Can I put 20% down with a conventional loan, and get a loan with HML for repairs and re-fi both to a conventional loan?

Question

I’m looking into buying a 2 flat for my 1st rental property. I do have the 20% for the down payment, but not enough for repairs. Can I get 2 loans, one from a HML and then one from a bank, and then re-fi in 6 to 12 months? Has anyone tried this?

Mike H. · Answer

re: Bill Gulley
Scott W is doing a cash out refi right now on an investment property. His appraisal just came in so they're only a few more days from closing now.

I've also done refi, rate and terms before a year. 360 mortgage did a couple of them back in 2011 and these were 5-10 loans.   I personally have not done cash out on any of my deals since about 2009 when I first started.  I've been using HML and private money to roll rehab into the loan just so all my refi's would be rate/term refi's.

But rate and term can definitely be done after 6 mos.  Ridge lending does them on investment properties and thats the 5-10 program.

Also, try your local banks. Thats what I've been doing for the most part lately. And that I can show you the separate settlement statements for purchase and refi to show you can do and can do it in less than 6 mos. I bought a house in May/June of 2012, rehabbed it, rented it and refi'd it in August 2012.  Rate/term of course.  So right around 3 mos.

You might want to call around some more if you're not finding any banks willing to do rate/term refi's after 6 mos.  Ridge Lending will do it with conventional - including 5-10 program. Mortgage brokers should have some lenders that will do it as well. And, of course, some local banks can do it.

I've never suggested that ALL banks can do rate/term refis at 6 mos. But there are some that do and you just need to find them. Ridge is one that is more national/regional. There are others out there depending on the state. And then, of course, local banks with commercial loans can do it in less than 6 mos.

But I bought with private money

Bill Gulley · Answer

As I was saying above, if you can get a conventional end loan, ask the bank for the purchase-rehab amounts based on the plans and specifications, they can use the ARV as the basis for the LTV. When finished an appraiser will give a final inspection, then the bank will roll over the loan to a perm or end loan.

If you have good credit and your down payment, banks will go there, the only other issue is your experience in getting work done. If that is lacking, get with a contractor and contract the work to be done for the bank. You'll need to pay him something for the responsiblity but he can hire you to do the work as well. This should be less than HML rates, charges, closing costs, and closing costs again for a refi.

This is how the pros do it.

BTW, I see Mike H. trying to sell the aspect of banks doing refis in 6 months again, ask him where he got that bank, best answer I got was someone else did it, which is not a norm to count on, the rule is one year.  :)

Mike H. · Answer

Typically, you're looking at 10 to 12% interest if you're putting down 20% with a HML.  On an 80k loan, you're only talking about $800 a month.  Your rehab should only take you a month or two at the most.  And then your renters will be paying your holding costs so it won't matter.

btw: I didn't even look at your location. But since you're in Illinois, you can try getting in with Recasa and they're terms are no money down at 10% - provided that you're going to be all in at 65% ARV or better.

Chris McNeal · Answer

Bill Gulley I haven't got the numbers on a property yet (Just doing due dilligence) I'm looking into a couple of areas, but haven't set down a study the numbers yet. I will post the numbers when I really to pull the trigger on a deal.

Mike H. I think this is the best idea! My only concern is the holding cost (doing the rehab phase) and can I attached that to the loan? I was just trying see if other options are available before I went out to a HML (Fees and interest rate are very high)  Thank you.

Chris Martin - These are options I have consider, but I want less debt as possible.

Mike H. · Answer

Yep. You're typically going to have two issues.
1) HML isn't going to want to be in 2nd lien position.
2) When you go to refi, they'll consider that a cash out refi
in order to pay off both so that will be a little tougher to do.

Your best is to try to find a HML and just roll the purchase and rehab into one loan. I'm assuming you're going to be all in (purch plus rehab) at a pretty good discount. Add in your 20% down payment and you should be a great customer for a HML.

If, as an example, you were going to buy a house worth 100k that you're going to buy for 60k and rehab is 15k and you can put down 20% or 15k.   That would put you at just at 60% LTV. Roll in the HML fees and likely just at 65% LTV.

And with 15k skin in the game and a 65% LTV, you should be able to find yourself a HML. Once your rehab is complete and you get it rented, then you just need to refi the HML as a rate and term refi which you can do around 6 mos on some banks even for investment properties.

Thats what I would try to do instead of finding someone for the 2nd mortgage. I'm not seeing it isn't possible. But not with any of the HML offerings that I've seen.

Bill Gulley · Answer

More information?

How much rehab is needed, who is doing the work? Are you a contractor?

How motivated is the seller...easy to work with?

Thinking here it might be possible to rehab in the purchase price, you may need more for the down. If you can buy conventionally with a bank you're in good shape to try and take it down in one closing.

What's the sale price and ARV ?

Do you know what market rents will be?

Chris is right about the options and HMLs. :)

Chris Martin · Answer

No investor is going to want that second mortgage. Other options: credit cards, borrow on prosper.com or lendingClub.com, borrow from family or an IRA.