Investor · Norfolk, VA · Member since 2013 · 34 posts · 9 votes
11y
When you do a cash out refinance, or any refi, the lender will require an appraisal done to accurately assess current market value. If after you purchased the home 6 months ago, you either put sweat equity into it (rehab), or your property has appreciated. Now we are only talking 6 months, but maybe in your luck new sales in the area have offered higher comps to help your homes appraisal!
The 75% LTV will be based on the new appraisal value, not the price you purchased the property as.
Real Estate Agent · Naperville, IL · Member since 2013 · 402 posts · 177 votes
11y
After six months you can refinance. You will only be able to go up to 75% LTV since I am assuming that the bank you worked with required you to put down the 25% to purchase.
Just to make sure I am clear on what you mean. So if I can only go up to 25% LTV and put 25% down (and yes it was required by my lender) then there wouldn't be anything to cash out since I will not have paid out more than 25% in months.
Investor · Norfolk, VA · Member since 2013 · 34 posts · 9 votes
11y
When you do a cash out refinance, or any refi, the lender will require an appraisal done to accurately assess current market value. If after you purchased the home 6 months ago, you either put sweat equity into it (rehab), or your property has appreciated. Now we are only talking 6 months, but maybe in your luck new sales in the area have offered higher comps to help your homes appraisal!
The 75% LTV will be based on the new appraisal value, not the price you purchased the property as.
correct. Since you were required to put down 25% you started your loan at 75% LTV. Most banks will not allow you to go over that mark when doing a cash out refi, although there are some that allow you to go to 80% LTV. So unless you have been making major payments to the property, or done major rehab to it, you probably don't have enough equity to do a cash out refi that makes it worth doing after you add in fees.
Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes
11y
Well. But keep in mind. You paid 25% of the purchase price. That had nothing to do with the value of the property at the time.
So your cash out refi is based on the appraisal value and not the purchase price.
The assumption is that if you bought an investment property, I would hope that you got it a discount of at least 20 to 25%. Hopefully 30% or more. But at least 20 to 25%.
So lets say you bought this 2 flat for 200k and put down 50k which would give you a loan of 150k. But that the 2 flat would actually appraise out at 250k which means you got it for 80% of the ARV.
When you go to refi it, if it appraises out 250k, you would be entitled to a loan amount of 75% of that number or 187k. That would allow you to get back 37k of your 50k after you paid off the existing 150k loan.
Ideally, you would have bought that 250k property for 175k (70%) and would be able to get all your money back. Purchase: 175k 25% DownPayment: 44k Existing Loan: 131k New Loan at 75% of 250k: 187k Amount paid to you after refi: 56k....
In, this example, you would get back more than your initial down payment.....
The key is whether you bought the investment property at a sizable enough discount or not.