Conventional Lending on 3 SFH Rentals?

Question

Hello,

I currently own 3 SFH rental properties in Florida.  I purchased them in cash, fixed them up and they have been rented for well over a year now.

I would like to do a cash-out refi, however, the banks I've spoken to frown upon loaning on this type of property.

I was wondering if any of you have had any conventional lending on your rental properties, if so what kind and with whom?

My goal is to pull cash out to purchase another SFH rental.

Thanks for your time.

David Beard · Answer

Neither Ryan nor Monica are describing cash-out refi's, such as the poster needs.  They did limited cash-out (rate&term) refi's, sounds like, which is an easier loan to get done.  That said, true conventional cash-out refi's are definitely doable on rentals, as I assisted my business partner last year with getting three done simultaneously on free & clear properties that he'd held for one to three years each, all for 30-year fixed.  The mortgage lender was Bank of England (englending.com), but there are many out there doing this.  It's definitely more challenging when you're doing your 5th loan or more.

I'd also advise nicely interceding with the appraiser on the front end, as they have no bogey in these cases to shoot for (such as a purchase amount or a loan payoff). You need to try and steer them clear of using foreclosures for comps, by stressing that the great condition of your property warrants that they be comped against 'full-price' sales (not distressed).  Work with your agent to do a favorable BPO, then share those comps, as well as all the great attributes and improvements to the property.  Nicely give them a target, but be nice.  Appraisers have crappy jobs these days, their fees are down due to these new middleman companies that they have to split with.  A little appreciation will go a long way.

Oh, Dan Green at themortgagereports.com claims to be very investor friendly for conventional loans, but he doesn't operate in every state.

If you haven't been a landlord for two years (documented on tax returns), they will not count the rental income.  So you'd need to be able to qualify to carry all these mortgages against your other non-real estate income (job or other business with history).   My business partner did have the requisite two years.

Jared Rine · Answer

Lenny,

You may want to try New Penn Financial...they have some pretty niche portfolio products that may be able to help you.  May be a little above conventional rates, but still going to be low - 5-7%.

Check them out, and if anything else swings my way that sounds like it may be able to help, I will post b/c I run across these types of loans and they are hard to place anywhere.

Arthur Garcia · Answer

Lenny,

I only own one SFR free and clear and since I already have more than 4 Fannie Mae loans, I had to get creative (note- you can't do a cash out refi on loans 5-10 for fannie mae)

I was going to refi with a hard money lender at 65% LTV, wait 6 months and do a rate/term refi with a direct lender.

However, after looking at all the fees (closing costs 2xs) I found a private lender (family member) and offered them 10% for 6 months, then refi'd (rate/term) into a conventional loan.  This saved me points and closing costs.

Not quite a cash out refi, but I ended up accomplishing the same objective.

Good luck!

AG

Lenny Longo · Answer

Thank you for welcoming me with such great replies!

After hearing many of your stories, I will definitely be checking many more local banks and expand my search from there if necessary!

Ryan B. · Answer

David is correct that these were not properties that I owned free and clear.  Sorry for the confusion, I did not realize there was a difference between the two.  Still a newbie, only been investing for a couple years.

Ryan B. · Answer

I am using the exact same process as Monica except I buy, fix and hold.  Bank gives me a construction loan to purchase and repair the house, then once I am done I refinance it with no seasoning (unless it has the Fannie Mae 90 day deed restriction on it).  I roll the closing costs into the refinance and then I have nothing out of pocket and a newly rehabbed rental.

One thing that may be helping me though is that I do all my personal and business banking through this small local bank.

The only problem I have now is that this bank won't go beyond 4 fixed loans.  So now the next property I do this to, I will have to go with the balloon loan that they keep in house.

Bill Gulley · Answer

Well, snipe hunting is much better in Il. than in Mo.! F&F wouldn't take them in this area for about 15 years the door was closed, guess the default ratio here was unacceptable, so there ya are, it has been done! No I won't ask to see the HUD-1...lol

Monica Breckenridge · Answer

It will definitely depend on the bank.  Keep calling around and go to investor club meetings to find bank's in your area that do these transaction.  I'm not doing a cash out refi on free and clear loans, but I am doing them on houses I just bought with fix and flip money.  It took me a while to find a lender in my area who can do these.  But I buy a rental property that needs work and I get fix and flip loan on the property.  The deed of trust amount includes the purchase and the repairs.  Then I refinance the property as soon as the work is done.  The lender I use has no seasoning requirements.  They are a portfolio lender.  This way I am able to buy a house without being out of pocket any money.  Actually I usually end up pocketing some money after it's all said and done.

Ryan B. · Answer

Just closed on a NOO cash out refi last week.  Small local bank, 30 year fixed at 4.65% that sold it to Freddie Mac.

I would keep calling more banks until someone says yes.

Bill Gulley · Answer

Welcome to BP Lenny!

Many here speak of cashing out on non-owner occupied properties but IMO it's a portfolioed loan product that would vary from lender to lender. Some say they have gone conventional but I think it's a snipe hunt. To my knowledge Fannie and Freddie do not take cash out refis on NOO.

Probably the best you can do will be a 30 year amortization and a 7 year balloon, that's about as far out as a portfolio lender will go for landlords, at least in my region. They won't hold a 30 year fixed due to the interest rate risk.

Conventional Lending on 3 SFH Rentals?

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