All Forum Posts by: Ryan Murphy

@Jay Hinrichs One more question - can you use a commercial lender from another state? I know you can use an HML from another state, I'm assuming it's the same situation? And for that matter, can you use an out of state lender on your personal mortgage (I'm assuming not)?

Follow up to the first if the answer is yes ... any banks you recommend, or are they the ones you listed in your post above?

Thanks again!

@Jay Hinrichs - of course ... I overlooked the word "commercial" in your previous post, and everyone else seemed to be talking about personal LOCs, which is what I called around for.

Now that that's cleared up, what are the basic requirements for getting a commercial LOC to get started?

Also, I'm assuming you need to have a business to get one ... will a sole proprietorship work, or do you need to set up an LLC?

I'm sure I'll get answers from commercial banks, too, now that I'll be calling some.

Thanks!

@Jay Hinrichs - Can you clarify how the FICO reporting is or isn't done / required?  I've asked around a few banks and the reaction I've got so far is a little bit of surprise that any bank wouldn't report to FICO.  I mean, I understand the advantage if what you're saying is true, but so far reactions have just been "what are you talking about, I've never heard of a bank not reporting to FICO, etc.?"  One person thought regulations require it, which to me makes sense ... but if you've done it, I certainly want to figure that out, too!

I'm in Seattle, BTW.

Thanks!

Yes, I've checked into that as well. My understanding is that if you are going to get traditional financing (meaning any loan that is conventional (FNMA, FDMC), FHA or VA), ALWAYS attaches to you as an individual, regardless of if you have an LLC or say it's an investment, etc. The only way to get a loan where it's attached to the property and on your LLC without any guaranteed signer is to do a non-traditional lending like a commercial loan or hard money lender. The problem is you can't take advantage of the rates you can get when it's tied to you as an individual, and your down payment would be higher.

Your best bet is to do it in your name as owner occupied and get the benefit of the best rates and low down payment. Later on, you can decide to move out when you don't want to live there anymore, and you can also try quit claiming title to an LLC you own, but technically it will still be tied to you as an individual. Otherwise it would be considered a sale to a new entity, and the bank could call the loan due ("due on sale" clause).

Don't know how far you went with this, but my input/question is about the loan ... if you can get a loan yourself instead of a hard money loan, you're way better off.  The Homestyle renovation loan would be between 4-5.5% or so, NO POINTS.  You have options with points, but if you're going to flip the property, the rate is less important, so try to get higher rates where they rebate you points.

When I look at the details of your loan, it makes me think you have the wrong loan type ... you don't need a hard money loan for 3-5 years.  That must be why you have to pay so many points and a pre-payment penalty.  If you can't do traditional financing (which is always the best first choice, so Homestyle which is conventional, etc.), then you want a hard money lender that is for 6 months, maybe a year max.  If you're going to sell it in a few months, you don't need to be paying 4-6 points plus pre-payment penalty.

Look for a hard money lender that is 3 points, 12% for 6 months.  Use that as your base and shop around.  Oh, and 20% down max ... hopefully less.

Regarding the $10K profit - hopefully it's more than that ... 3 points is $4500 already on a $150K loan.  The upside potential needs to be much higher to make that worth the risk.

Couple more thoughts ... @Eric M. is right about timing, I've been quoted as fast as 2 weeks and as slow as 4-6 weeks for HELOCs. Also, the 100% LTV I mentioned is usually only allowed on owner occupied homes, so hopefully that's the home you own 30% equity on. But again, you can always ask around and see what banks are offering what options.

Once you secure the cash you need, I agree with @John Hamilton concept - sell or hold, this is dominos, once you get one property done (the one that needs the least amount of cash to finish), you can re-fi or get another HELOC and that cash will pay for the next, etc. etc.

Good luck, I hope you hit it out of the park!

Don't give up on the HELOC - like I said, I did find a bank that would count rental income from a new purchase that isn't even rented yet, so your two or three new homes could qualify for that, helping your DTI. You just have to find a bank that will allow it. The one in WA State I found was Homestreet Bank. They said they do a rental market evaluation, it's kind of like an appraisal but for the value of the going rate your property could rent for instead of what it would sell for, and then they ADD that to your monthly income, offsetting some or even all of the debt of the mortgage for the same property. If your rent numbers are good, then you could be in good shape after all.

Also, as another option, I literally just asked this question to a lender yesterday - you can buy out the homestyle renovation loan before it's been completed, so that should mean you could get a hard money loan to simply buy it out completely and be in first position.

That being said, I'd pursue the HELOC option first, keep the hard money option as a back-up option. The HELOC won't charge closing fees or points, and the rate will be much better. Plus your payments will be interest only, reducing your monthly debt compared to hard money. You'll lose a chunk of change on the hard money option with points and their rate, and a higher monthly payment.

Try a HELOC on your home that you own 30% equity on. Shop around, I've found a few banks that will allow 100% LTV (in other words, they will loan you the remaining 30% value of your home). Rates are a little higher when you go for 100% LTV, but still reasonable (maybe 6-8%), and you only pay interest on what you use.

Also, you typically have 15-20 years of interest only payments on HELOCs, so you're paying a lower monthly payment (and you always have the option to pay the principle at any time). You should be able to find HELOC options with no prepayment penalties and no closing costs. I've found many that don't charge an annual fee, and some won't even charge for an appraisal ... sometimes they don't need one to qualify you. Just shop around.

That being said, they still base their ultimate decisions on your DTI (Debt to Income), so with the other loans in your name, you might not qualify. I got different results from different banks ... we own a rental property with just under 2 years rental history, and one bank wouldn't count that as income, while another told me they'd count the current rental market income even if it was a brand new purchase and hadn't even been rented yet. So that's a possible option to help your DTI when including the additional mortgages you have on the two or three new homes.

If you don't want to do a renovation loan, then one option you can consider is to negotiate with the seller during the closing process.  You can first try to buy it without any repairs and see what a bank appraiser says.  If the bank appraiser says it's not habitable, then the bank won't finance it.  You can then offer a higher price based on the seller getting the repair work done.

It's kind of a long shot, especially depending on how much work needs to be done to pass financing, as the seller may not want to do this; it's money out of pocket without a guarantee that you will be able to buy it - after all, nothing's guaranteed until the closing docs are signed.  Plus, if it's a bank owned property, you can probably forget about them doing any repairs.

But at the very least, you can try it, and before you have to make that decision, you will know what the appraiser says is required for the bank to finance the property, so maybe that portion of the work will be minimal ... or maybe you'll be surprised and it will pass financing.  We just bought a property in that same predicament ... I thought it wasn't going to pass financing, so my back up plan was to change the financing to the Homestyle renovation loan, but it passed financing so I didn't need to change the financing.

If the seller is willing to do repair work, I think you can do a "hold back" on purchase funds to go towards the repair work ... in other words, title would allocate those funds to the construction company that does the work (based on a fixed bid, I would think).  I don't know a lot about the details, but enough about the concept to mention it.

I second looking at the Homestyle renovation loan instead. I don't like FHA, I think it's main use is for people with lower credit scores to be able to qualify for a bigger loan (I think the DTI ... Debt to Income ... threshold is lower). But it costs more than Homestyle in the long run. I also agree that you can refinance, although you are betting on what the future loan rate will be.

Also, you may need to check on the minimum down payment ... for multi-plexes, the down payment is higher for a Homestyle loan, not sure about FHA. If FHA allows 3.5% down on a multiplex, then that's actually a bonus.

I agree with @Upen Patel, although in my experience, you can "roll" your first payment or few payments into the loan while construction is getting finished.

One other thing you may want to look into is if your state (or any other local organization) has a downpayment assistance program.  In WA State, there's a program like this that allows you to basically get a second mortgage to cover up to 100% of the property value (i.e. if you had to put 5% down, the second mortgage could cover that 5%).  Sometimes even a little more, to help cover closing costs, or something like that ... there are restrictions on what you can use excess money for.

My advice is get a bunch of quotes from a bunch of lenders and study up on your loan options, and you should be able to figure out how to pull the trigger and make something happen.