All Forum Posts by: Kevin Romines

The loan type that you are referring to is a DSCR loan. It stands for Debt Service Coverage Ratio. Basically it means that underwriting is comparing the rents versus the PITI mortgage payment. So long as the rents are 75% to 120% of the PITI mortgage payment, that is the only debt ratio that is looked at. No income or employment is put on the loan application. The LTV is determined by your credit score and what the ratio is on the rents versus the PITI payment.

This loan is not a construction loan, this is only for existing properties. If you need construction financing, you will need to do a hard money / private money loan. These loans are equity based loans. So the fact that you own the property outright, and you will do some of the work yourself at a discount from what a GC would charge should give you sufficient equity ion to the deal. They will base their max loan amount off of the ARV After Repair Value. Typically a ground up will require a max LTV of 70-75% of the ARV. You expect an $800,000 value, so that would be a max. loan of $560,000 to $600,000. Also, most hard money lenders that do ground up construction, don't like to fund horizontal improvements. They want a loan that has the horizontals in place, such as the water, power, septic or sewer connection and permits in place. So you may have to come out of pocket for those items to then get funding to go vertical.

Once the home is complete, you can then refinance out to a DSCR loan for long term financing, 30 years. Once you have enough income coming in from your rentals, then you can get conventional financing, but you will need that income to show up on tax returns, so it could be a couple of years that you would be in the DSCR loan before you can get into a conventional loan.

All said and done, this is your path way.

I hope this helps. 

Well, you can't do hard money as your plan to live in the home and hard money / private money is strictly for investment purposes. That said, you can do and FHA203K or a Fannie Mae Home Style Renovation loan or any number of owner occupied type renovation loans offered by various lenders. The loan will take longer to close due to the bids required, the license contractor that will be required. On these loans, no self help is allowed, you wont be able to do any of the work yourself.

You can call a few credit unions to see if they allow self help. This is the sticking point with these kinds of loans as an owner occupant.

If you were to buy it as an investment, you could use hard money and close the loan in 7-14 days. Do the rehab and then refinance out to a buy and hold type scenario, or you could sell it / flip it. 

I hope this helps?

Good question, the answer is no. You are only responsible for costs that occur such as the appraisal, if and when it is ordered. All other costs will not and can not be charged to you if you decide to not do the loan.

I hope this helps?

What city is the 4 plex located in? Are you sure it is a Jumbo, considering the SFR max. loan amounts just went up, early for 2023? You roll all closing costs into the loan on refinances. If you want to talk about the details, connect with me, I'd be happy to go over them.

Yes, most lenders have minimum loan amounts for each individual home due to laws that restrict what they can charge for fees on the loan as a percentage of the loan amount. To be specific, the law states that an investor can not be charged more that 5% in Origination, Processing, Underwriting and discount points. Its the discount points, especially right now, that is causing the problem. 

Lenders get their rates from the investors that will own the loan. The fed tells investors what rates they are allowed to charge every time they raise the rates. The investor has costs, so that is built in to the rate via discount points when passed on to the retail arm. The retail arm has costs that are shown out in the fees. 

A loan of less than $100,000 makes it near impossible these days to squeeze the limited fees the retail lender charges for origination, processing and underwriting in, because the discount points are so high on these loans. So when you have a individual loan amount less that $100,000 it becomes near impossible to get all fees and discount points in the loan at 5% or less, mostly because of the discount points required on the loan. 

So what is the next logical question (I recently asked this of my lock dept.) Why cant the investors give us higher rates with less discount points so its easier to be in compliance with the 5% rule? It is because the Fed controls what the range of interest rates that the investors can charge. The fed wont allow the higher rates with lower discount points to be offered. 

A BS move by our Fed and Administration, but now you know!!! So our loans require each property in the portfolio be worth at least $125,000 to get a minimum loan amount of $100,000. Most lenders are in that same boat. 

I hope this helps. 

This will take a bank that is used to doing these kinds of deals, most banks and loan programs wont allow a seller carry back. I would look at small community banks or credit unions. Take the time to burn up the phones finding your lender. it will require many calls. and be very direct and to the point, asking them if they will allow a seller carry back on a commercial loan. be prepared that even if they do allow it, they will still want you to have a certain amount of skin in the game. 

I hope this helps. 

Remember, if you assume it, that sellers entitlement is still charged with the amount of his original loan amount, so that makes doing this kind of thing difficult to find a seller willing to do it. Yes, you get their better rate, so its attractive to you in that aspect, but you will also need to bring cash to the table to cover the difference between what is owed versus what the house is bought for. Are you prepared to lay down what could be a large sum of cash?

I hope this helps?

I would not do a JV if he is willing to carry back the $300K as a 2nd mortgage and it sounds like his is willing. Adding him to your LLC or creating a JV situation just adds headaches and confusion to the deal. You want to be the only one in control, not having to listen to some outside voice in the future matters.

That said, most commercial lenders will not allow a seller carry back on the deals they lend on, so you will have to nail down that piece with a lender that will allow it. Do plan to value add to the property in some way, forcing appreciation, or bring rents up to market rents? What is your game plan there and what are your future projections for NOI and value?

I hope this helps. 

Your best option is hard money or private money. They will fund up to 80-90% of the purchase along with 100% of the rehab. Some lenders dont like it if the rehab is to big compared to the purchase price or the overall ARV. get a good scope of work put together so the lender knows what the details of the rehab will consist of and the costs associated as well as the expected time frame involved.

I hope this helps?

I wouldn't refinance, rates are much higher then that right now. I would pull a HELOC on the property to use for the rehab. Don't refinance until rates are at least the same as you have now or better yet, when rates are 1% lower or more than your current rate. I would focus on accelerating the payoff of the HELOC as much as you can, as its a tool to be used in your real estate investing career.

I hope this helps.