Is it easy to Refinance out of a private lender loan?

Question

Hi.

I am set to borrow 130k to buy and rehab a property at an 11 percent interest rate (I only have to pay the monthly interest and closing fees) from a private lender. I expect the home to appraise at 170k-200k in 6 months when it's fixed and rented out to nice grad students.

Will I potentially be stuck with this loan or will conventional banks be lining up because of the high AVR/loan ratio and rental income? My credits great and I have some reserve cash and 40K in rental income but I'm not working now. Thanks!

Stephanie Medellin · Answer

@David S. Refinancing out of a private loan is basically the same as refinancing out of any other loan. Just be sure to keep a copy of your note, and be able to document the agreed upon payments on time every month through cancelled checks. Since they will probably not report this loan on your credit, you need to be able to show on time mortgage payments with your application. Whether you can qualify for a conventional loan without working depends on whether your rental income can support your personal housing and monthly expenses and the rental property expenses. It really depends on how much positive rental income is on your tax returns.

Eric Johnson · Answer

Okay... Why are you set to borrow 130k, when you don't have an exit strategy? You don't have a bank lined up that will do this deal? I never close if I don't know what the exit looks like.

Kenneth Garrett · Answer

If it appraised on the low end 170K at 80% you are at 136K. Some banks have lowered the threshold to 75% or even 70%. You might have some money stuck in the deal but depending on the cash flow you could be no money in within 12 months after your refinance. Don’t forget the interest payments (little over $7000) back to your investor, property taxes and insurance while your rehabbing.

Abby Weinstock · Answer

You can refi into a 30-year rental loan, a product that many companies are offering right now. As another poster mentioned, you will have to demonstrate that you have not missed payments on the existing loan. You will also need to demonstrate that you have enough liquidity to cover closing costs and several months of property expenses. You will also need to demonstrate that you have a lease in place and that payment is being made on the lease. These are general terms; each company offering this product will differ slightly in terms of minimum credit score required, minimum property value, maximum loan amount, maximum LTV, document requirements, etc.

Stephanie P. · Answer

@David S.

Your ltv is very tight for what you're trying to do. If the property comes in at the low end of your estimate of value, you're already at 76% without considering carrying costs or closing costs.

If you're buying in Baltimore, your comps better be air tight. Baltimore is block by block when it comes to values. What's 200K in some neighborhoods could be 400K in others and 15K on the west side...

Elise Marquette · Answer

The difficulty of refinancing out of it depends on the equity you have in the property and the terms of the HML. If there's any sort of prepayment penalty, of course that makes refinancing out more difficult. If it's an investment property, you can get a Conventional loan for 70-75% LTV (depending on multi or SFH) so it'll really depend on what is appraises for.

Make sure you're showing enough rental income on taxes to be able to qualify for a Conventional loan if you go that route! If not, there's programs available that base it off just the rental income, as long as the monthly rent is at least equal to the PITI.

Scott Wolf · Answer

@David S., if anything a no doc company will be able to get you to 6+%.

Civic Financial, LendingHome to name two. I'm sure there are a bunch on the BP recommended vendors page.

Is it easy to Refinance out of a private lender loan?

Is it easy to Refinance out of a private lender loan?

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