Who do you use to Refi out of Hard Money

Question

I've always had the mindset that it didn't really matter who I refinanced by BRRRR properties with because interest rates would be pretty universal. As I get ready to refi my latest purchase.  I am curious, do you think it is worth the effort of interviewing multiple banks?

Jonathan Taylor · Answer

@Taelonn Harper absolutely shop around. The best mortgage professionals are not just selling rates, they look at your file/property/goals and advise you on how to better maximize they loan system that they know so well. Many times clients call me and say they want one type of loan but we can accomplish or exceed their goals with a different strategy.

Do you have any other questions? Happy to help.

Mordy Chaimovitz · Answer

This is an important question based on the premise that interest rates are pretty universal.

lets evaluate your portfolio for a moment and see if this is really true.

Are you looking to refinance one property, or a portfolio of a few properties?

Is your property a single family or a multi?

If you have a number  of single family homes or a multi-family building with 5  or more units you can refinance with a commercial loan. In the commercial lending world, rates are anything but universal.

A portfolio of SFRs can be refinanced with a blanket portfolio loan using a local bank or credit union.

These lenders often base their rates on  different benchmarks and spreads which can get you varying results.

Just as an example, I got 2 different qoutes from banks this week on the same property. One qoute came in at 5.9% (yes i know prime is 7% today) the other came in at 6.75%. That is a difference of 85 BPS! (These lenders don't use prime as a benchmark. They aften use the treasury yield or SOFR and add 2% or 3% on top of that to come up with their rate)

In addition, Rate should not be the only factor in choosing your loan. Amortization is a big factor as well. If one lender will offer 20 year amortization at a lower rate, while the other might offer 30 year amortization at a higher rate, you might be better off with a higher rate amortized over 30 years, because it will increase your cash flow.

Recourse vs Non Recourse is another very important factor in choosing a loan. Many multi-family properties can qualify for Agency Non recourse loans. This means that if for whatever reason there is a default of the loan, the lender can only collect from assets owned by the LLC not the individual.

Also keep in mind prepay penalty. I just had a client that chose a higher rate to change his prepay penalty from yield maintenence to a step down prepay because that was a better choice for his exit strategy.

Lastly. when you are looking for a lender, look for someone that works for you. not for a bank. A good mortgage broker should look out for their clients and work with them to get them the best terms for their deal. Not just in the short term by selling you their rates, but in the long term by giving you knowledge.

Stephanie P. · Answer

Rates, fees, loan products and guidelines are not the same lender to lender. That's why you need a mortgage broker to get on the phone with you, find out the nuances of the deal and they'll let you know the best lender for your loan.

I looked at a loan yesterday; a refinance in Ohio with some hair on it.  The rates were all over the board.  This list is from 4 different lenders.  I didn't even bother with 3 others that I regularly send loans to because, after speaking to the borrower, the loan wouldn't get through their underwriting.  The borrower's goal was cash out without a lot of emphasis put on cash flow.

• 1.  Loan amount of $132,000.  8.25% interest. 3.25 points.  Initial payment $992
• 2.  Loan amount of $150,000. 7.875% interest rate.  4.25 points.  Initial payment $1092
• 3.  Loan amount of $140,000.  9.99 interest rate.  2 points  Initial payment $1,228
• 4.  This one only debt-services at 65% LTV for our 5/1 ARM and we can accommodate this at 8.25% + 4 pts or we can accommodate 75% LTV at 10.5% + 4 pts or 10.99% + 3.5 pts for our 1 or 2 year bridge loans."

The deal is marinating right now, but he'll probably go with option 2 for the cash out.  He's not too worried about the points because for $1500, he gets an extra $18,000 in cash.

Hope that answers your question

Stephanie

Robert Finn · Answer

When I cashed out refinanced on my rental, I looked for collateral based lender that had the least amount of fees to originate, no seasoning period, and highest LTV. Communication is also just as important, the last thing you want is to work with a lender who is impossible to get a hold of, and cannot meet deadlines.

Matthew Crivelli · Answer

@Taelonn Harper

You should be shopping rates. I have seen a major spread lately. Some DSCR lenders are in the mid 7's, some are in the mid 8's, I've seen term sheets at 10%. You will also find differences in the actual coverage ratios, anywhere from 0.8 - 1.4. Never hurts to call around and get a feel for what the market offers, could save you a ton over the long term.

Tarik Turner · Answer

Unless you found a lender who you are comfortable with in regards to process, response time and terms, keep shopping. Business relationships are just that... Relationships. Find a lender who's guidelines and lending criteria meet your needs as an investor

Eliott Elias · Answer

Shop around, you will see that the only thing that differs is points paid and likability of the person you are working with.

Erik Estrada · Answer

Might want to look into working with a mortgage broker instead. It will keep you a lot more organized, especially in this market. You also don't want to risk paying unnecessay interest to your hard money lender if the lender you choose for the exit strategy sold you on the rate and can't fund the deal.

Who do you use to Refi out of Hard Money

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