This is a new fix and flip loan program for the purchase and renovation of 2, 3 or 4 unit small apartment buildings. It has been designed as a Portfolio loan program (to not be sold into financial markets) for Investors who are seeking an alternative to Hard Money lenders, who may typically require higher rates and fees as well as prior fix & flip experience. An Investor will not ever occupy the property and may sell or refinance upon renovation completion. It is a short term 9 to 12 month Balloon mortgage. There is no pre-payment penalty.
An Appraisal will be done using a contractor proposal defining costs and details of the renovation to show the expected After Renovated Value (ARV). The funds to purchase and renovate are in one loan, with one payment, with a fixed rate.
Here are highlights and general guidelines-
- May be used at purchase time or later as a refinance renovation loan
- Down payment is 25% allowing a 75% loan to value (LTV) mortgage
- Down payment is based on purchase price + renovation dollars times .25
- First lien mortgage for renovation only – this is not a new build construction loan
- Interest Only payments during the initial 9 month term which can be extended to 12 months at an additional fee
- Extension from 9 to 12 months is 1% fee per 30 day extension past 9 months
- Renovation must be completed within the 9 to 12 month time period
- At completion borrower may sell the property to pay off the loan or refinance it into a Conventional Investment property mortgage
- Mortgage max loan sizes follow current 2023 Conventional loan limits as below and same loan limits for those seeking to refinance to retain the property after the 9 to 12 month renovation period
- 2 Unit Max Loan Limit $929,850
- 3 Unit Max Loan Limit $1,123,900
- 4 Unit Max Loan Limit $1.396,800
- Minimum borrower credit score 740
- Maximum debt to income ratio 35%
- 6 months reserves required
- Borrower must qualify with 30 year amortizing payment including property tax and property insurance
- No escrows allowed for property taxes or property insurance during the 9 to 12 month renovation period
- Maximum of 6 Draws on renovation funds
- Contingency Reserve off base renovation cost minimum 10% or 15% if any utilities off or 20% if structural changes are done
- Contractor proposal with labor and material costs specified required
- Fees: Standard First Community Mortgage fees plus 1% origination fee
- Interest rates are based on both LTV and credit score as below at this writing and subject to change
|FICO 740-759 & 70.01 to 75% LTV||10.50%|
|FICO 740-759 & Less than 70% LTV||10.25%|
|FICO 760+ & 70.01 to 75% LTV||9.75%|
|FICO 760+ & Less than 70% LTV||9.50%|
Here is an example of a 3 unit purchase & renovation-
|Total Renovation Cost||150,000|
|Total Transaction Cost||350,000|
|25% down payment||87,500|
|Mortgage Size 75% LTV||262,500|
|Borrower Credit Score||760|
|Borrower Interest Rate||9.75% (APR 12.839%)|
|Interest Only Payment||2132.81 (9 to 12 months until completion)|
|30 year Amortizing Payment||2255.28 (Qualifying P&I payment)|
|Property Tax & Insurance escrow||650.00|
|Full Qualifying payment||2905.28 (2255.28 + 650.00)|
Here the Interest Only payment required each month for first 9 to 12 months is 2132.81. The borrower will pay property taxes and home insurance costs separately during the renovation period.
The ARV is known by all up front prior to a loan approval and closing of the loan as determined by Appraiser.
Upon renovation completion the loan comes due as it is a Balloon mortgage payable in full after 9 to 12 months of renovation. The owner will either sell the property to pay off the mortgage or can elect to refinance it with a Conventional mortgage to repay the Balloon renovation mortgage. Buyer would retain it as an Investment property with tenants paying rent if not sold.
Loan approval and terms are dependent upon borrower’s credit, documented ability to repay, acceptability of collateral property, and underwriting criteria. The payment example provided only includes principal and interest. Additional fees and closing costs apply. All information based on a 760 credit score as of August 28, 2023. Rates and terms subject to change without notice. Not all borrowers will qualify.