Refinancing investment property

Hi brownstoners, I have an investment property that I bought about 6 years ago, and has an interest only loan for another 4 years. My payment will probably increase by $1000, or more, at this time. Right now I’m coming out a little ahead of the game, but am really concerned about what will happen when the payment increases as it will be a negative cash flow. My interest rate is currently 6.5 and I’ve spoken to knowledgable mortgate brokers and it seems almost impossible to get a refi as my credit is ok, not great. Does anyone have any suggestions of what I might do? I was thinking about loan modification programs, but those seem only for primary owners, and even then seem hard to obtain. I spoke to One West, the current holder of the mortgage, and of course they couldn’t care less as they are happy with their interest payment.  I’ve thought about changing some more of our bills to the investment property address and trying to make it appear as a primary residence, but even then the mortgage broker says that it’s tough as it’s not an FHA loan and so we can go the streamline route.. I really don’t want to lose the property as we’ve put quite a bit of $ and time into renovating the apartments, maintaining the building, etc…Any wisdom would be greatly appreciated!

greencat

in Mortgage 12 years and 11 months ago

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reader718 | 12 years and 11 months ago

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You say your credit is okay not great, what does that translate into a score?   How many units are there in the house you hold as an investment property?  What do you estimate the value of the house to be and what is the amount of the loan you need to refi?   When was the closing for your last refi?  These are all questions needed to be answered before you could get a quote for a refi.   Also, are any of the units rent stabilized or controlled?

Bklnite | 12 years and 11 months ago

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Since your previous post.. http://forum.brownstoner.com/question/rVVK*pqGfxg=/refinance-loan-modification–investment-propertysuggestions your rate dropped from 7.25% to 6.5%, so your current interest only loan floats with an index that’s .75% less – is that right?
I think you shouldn’t stress out too much about losing the property. You have several options…
-Keep shopping for a mortgage broker or lender who can help you get a refi (including suggestions in the other post)
-Work on getting your credit score higher – over time an improved FICO and/or loosening lending standards may make it easier to refi
-Plan to increase your rental income enough so the numbers work. $62.50 / month increase each year x 4 years x 4 units gives you another $1000 / month
-Sell the investment property before you get in to hot water. 6 years ago may have been pretty close to the pre-crash peak, but I suspect the value has increased so you’re not under water, and is likely to increase between now and the end of the 10 year term
-Move in to a unit in the investment property so you can take advantage of better loan terms for a primary residence. You could potentially take advantage of the 250k (500k for a couple) capital gains tax exclusion on a primary residence if you live there for 2 years out of the 5 years prior to selling. This may not be technically kosher with your current lender on your primary residence if you were to move out and rent, but if you sell your primary home you could potentially take up to 500k of tax-free capital gains now, and up to another 500k of tax-free capital gains in 2+ years
-Take on an equity partner. You could sell an interest in the property – transfer the deed to yourselves and another individual who invests enough to run the property without debt and/or has better credit to make it easier to get financing; or set up an LLC to hold title, transfer from yourselves as individuals to the LLC and sell interest in the LLC to a partner. I’m looking for an investment property, and could be open to buying an interest if it makes sense for everyone involved. Shoot me an email at bklnite@gmail.com if you’d like to discuss