There is no better way to understand your clients’ adventures with lenders than to be a borrower yourself.
I took that to heart this month as I closed a refinance on an investment property.
My learnings, especially compared to the perspective of purchasing investment property in 2006-2007, were as interesting as they were frustrating.
This refinance was the third financing of a Brooklyn Heights property.
Rates started in 2005 at 6.5% (5-yr interest-only), going to 6% (30yr fixed-rate loan) in 2006, followed by 4.875% (30-year fixed) in 2011, followed by 3.625% (20-year fixed-rate) in 2012.
What changed this time?
The underwriting jungle
First, valuations have finally come back.
Appraisers are finally giving better value numbers than they were last year.
An increase in sales volume has helped, along with higher sales prices over the last 4 quarters.
Second, underwriting is even worse.
This iteration, beyond signing a form (4506) in which you declare that the lender can pull your tax return from the IRS, actually required our initialing every single page of 2 years’ of tax returns! Now we’re not Mitt Romney, but the return is more than 100 pages.
Third a feeling of changing standards too many times along the way.
The bank ran credit no less than 6 times in the 3 months it took to get a “clear to close” from the bank.
Further, for the last 2 loans, the lender (Citi) already had the loan!!
Fourth, Loan-to-Value has become a bit more reasonable.
For investment property, the LTV (loan to value) allowed went to 75% from 70%, which was better than last year for many investors I represented.
And with improving valuations, this means little to no out-of-pocket expenses for refinances.
Fifth- technology has been helping (somewhat).
Email and scanning seems to be much more part of everyone’s process, which alleviates faxing.
Any buyer considering taking a mortgage (which over 90% in most parts of the country), especially in NYC, should expect an invasive process on top of the already invasive cooperative purchase process.
However, the payoff is rates that are under 3.5% for primary residence, under $417,000, and still under 4% for jumbo loans.
It’s a jungle out there, but it’s a cheap jungle.