Use "Soft" Money lender then Refi? - Posted by Brian,WI

Posted by Brian,WI on October 10, 2003 at 08:55:05:

Don’t have to get “commerical” insurance on a duplex, that’s only for 5 units and above. I was a little concerned about getting insurance with the outdated electric, but have a good friend that’s an independant insurance agent that can get coverage with the understanding that I’ll be updating the electric with in about 45 days, which I was planning on any way.

Thanks for your help.


Use “Soft” Money lender then Refi? - Posted by Brian,WI

Posted by Brian,WI on October 09, 2003 at 18:14:44:

I have a 2/2 duplex under contract for $75,000. Average duplex sales is $125,000 in my community with more similar comps of about $110,000. This would be good No Money Down deal, if banks loan on comps not on the sales price right?

This is still a pretty good deal although I want to clean it up some with about $6,000 in each unit. Rents will then be about $525-$550 each and there are separate utilites.

I’m going for conventional financing because the seller wouldn’t take my lower all cash (my own) offer. Here’s the thing and correct me if I’m wrong…Because the purchase price is just $75,000 there is a REAL GOOD chance the appraisal will come in at about $75,000 correct? Or do you think that with the ligitimate comps I may get more? Either way this lender wants 80% LTV and then will only give 80% on the $75,000 or $60,000, if that’s how the appraisal comes in. So much for No Money Down.

Now I have a “Soft” money lender(soft because the terms are very good-9.5% and 2 points), where I can get the $75,000 and some of the fix up costs. I guess I should go this route correct? By doing so I’ll then be able to do the fix up and go back to my conventional lender and should then be able to pull just about everything back out and pay off my “soft” money lender because at that time the appraisal should come in closer to the comps of $110,000 don’t you think? This would then be closer to a No Money Down deal.

Is my thought process correct on this?



Re: Use - Posted by Dimpil

Posted by Dimpil on October 09, 2003 at 18:55:32:

No, the appraisal is based on the best comps on the selling price. Most traditional sellers get an appraisal or market analysis from a realtor that is how they come up with an asking price. If your comps are comperable and are selling for 200,000 then that is what you’ll get and the appraiser will just think you got one heck of a deal!

Hard money lenders us the after repaired value and give you a loan. Most conventional lenders will use the selling price for your refi, not allowing you to pull money out till you have been on title for 12 months. Freddie Mac will allow you to one day refi using appraised value but not cash out for 12 months. Non conforming lenders, you got to shop around.

Re: Use & a little confused - Posted by Brian,WI

Posted by Brian,WI on October 09, 2003 at 21:01:28:

Sorry I sound so confused…

Are you saying that if I have legitimate comps of $110,000 and I’m buying for $75,000, my conventional lender will give me 80% of the $110,000 and I should just go with them?

If that’s the case, that’s what I’m looking for and it will be a No Money Down deal then. Or am I missing something you are saying?

By the way, this is a FSBO. I don’t know how or why they came up with their price of $77,000. No duplexs have been selling for that little in this city for a while!



Re: Use & a little confused - Posted by Dimpil

Posted by Dimpil on October 09, 2003 at 21:18:47:

No, I’m sorry, they will base everything on the contract price. When you refi with a Freddie Mac lender they can base your refiance on the appraised value. 2 transactions your 1st purchase then your 2nd refiance.

To be safe did you get a home inspection? They may know something you don’t. Or they could just want to get out.

Re: Use & a little confused - Posted by Brian,WI

Posted by Brian,WI on October 09, 2003 at 21:32:07:

Home inspection was done today. What I figured…furnaces old, but functional, and electrical needs updating, new carpet/paint, etc. Really nothing to be too concerned about.

Old guy with Parkinsons is selling. He can’t be to affected by that cuz he’s wasn’t too flexible with anything. He had “rough” tenants in there. One gone and vacant unit, the other gone shortly after closing.

To be sure…are you then suggesting I use my “soft” money lender to get as much as I can, or do you have othter thoughts?



How 'bout carry-back? - Posted by DaveD (WI)

Posted by DaveD (WI) on October 14, 2003 at 12:46:24:

Brian, would your seller take 20% LTV 2nd? Then you’re in for nothing plus your fixup. Refi after lenders are satisfied with seasoning. This way, your seller gets 80% of what he wants up front, the rest a little later.

Re: Use & a little confused - Posted by Dimpil

Posted by Dimpil on October 10, 2003 at 05:21:00:

Yes, get as much as you can to fix it, then refi, I’d say after you fixed everything and update and get some new tenants then get a new appraisal, it may come in higher.

Also what about the commercial insurance, they usually want furnace and wire updated if the building is over 30 years old.

Re: Use & a little confused - Posted by Nate(DC)

Posted by Nate(DC) on October 09, 2003 at 23:41:28:

I think no matter which route you go initially, it sounds like a few months down the road once you’ve finished the rehab you’re going to refi to max LTV based on the appraised value.

In that case, the only question really, is do you want to put $15,000 down in order to save 2 points and have a lower interest rate for the first six months, plus spend the rehab money out of pocket? Or would you rather pay a little more for the money but keep more cash in the bank?

That’s a decision only you can make depending on how you feel about your money and what else you might need it for in the interim. I am always in favor of financing as much as possible, particularly because 9.5% and 2 points is fairly reasonable. I’d probably do that, but that’s just me; it might not be you.

As far as that refi goes, once you’ve rehabbed - you CAN get cash out using appraised value, and you do not have to have owned it for a year. I just did it earlier this year. The lender was Greenpoint Mortgage.