Best Bets for Portfolio Loans

[Michael Faulk]

Greetings BP Community! Question

Background-

I have recently completed a thorough renovation on a buy/hold property that I acquired Nov12. I have been searching to complete a cash-out refi and take out a conventional mortgage. To make a long story short my DTI was too high and I wasn't eligible at this particular time. I was recently connected with a small local bank during a financing segment at my local REIA. I was impressed by the knowledge of the staff and when I wasn't able to complete a conventional loan I called this particular bank up.

Question-

My main question right now is: Does anyone have any red flags that I need to watch out for? or even any best bets that I should try to be aware of? I fully understand that Portfolio Lending is a completely different ball game than Conventional Financing.( I know it's gonna sound crazy) but I feel everything is going too well (Keep in mind we are on Day 1 ;). I was preliminary approved today but I just want to prepare in advance of any road blocks that I might be encountering in the near future. I have read extensively on BP about Cash-out Refinance, Portfolio lending and just about everything else.

Today was my first meeting with this Lender and the following is what has been established:

-Original Purchase Price: $56,000

-ARV: My realtors opinion: $107,000 (On my extensive research, ie...Obsessively researching... I feel ARV is closer to $90,000 but we will see what the appraiser comes back with)

-80% LTV of current house value is the maximum allowed

-Appraiser will be scheduled in 1 week to appraise property and I will coordinate with him/her

-Closing will be approximately 2 weeks away (If no unexpected issues arise).

-Interest Rate (Not aware what it is yet) will be higher than I typically could get through a traditional loan. (I was prepared for this)

Recap-

I guess in a nutshell I have only dealt with conventional financing before and have had to submit tons and tons of paperwork. I was fully prepared with all docs today just as if I was entering the mortgage departments offices. But, this particular banker only asked for the basics (but very thorough) and she was very interested about my history and plans for the future.

If anyone has any "red flags" or "best bets" that I should be aware of I'm all ears.

Thanks in advance and hopefully this little post is formatted in an understandable manner-

MF

[David J.]

@Mehran K.

@Matt Morgan

I do not have much experience with commercialfinancing for 5+ unit properties as mine are all SFRs. That said, the leder is definitley within their right to require a new appraisal. I have never experienced this. My refi/rest or whatever it is called is always a short conversation with my lender discussing new rates/balloon periods and whether to reset the amortization schedule.

I am in Texas so there was not a huge drop in FMV but to that point, I think this is where the relationship as a borrower really comes into play. If you have 5 yrs of history making timely payments then I highly doubt the bank is just going to throw you under the bus. They know you can't/were not planning to make that balloon payment. They purpose is to reset the rate to market. They want to lend money to qualified borrowers so if you have made timely payments they will figure out a way to help you keep making timely payments. Can they call the note... yes. And I have seen it. Not to me personally, but right after Dodd Frank when the banks had to meet new lending ratios they were calling/not reseting balloons because they couldn't. I did not see this at the local bank level with 70k loans. I saw this at the 50-100mil level with big banks lending on commercial buildings (condo builds, hotels, commercial retail projects, etc.)

Now add the fact that if you are utilizing this type of credit facility you will likely have more than one property. For example, I have a dozen or so with the bank at any given time so when a balloon hits, they have just as much interest as I do in making sure I can continue the payments. We are not talking hard money here. They want to keep loans outstanding. They do not make money with points. They want to lend money.

My banker told me once..."If you owe a bank 50k and can't make payments you are in trouble.... If you owe the bank $1mil and can't make payments the bank is in trouble." They do not want your house. They want the stream of income from the loan.

Hope this helps. Not sure if I am even on topic anymore.