122k REFI at 7%
Member since 2020 · 13 posts · 2 votes
122k REFI at 7%
5 Replies
- 3yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
can you be more specific? why can't you do a live-in flip?
- Lender · Denton, TX · Member since 2023 · 349 posts · 80 votes3y
Quote from @Daniella Spears:
I just refinanced on a home to pretty much pay off my 13% HELOC and I will have 122k (after they pay off all my mortgages and HELOC). I would LOVE to buy another home at the end of they year and do a fix and flip in which I will live in it for 2 years before selling it, the only problem is 122k will not get me anything.
I could use the money to do a new construction near where I have one 460sq ft home that I would be able to build in that price range. Though I would really prefer to do the first option. Any I sights or ideas upon how to navigate the next step? Thanks BP fam!!
Hello Daniella,
So I just read your post. Congrats on your refi. When you say a fix and flip on another home, I am guessing you mean you want to buy another primary residence and rehab it?
If you want to buy and rehab a primary home, an FHA 203K is an option to purchase and the home and get money to rehab the property too. The FHA203K will be more lenient than the conventional option. If you already have an FHA(can't have more than one FHA unless special circumstances) you can do a conventional Homestyle renovation loan. This helps you buy a home and get financing for the rehab too.
When you say new construction, do you mean new construction for a primary residence or new construction for an investment property? It sounds like new construction for a primary residence.
If new construction for a primary residence: With your 122K after paying off your 13% HELOC, yes 122K may not be able to buy you a home but it will be plenty enough for downpayment and closing costs for a new construction build as well as for another investment property if you choose to.
- Lender · Allentown, PA · Member since 2023 · 207 posts · 38 votes3y
Hey @Daniella Spears,
Does your income have the ability to take on another mortgage? If so, use some of the $122k towards downpayment/closing costs on another house. Maybe fha into a 1-4 unit?
If your income will not qualify for two mortgages and you still want to invest into real estate you can go DSCR on an investment property and use the $122k towards downpayment/closing costs. You can't live in the DSCR property though because that is strictly for investment.
I'd be happy to go over your options with you.
- 3yStacy RaskinBusiness MemberLender · Member since 2022 · 1k+ posts · 509 votes
One option is a down payment for a fix and flip loan or a DSCR loan. There are lenders that will work with investors to do fix and flips with any level of investor experience where the middle mortgage credit score as low as 660. The lenders with lend on non-owner occupied single family and multi family up to 4 units.The lenders will lend on a 80% of purchase price (so the buyer/borrower comes in with a 20% down payment) and 80-100% of construction loan amount with maximum after repair value LTV 70%. They offer up to 12 month interest only payments. The amount they will lender will depend on your experience level with flips.
You're exit plan at that point (or before the 12 months are up) is to sell the property of finance into a longer term loan if it's going to be a rental such a DSCR loan. These lenders also do DSCR loans.DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.
Here's a bit more in detail about how rates are calculated for DSCR loans:
1. Credit score- the higher the best. 760+ generally gets best pricing for investment property loans with most lenders
2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.
3. Are you cash flowing the property? Is your DSCR ratio greater than 1-meaning are you cash flowing. Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit.I've included an example below to help illustrate this.
4. Prepayment penalties range from 1-5 years and you get to decide the length of the term. The longer the term, the less of an impact on the rate
So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.
See example below:
DSCR < 1
Principal + Interest = $1,700
Taxes = $350 Insurance = $100 Association Dues = $50
Total PITIA = $2200
Rent = $2000DSCR = Rent/PITIA = 2000/2200 = 0.91
Since the DSCR is 0.91, we know the expenses are greater than the income of the property.
DSCR >1
Principal + Interest = $1,500
Taxes = $250, Insurance = $100 Association Dues = $25
Total PITIA = $1875
Rent = $2300
DSCR = Rent/PITIA = 2300/1875 = 1.23
DSCR loans can be used for purchases and for cash out refinances. Most lenders allow you to vest individually or as an LLC.
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