How to BRRRR without hurting Credit?

Question

My husband and I noticed our credit scores dropped significantly because we have “too many new accounts open” (i.e. too many recent mortgages) and “too many inquiries” within the last 6 months. But every time you BRRRR a property the preferred exit strategy is to cash out refinance it. So my question is how can you refi over and over without hurting your credit? And how will lenders be able to lend to us now that our credit scores have dropped? I know there are a ton of buy and hold investors out there...how are you all doing this part?

Cameron Tope · Answer

@Holly Groseth I experienced the same issue!

BRRRRing never hurt my credit bad enough to become a problem but how I managed it was refinancing quickly after purchasing, usually 30-60 days. There's a rule (not sure what it's called) but multiple pulls on your credit within a 30-45 day window (not 100% sure on the time frame) can count as one credit pull instead of multiple. Similar to shopping for a car, if you go to several dealers and they each do a credit pull then it will count as one pull, as long as its within the time frame.

I would call your credit agency and see if they can count it as one pull instead of separate pulls. But @Joe Norman is correct, as the loans get more "seasoned" your credit score will rise.

Best of luck!

Will C. · Answer

Yes, I used a combo of CC and personal lines of credit during rehab. Really took a toll on my score but I was adding a ton of equity in my project. I did a cash our refi and payed off rehab debt, credit score shot back up. At one point during refi process my DTI was on the verge of becoming an issue. Once I explained the cash out proceeds would go to paying off the outstanding revolving debt, it became a non issue. The lender just made it a closing condition that they make the debt payoff directly after closing. So make sure your lender knows your intentions with the cash out proceeds.

Ken B. · Answer

@Holly Groseth

It seems like your doing great and as time goes on your credit will definitely return to normal and then some. @Joe Norman and @Cameron Tope  are correct as they season the scores go up. I'd gladly love to have your problem and congrats on all your BRRRR's and keep going.

Holly Groseth · Answer

Thank you so much @Joe Norman and @Cameron Tope for sharing your experiences, advice, and encouragement!

Account Closed · Answer

@Holly Groseth

Check around with portfolio lenders (usually small community banks) and see if they report every refi to the credit bureaus. Some don't, so you don't have a hard hit to your credit every time you BRRRR.

My personal opinion is, I wouldn't worry so much about your credit if you're making smart BRRRR decisions.

Holly Groseth · Answer

Thanks @Will C. That is really helpful. We are using a hard money lender for 80% of the purchase price + rehab and a balance transfer from a 0% interest credit card for the other 20%. Right now we also have a HELOC that’s maxed out and another 0% credit card that’s almost maxed out. But we are waiting for a refinance to go through to pay those off. So that’s probably why our credit score is lower right now. It’s the revolving credit lines that have too high of a utilization ratio. One those get paid off our scores should go back up.

Holly Groseth · Answer

Thanks for the advice @Will C. What do you mean when you say you consolidated with the refi? Did you use credit cards to help fund your purchase/rehab?

Will C. · Answer

@Holly Groseth

Depending on what type and how much credit you are utilizing, it can really affect you. Just don't let it get to the point where you compromise your ability to refi. My last two purchases followed by refi's, my credit seemed to swing by 100 points or more. But once I refied and consolidated, my score would shoot back up to previous levels of not higher. Have to be solid on your numbers and make sure you don't miss your mark on rehab and ARV.

Holly Groseth · Answer

@CJ M. Good idea, I will ask them that for sure! Thanks @Ken Bailey, I definitely feel less stressed about the credit score thing now after everyone's encouragement and reassurance.

Joe Norman · Answer

Just keep making your payments and your score should rebound pretty quickly (certainly by the time your'e ready to refinance your next BRRRR!).

How to BRRRR without hurting Credit?

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