You’ve seen the ads, crunched the numbers, and reached out to a bank about getting a refinanced mortgage on your multi-family property. You’re already excited about securing a lower interest rate, or generating funds for rehab, or cashing out your equity, but don’t rush. Take a minute to consider these four questions before pulling the trigger on a refinancing.
Do I Actually Need to Refinance?
The refinancing process is not for the faint of heart. Once you’ve done the research, selected a bank, and maybe even prepared to refinance under HUD, you’ve already invested significant time and money in the preparation. Before getting tangled up in this process, make sure refinancing your multi-family property is in the best interests of you and your organization.
For example, you’ll want to have a qualified professional (an accountant, finance specialist, etc.) review your current mortgage and calculate whether the expensive process of refinancing will be worth it in the end. This person should be able to take into consideration the remaining balance, upcoming balloon payments, closing costs, required repairs (both critical and non-critical), and other miscellaneous fees.
In addition, make sure you’re comfortable with the extended time it will take to pay off your mortgaged multi-family property. If you have 10 years left on your current mortgage and your refinanced one has a term of 30 years, that’s a difference of 20 additional years of interest payments compared to your current obligations. Again, locking in a low interest rate may be worth the time, but check with your CPA before making this leap.
Have I Talked to My Peers?
Especially if this is your first experience refinancing a property, seek out advice from other multi-family real estate owners to learn best practices, get advice on which banks they prefer to work with, and more. When in doubt, a quick Google search can also provide at least some insight — just be wary of the reliability of any information you receive online.
Have I Shopped Around?
As enticing as offers may be from an ad or flyer, don’t just run to the first bank that offers you a refinanced mortgage on your multi-family property. By all means, check into that offer, but visit other providers as well. In choosing a refinancer, knowledge is money. Different banks are willing to take on different levels of risk, which results in different rates and terms. Though your ideal refinanced mortgage may not be out there, you may be able to get close to the best-case scenario by expanding your options to many different banks.
Do I Feel Comfortable With the Bank Staff?
At the end of the day, the bank will make money off your mortgage, which means they will likely court you to earn your business. Take note of their behavior through the decision-making process: are they listening to your requests and taking the time to fully understand your situation? Are they acting with your best interests in mind? Do they seem pushy, hard to communicate with, or change their plans constantly?
And when you finally settle on a bank to refinance your multi-family property, you’ll be in constant contact with them throughout the refinancing process. They will request documents and signatures from you, update you on milestones, and will service your mortgage for the life of the property. This back-and-forth can be a source of synergy or a constant pain point. Make sure you like the people who service your mortgage, as this makes it easier to maintain communication and build trust.
Experienced Financial Guidance for Refinancing
Refinancing your multi-family property’s mortgage is no small task. It has multiple ramifications for your financial reporting, especially if you choose to refinance under HUD or other regulatory agencies to secure a lower interest rate. These more specific scenarios require further next steps and ongoing compliance measures.
The auditors at Donovan CPAs have walked many organizations through this process, including HUD, RD, and tax credit properties. Give us a call or contact us through our website and we’ll be happy to answer any questions about this process you may have.