All Forum Posts by: Brian Stephens

@Shane Craig Hopefully you have had some luck with finding a lender but as others have mentioned, you will absolutely have to go through a local bank or credit union.  When you call make sure to ask for a commercial loan officer so that you are sent to the correct person.  Because of the commercial space and the size of the loan, a commercial loan will be your only option.  If you have never gone through the process of getting a commercial loan it is a completely different animal than a loan on 1-4 unit residential investment property.  Every lender will have slightly different requirements so if you don't find what you are looking for keep dialing.  There are some loan limitations that are true at 95% of local commercial lenders:

- LTV is almost always based on the Appraised value or purchase price + documented improvements, whichever is LESS.

- Maximum fixed rate term is typically 5-10 yrs and payments are amortized over 20-25 yrs instead of 30 yrs.

There are others of course but these two seem to surprise clients the most if they are new to commercial lending. 

@Rob Bergeron

Now they need to get rid of the "No Fault" clause required in KY and we could cut our rates in half!

@Dana McCahan

Sorry to hear that you are having issues refinancing your property Dana.  I do want you to know that you are not the only ones having issues with refinancing a home where you are doing Airbnb.  Unfortunately, this has nothing to do with any particular bank's lending guidelines, as you are finding out it has to do with Fannie Mae which is a quasi government entity.  This entity classifies residential properties into three buckets Primary Residence, Secondary Residence and Investment Property.  Prior to the Airbnb phenomenon any residential property that was generating income was considered an investment property (Which have completely different lending guidelines) and that used to be fine because 99% of the time that was true.  Now that isn't true but since government rule changes tend to happen about a decade or two after the problem arises we are currently in limbo.  It appears that some national lenders are finding workarounds (Bending the rules) which I would personally have no issues with using to finance a property I owned if the lender was willing to do it.  There is no negative effect on the owner, it just adds risk for the lender.

The pitfall you have ran into with this loan is one I haven't heard mentioned on BP before which is giving too much information during the application process.  It is extremely easy to unintentionally give information that adds an entirely new level of scrutiny to a loan when you were only attempting to be helpful by telling your lender how responsible you are and/or how wonderful the home is that they are writing a loan for.  Once information is added to a loan file it is considered the absolute truth and can never be changed without providing a signed letter of explanation stating what is true and why the previously stated information was not and may also require third party verification depending on what information is being changed.  

If you are going to look for a lender locally you will find some options for a home with Airbnb income but based on what I know is available you will have to make some compromises to get it done because you will have to go with a lender that does Portfolio loans.  This is a loan type of loan that the bank has chosen to not sell to Fannie Mae which gives them the ability to change the standard guidelines they are comfortable changing.  The compromise on your part is that you are not going to get a rate locked in for 30yrs.  You are going to get a rate lock for 3,5,7, or 10yrs depending on the bank.  The best rate is going to be the 3yr lock and goes up from there.  The loan amortization period varies as well from bank to bank and may be 20, 25, or 30yrs.    There are advantages to the 20/25yr as well but don't want to get into the weeds any more than I already have on the forums.  I'm glad to help give you some options if you aren't able to close with your current lender.

@Jeff Byrne

Seems like the perfect time to house hack to me Jeff. Buy a place with 2-4 units and live in one while renting the rest. You can pay down your school debt faster because your renters are covering your housing costs and you will gain some valuable experience as an investor.

Dan McIntyre at Republic Bank does a great job as well.

Louisville lender here. As everyone has mentioned, you can transfer your home into an LLC but you can't transfer the mortgage. To get the mortgage out of your name you would have to refinance it into a Commercial loan. Depending on when you financed the home, the rate on a Commercial loan would likely be similar to the rate you have now but there would be closing costs involved. The only time I recommend doing that is if you have hit the limit for mortgages in your name.

There was a change this year about the Due on Sale clause. If you closed your loan after June 1, 2016 the clause can no longer be triggered by transferring the property into an LLC if it is an investment property. There is an article about this on the Bigger Pockets site posted by Scott Smith on 8/15/2019 about this if you want more information.

Congratulations in starting your real estate investment adventure! 

You are correct Adam. A 5 unit building would need to be financed with a commercial loan. The most common loan term for a commercial loan is a 5yr ARM with a 20yr amortization like you have now. One significant difference with commercial loans that investors who are new to commercial lending don't realize is that the LTV is typically based on the purchase price or appraised value, whichever is the lowest.  Typically, 3-5yrs after purchase, banks will take accept the appraised value if it is higher.  Do keep in mind that every bank is different when it comes to commercial lending.  You will have some very common practices but if you go to 10 banks for a commercial loan you will have 10 different sets of guidelines.  This is a hard concept for new investors to wrap their mind around because when you go to buy a primary home for yourself, every lender has the same guidelines and all you really have to shop for is rate and maybe closing costs.  Honestly, it is easier to understand commercial lending if you forget what it is like to buy a home and think of it as borrowing money from your friend to buy a car.  Your friend will come up with terms that they are most comfortable with and those terms may be flexible and they may not.  If you don't like their terms and they aren't flexible, ask another friend.

@Shawn Harvey

Lenders typically are not interested in being in second position on an investment property. If you find one that will you better brace yourself for the rate and fees because they are going to be off the charts. You can do a commercial line of credit on a property but that would have to be on a property with no other debt. The only way to pull equity out of an investment property that has a mortgage and get reasonable terms is by refinancing.

@Matthew McNeil

What most investors don't realize is that in banks / CUs loan officers are not able to provide you with every loan product the bank offers. What the loan officer was likely really saying was that THIER bank requires you to own your home to qualify for the loans that THIS LOAN OFFICER can provide. Who knows why they left this info out. This type of misinformation happens very often. They could have been uneducated about other options or maybe the loan officer they refer those loans to ate all of their Oreos that were in the break room while they were on vacation!! It's hard to tell. Moral of the story is ask at least 3-5 loan officers at different banks before you accept a turn down like this.

I am a retail and commercial lender in Louisville Joel and you are going to have a hard time finding a bank that will fund a purchase + repair for an investment property. This is one of the solution hard money lenders provide for investors. They typically fund both for up to 12 months but the deal has to be able to support the high carrying costs because you can't refi for 6 months and your LTV will be limited to 75% when you do.