrs that I need to refinance. My credit score ranges from 650-705.

Property 1

$1.7 million value$1.208 mill mortgage$9800/month rental incomeProperty 2 $800K value$277K mortgage$3600/month rental income

My goal is to take cash out of Property 2 to reduce the principle of Property 1. My only income is the rent and about $25k in consulting work.
A local originator has quoted me the following for a no-doc loan:
Closing costs per property:

3% Origination fee (he said he may reduce this since I'm refi 2 loans)$750 legal doc fee$2950 servicing fee

Starting Rate on a 30 yr fixed with interest only 1st 5 yrs:

Stephanie P. · Answer

@Dana Powell

You're getting a quote on a portfolio loan, not a Fannie/Freddie Jumbo.  This is for a no income verification loan.  I think you're mixing up the amortization years (30) with the fixed period, probably 5.

Your broker is doing you a disservice by not explaining these to you thoroughly.  @Jared Rine and @Tarik Turner have you covered.  If you need additional information feel free to PM me.

Best of luck

Stephanie

Shaun Weekes · Answer

These fees are way too high and you can do better on the rate as well.  If the fees were lower I would say it's some what reasonable.  But not really.

Jared Rine · Answer

@Dana Powell...Sounds totally fine to me on a no-doc no ratio loan because those numbers are debt servicing either.  Don't care either way, but I might reduce my fee as a broker if I'm getting to do both those deals, to cut you a break.  But other than that, sounds okay.  2 pts on that volume should be good for anyone.

Benjamin Piecenski · Answer

The rates aren't absolutely awful for a niche product like the one you're seeking.  The origination fee of 3% however, is absolute highway robbery, especially when it already seems that you're paying them $2,950 as a "servicing" fee.

Salvatore Lentini · Answer

@Dana Powell - are you able to bring your credit score up at all?  That's going to be the biggest factor on your rate.  It would be a shame to lock into a high rate loan if you could've waited a month and brought your score up.  It's not hard to get your score up temporarily just before they pull credit.  Message me for advice if interested.

Dana Powell · Answer

ETA: Correct spelling of Tarik's name. My apologies!

Dana Powell · Answer

The loan  is a 30-year fixed with the first 5 years at an interest only after which it becomes amotorized over 25 years .  The rates I noted in my  response to Tyrik  factors  in the  cash out for Prop 2 and  the possibily that my credit score May be less than 700. Both properties are SFRs.

Should I go for a bridge loan to build the Adu now and refinance the newly improved property 2 eighteen months from now? I run the risk 18 months from now that the lender won't refinance.  And my need for a no doc would limit my pool of alternatives.

Jared Rine · Answer

@Dana Powell...What I meant was that just running rough #'s on your deals, they're very tight on debt service (gross rents cover PITI), if they even do.  I was running back of the napkin though.

That interest-only in the front for 5 is a nice feature to help your cash flow.  Does it make a difference about the income being on a Schedule C or E if you're being provided a no doc loan, which I was under the impression doesn't look at your taxes.

Are these both SFR 1-unit properties?

Are those adjustments that you listed already factored into the rates presented or are those on top?  PM if you need to.  Can share more unless you want to in thread.

Thanks,

Tarik Turner · Answer

First and foremost you are doing great and your end goals sound wonderful and very possible. Send me a PM I would love to discuss in further detail and see if at the very least there is some valuable advice that I can share with you.

Dana Powell · Answer

@Tarik Turner My goal would be to refi Prop 2 60% LTV at 6.75-7%, netting a $180k cash out.  For 1st 5 years, the  monthly PI would be $2800 on a $480k loan; current gross  rent income is $3600.

I would then use $128k  of Prop 2's cash-out to reduce the $1.208 principle of Prop 1 to $1,028,000 and acquire a 60% LTV at 6.25-6.5%.  For 1st 5 years, monthly PI would be $5850; current  average gross rent income is $9800.

A couple of notes:  Prop 1's income is on a schedule C, not E since income up to now has been from short-term rental (2-4 month occupancy).  This lender allows for leases as short as 3 months.   Although, if I could get better terms from another lender who would require annual lease, it wouldn't be a problem to find long-term tenants paying $8500-9,000/month.

Not sure if it is advantageous to inform the lender that I would be cashing out the equity of 1 property to pay down the debt on another property.  As the originator, he benefits, as he gets both deals, but would he want his buyer of Prop 1's note to take on unnecessary risk?

Another option would be to take $250k of equity from 1 or both properties or get a bridge loan (?) and build an accessory dwelling unit (ADU) on  Prop 2 which would generate about $2400/month gross rental income, bringing that property's income to $6,000/month. The ADU would be ADA compliant and be my aging-in place residence years (hopefully) from now.  Then refinance Prop 2 to pay off loan.  But perhaps I can do that 5 years from now, when it would make since to refi these loans after the interest-only period?

Frankly, it's been a struggle to make payments, maintain the properties and I'm kind of burnt/stressed out.  The new construction would take about 18 months and I have no experience and little self-confidence in that area, TBH.  Plus I'm kind of overwhelmed at how expensive all of this loan restructuring/new build seems.  I come from a working-poor,  paycheck to paycheck background and have to constantly remind myself that one must spend money to make money--but this seems like SO MUCH money!  BTW, I also scaled back my consulting work, which paid very little, so that I could focus on all this.  My goal in 2-3 years is to travel via airbnb for months at a time domestically and internationally, living off of my rental income (as well as build-up my IRA which I depleted paying off cc debt used to upgrade properties, e.g. adding bathrooms, gut kitchen, and yes, pay a few months of morrgage payments).

Still with me?  Thanks for reading and listening!

Is this quote for a no-doc jumbo 30-yr fixed loan competitive?

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