All Forum Posts by: Javier Mercado

Taking out equity should be simple if the properties are paid off and you're still working. 
Conventional refi-cashout options are likely the most cost effective way to get funds out.

There are also HELOCs and HELoans available but the rates could be higher and may be variable depending on which you choose.

My recommendation would be to discuss options with a mortgage broker (like myself) and going through the best terms available for what you're looking to accomplish.

Let me know if I can be of any help sorting through your options.

Alex,

Securing a home for yourselves can be a great way to start. It will at least give you piece of mind to keep your housing payment steady. Conventional financing will give you the lowest downpayment / interest rate options, it just depends on your budget. 

Whether you choose a single or multifamily, you will want to add about 3-4% of the purchase price to account for closing costs in addition to your downpayment. This will cover title, appraisal, transfer taxes, escrows, and any other miscellaneous fees for the loan.

Obviously Multifamily is the "kill two birds" method but you can run into an availability of inventory issue. Lets run the numbers and see what makes the most sense for your situation. A year is plenty of time to game plan.

You would probably need to do a combination of 2 things. One is going to be private / personal funds- this can be friends/family, personal loans, flipping couches etc. Come up with 15% + closing costs, then get a hard money lender to give you a loan based on 85% of the purchase price. Some will give you 100% of the rehab money up to a certain dollar amount even for beginners.

Most hard money lenders don't vet where you get the funds from as long as you can come up with enough at closing.

To address your second question, you can Refi immediately after the renno is done but if you want cash out you need to wait 12 months after the purchase before taking cash. You can get a conventional loan but at the time of closing the Deed needs to be in your name, then after closing the conventional loan you can switch back to the LLC.

Good luck! DM me if you need any guidance on financing strategy.

The purpose of the self sufficiency test is to ensure that it is truly "self sufficient" - this means with no influence other than the rent assuming you have zero income. This is a requirement for FHA to insure all 3-4 unit properties.

My recommendation would be to get the comps swapped out or adjusted on the appraisal. Get your agent involved and submit a reconsideration of value with the lender.

Rates are certainly tough in this economic climate, the best way to shop for mortgages would be through a broker. Depending on your situation and how many properties you currently have you should still qualify for conventional financing with limited origination fees.

Broker charges typically will be in the 1.75-2.25% range depending on the deal but you should be getting PAR interest rates (what they sell for on the secondary market with no spread)

I’d be happy to shop and make sure you’re getting a good deal. PM me so we can discuss.

What kind of financing are you getting? FHA, you're stuck with the appraisal.

If its another type of loan, you'll want to look at the appraisal in great detail. The lender may not allow you to just order an another appraisal if the comps are reasonable. You'll need to sell the appraiser on why the property is worth more. 

See if there are any erroneous adjustments for condition, sqft, etc. If there's opportunity to make up some value in the adjustments, it could help bridge that gap. The next thing you want to do is try to find comps that may be slightly over on the parameters (i.e. extra bedroom or sqft, pool, etc). If they're at higher price points, perhaps the appraiser is willing to adjust downward. 

Without justifiable reason to dispute/order another appraisal, its going to be difficult without receiving credits from the seller or coming up with the extra cash.

Perhaps syndicating the remaining funds or getting a piggyback second will help keep the deal alive.

Good luck!

Hey Stefhan,

I have access to some comp tools through my lenders that will give you an idea on general value and rental comparables. It pulls the data from the MLS.

Send me a DM with the address and I can try to get you the info.

It all boils down to risk. FHA/VA loans are backed by the government up to a certain percentage, so in the event of default the lenders are guaranteed to receive a portion of the principal back.

Conventional loans have "adjustments" based on the borrowers criteria & property. You'll see the most movement in different scenarios on conventional loans (credit, LTV, first time home buyer, etc), where government loans don't fluctuate much on the spectrum.

FNMA guidelines state that the original borrower needs to be a managing partner in the LLC and the occupancy status must be honored if you intended to occupy as a primary residence (typically 12 Months from note date).

I’ve had clients do this in the past with no issues. Be sure to check with your servicer and be transparent in what you want to do.

FHA for owner occupants is certainly the most popular loan product for small multifamily if you're looking to preserve cash. Most people will qualify with 3.5% down and the rates are pretty solid.

As someone mentioned above the property would need to pass a “self sustainability” test. This is essentially saying the market rent needs to be equal or greater to the total mortgage payment (collected during appraisal). Make sure you have a realtor that can evaluate comps and make sure the numbers work for you.

You can always refinance at a later time to remove the PMI, especially if you add value to the property and increase rents.

Conventional multifamily will typically require 15-20% down and rates aren't as competitive as FHA. The upside is Mortgage insurance is typically cheaper with conventional loans and you only need to reach 20% equity to have the MI drop off.

Best of luck!