Posted by John Corey on April 19, 2006 at 18:45:26:
Tim,
Some folks are being sloppy here with terminology.
Did the banker call the property ‘commercial’ or did he really say it as non-owner occupied (NOO) residential. A single family home that is rented is income producing.
Commercial is defined as being 5 units or more multi-family or all the other things like an office building, shopping mall, etc. Residential is 1-4 units independent of if you are living there.
In your last comments you seem to imply the issue is the production of income and not the number of living units.
The loan has to be fit for purpose. If you want to live there then you can get financing as an owner occupant. If you intend to rent all the units then you should expect to pay the going rate for NOO residential.
There are people who borrow on commercial terms when buying 1-4 unit NOO property. They do so for a number of reasons. They are fine with a short loan term and the need for cash in the deal (or lots of real equity).
You want 100% financing. Are you intending to live in one of the units? A plex (2-4 unit building - normally attached but not always) can be financed on owner occupied loan terms.
Please recommend financing method for this - Posted by Tim in AR
Posted by Tim in AR on April 18, 2006 at 14:16:34:
The property consists of an updated 2,100 s.f. main house and a separate building which houses a 2 car garage, a 1 bedroom apartment and a 2 bedroom apartment. There’s also a garden house and another outbuilding, large city lot. It’s in a small town in Arkansas - this property would be $300k most anywhere else. Listed at $80k. I already own/occupy a house on this street which will rent for a positive cash flow. I’ll offer $72k, rent the apartments for nearly enough to cover the mortgage payment, use the savings to buy a big boat on payments and my girlfriend will love me even more grin. Local lender is balking because of the apartments - they want to make it a commercial loan. I have to buy this place with 0 down. My mid-FICO is 700, no debt, and I have great employment history. Thoughts?
Do an equity line or 2nd mortgage on your primary residence and use it for the down payment. Just roll with the commercial loan. 20% down payment is only 14K with 72K purchase price. Make the seller pay for all closing costs.
Payment would be 760/month assuming Prime+2 and 15 yr. term on BOTH loans. Assumes 80% loan on first.
I would suggest splitting up the property (survey) if the zoning comm. will allow. You have too many units (total of 5) and that is pushing it into commercial.
The best way to approach this is to do the loan on the main house only if it will appraise. If not, add the garage and hopefully the apts aren’t rented because then it will be treated as a 3 unit. You will need 2-4 unit comps if that is the case. 2-4 unit investment property loans are tough to find and are definately expensive(double digits).
Re: Please recommend financing method for this - Posted by Tim in AR
Posted by Tim in AR on April 19, 2006 at 10:38:49:
Yep, you nailed it. The detached building cannot be seperated from the house, it’s one lot. The garage/apartments just became a garage/guest house. I still need 100% financing.
Re: Please recommend financing method for this - Posted by John Corey
Posted by John Corey on April 19, 2006 at 09:19:39:
Gary,
I see a number of buildings but I do not see enough to make it commercial by many standards. There is a house and a garage/duplex. The other sound like outbuildings (garden shed for one). I would not see 5 units. I think there is 3 units and some outbuildings that should not factor into the count. Is that why we are ending up with a different view here?
Time needs to clarify why the lender wants to go commercial. It could be that the property has issues related to conforming to local zoning or other reasons why the loan can not be submitted as a tri-plex. Or it could be a local bank issue so another bank would step up.
Re: Please recommend financing method for this - Posted by Tim in AR
Posted by Tim in AR on April 19, 2006 at 15:51:59:
There are only two inhabitable buildings. The apartments and the garage are all in one two-story building. The garden house and the other outbuilding are small and crude. The local bank wants to call it an income producing property unless I can convince them the apartments are actually a guest house. Once I own the thing it’s no skin off their back what I do with it. Zoning isn’t an issue.
Sorry…didn’t read carefully. Actually it is a non-traditional 4 unit if the out building for the garden home does not have a residential or commercial vacancy potential.
1 - Main house
2 - 1 BR apt
3 - 2 BR apt
4 - Garden home
5? - Out building
Again, if you want 100% financing you will need this to be done as a residential loan. The least amount of units the easier it is to qualify for a 100% investment property loan. Another option is to ask for a seller 2nd. You may be able to attain 100% financing going that route also.
Call a mortgage broker in a larger AR city and ask if they have 100% investment property loans. Also ask about 100% financing using a seller 2nd.