All Forum Posts by: Michael Ede

Thanks for the reply. Yes there are a couple of issues.

As for the twelve months of cancelled checks they said it was for verification of mortgage payments. I have actually owned the property for about nine months.

I had thought a SFR with an ADU was basically just a SFR for mortgage purposes. I guess they are somehow confused about something. She had said, "We would not be able to finance a property as a triplex with and ADU on the same property." I don't know what that means as it is single family; I thought maybe she was imagining it as a multifamily because of the ADU, but if anything that would make it a duplex.

Has anybody ever had trouble getting financing on a property because of an ADU?

I have a single family residence in Washington State that I have been in the process of refinancing for a few months, and the bank just emailed me to say they cannot do the loan because there is an ADU on the property. Is that a common issue? I thought an ADU was a pretty normal thing for a property to have but apparently I was wrong. One other lender I had spoken to had seemed very confused that there were two houses on the same property.

They also said they couldn't do the loan because I needed 12 months of cancelled checks for the current loan, and I only gave them three months of cancelled checks because the loans are not twelve months old and I've only been making payments for 3 months. So apparently this bank is unable to refinance a property with an existing loan that is less than twelve months old? Seems strange to me.

One other thing: the estimate they gave me lists a loan discount fee of $5400 for 1.190%. So I gather they are having me pay down the rate in this estimate, and otherwise the rate would be over 7%.

How much higher are rates for a cash out? 

Thanks for the reply. It is a single family home. 

I’m getting ready to rate shop for a mortgage, and I was curious if the one rate I’ve been told is realistic.

I’m doing a cash-out refi on an investment property. It’ll be a $450K conventional 30 year with a loan to-value-ratio of 65%.

My credit scores are 717, 715, and 705. The one lender I’ve spoken to so far told me my rate would be 5.875%.

I know I’ll find out once I start talking to other lenders and shopping around, but is this a reasonable rate for this kind of loan? It seems high to me. I know an investment property mortgage tends to have a higher rate than a primary residence, but is there some other rule I don’t know about with cash-out refis on investment properties that pushes the rates even higher? Or am I wrong in thinking 5.875 is rather high?

Thanks!

I guess I’ve never seen a foreclosure up close, so maybe I’m misunderstanding how the process works. I would have thought that after six months of not receiving any payments you would have already foreclosed and gotten the $250,000. 

When I talk about equity I’m talking about the as-is value. Oddly enough the hard money lender offered to buy the property as-is.

Is there a local hard money lender you’d recommend? 

Thanks for the reply. 

Like I said, an “interest reserve fund“ might make sense to me in some situations. But not in a situation where there is already a lot of collateral. Interest reserve fund basically means you will at least get your first 6 months of interest payments. If your $150K just turned into $400K, then why do you care? It doesn’t make sense to me. People do loans where the property is being bought for full price all the time without “contingency reserves.”

And, as for the “holdback,” the idea that the person who gains a quarter of a million dollars if I run out of money gets to decide if and when I get my money? That is ridiculous.

And most importantly, this guy had things set up so that I would not get any money from the loan. He would get the lien on the house and I wouldn’t get money for fix-up, money for reserves, or even money to pay the interest (because “interest reserve” doesn’t mean I don’t have to pay interest.)

Will try not to waste people’s time with unnecessary details. Basically, I am embarking on a project where I am entitled to 50% of the property, and I am needing to use hard money to borrow fix-up costs to get the property out of a distressed state before obtaining permanent, conventional financing. The hard money loan is for $150,000. The important thing is, after applying the new, first-position lien for the hard money loan, I would still have about $250,000 of equity in the property.

So I just emailed the hard money lender two questions about the “loan charges” listed on the not-yet-finalized settlement statement that the Title company just sent out, and I’m a little concerned by the responses. Is there something I am not understanding about this?

(1) A new, previously undisclosed “contingency reserve” for $9000 or 12% of what was supposed to be the funds to me from this transaction. I asked for clarification and he said, “That’s the interest reserve.” Why would there be an interest reserve when the collateral is already $250K?  Mathematically, it seems to be six months of interest, but . . . someone is afraid that they are ONLY getting $250K from a default rather than $259K? I’ve lent money before and there was no “interest reserve” for me. The idea seems somewhat silly to me. “Prepaid interest” is a thing: that means my first six months are paid and I don’t have to worry about paying for six months. But with this they will surely foreclose on me if I don’t pay the first month or two. So . . . basically I’m just borrowing less money at a higher interest rate, right? This kind of thing only makes sense to me if the lender needs to collateralize the loan somehow; if the lender is already turning $150K into $400K why would they need to further collaterlize the loan? Are they really trying to protect themselves in case of default? Or are they trying to encourage default by reducing my funds?

(2) There was a previously undisclosed “draw holdback” of $60,000. I asked what this is, because I didn’t know, and he said, “I can remove the $60,000 holdback and release all of it to you.” Gee, thanks. The new $60,000 holdback and the new $9000 reserve are equal to more than 100% of what the funds to me would have been. So . . . you’re just trying to get me to default, right? I mean, after I asked about it he generously offered to let me have the money I was paying to borrow, but if I hadn’t said anything he’d be getting first position lien on the house while giving me literally nothing in return.

Am I missing something? Or is this as dodgy as it seems to me?