cash out refi- very hard time-Am I missing something?

20 Replies

Trying to follow all the good advise here, such as , buy for all cash,  extract the equity out on a cash refi loan. Rinse and repeat.  Sounds easy, but no one said the loan is based on my tax return income in order to do that.  it's not a loan based on the amount of equity I have , which is what i thought, but on income .  I am in my own business and  do not have a good net income, barely 24,000. Even though my credit  score is 745, have no debt, and own 3 homes I cannot get a cash out refi loan. 

Do I have any options other than hard money loans? Thanks.

Joe--why do you say that? I have called 8 banks already.

Also,is it possible to get a HELOC loan on an inevestment property?

Financing of any type is tough right now. But yes you always have to have enough income to qualify for a loan. Is the bank counting the income from the property? Can you qualify for a smaller loan and not take out all of the equity? 

I've been able to buy with cash, get financing later (sometimes waiting 6 months is beneficial), and then use that cash to buy the next one(s). Different banks have different rules. When I started banks didn't want to give me anything but one would after 6 months and they just went off the SEV. Later I found another bank that wanted to see my tax returns (very common) but I convinced them not to look at them (a benifit a smaller bank may give you that larger ones won't). Banks do look at many things your income (from tax returns) is just one of many so if you get turned down by one try another. Try some larger banks and smaller ones also because they can do things differently. Overall the more you make and have the easier it is to find money though so you may have to work hard at first but it will get easier. 

Bank loans on small properties are almost always based on the borrower's personal qualification.  That includes credit score, cash reserves and income.  If you've been a landlord long enough (typically two years, but that varies) you can include the rental income.  That is the net numbers from your tax return for the rentals.

Cash out is always tougher than a rate and term refi.  If you want a purely asset based loan, you do indeed need to try more lenders.  These are sometimes called "non recourse" because the lender has no recourse except the property.  Expect maximum LTVs of 60-65%.  Probably not 30 year fixed, either.  Find a lender that does portfolio loans rather than just conventional.

HELOCs (really, LOCs, since its not your home) are possible, but have the same qualification issues.

8 banks? If you haven't found what you are looking for call 8 more!

Troy-- what is "SEV"?

I have had these homes for over 2 years now.

Owning them two years should be sufficient seasoning for almost any lender.  Are you showing positive rental income on your schedule E?  That should help with qualifying, if so.  Getting a loan without a W2 job is always difficult.  Truly, keep searching.  You may have to try dozens of lenders to find one that will do a loan in your situation.

I did find a no doc loan for 8% interest and 3 points!

I have to do better than that.

Yes, Jon i do show positive income from my rentals.

guess the search continues--- so i should be asking for an "asset based loan"?

Asset based, non-recourse, or portfolio.   Depending on your full sitaution and the amount you want I'd think you could find a portfolio lender.  If there are any REIAs in your area or you know other investors, they may be a source of a lender.  Smaller, local banks and credit unions will be your best bet.  The big banks won't be helpful.

thanks Jon. Can you suggest how I might find a REIA in my area, NY?

Originally posted by @Marci Stein :

thanks Jon. Can you suggest how I might find a REIA in my area, NY?

 Do a Google search.  Go to Meetup.com.

Ok I will do that...thanks.

Question--- is it that smaller banks and credit unions do not ask for taxes, or they just dont care as much about the low income? 

@Marci Stein  for conventional lending a two year history is great to include all of your net income. Depreciation expense is one factor that can be added back into your income from your tax return.

Originally posted by @Marci Stein :

Ok I will do that...thanks.

Question--- is it that smaller banks and credit unions do not ask for taxes, or they just dont care as much about the low income? 

The portfolio lender is not going to sell the loan off to some other party, so they alone determine the basis for lending. If this were a "conventional" lender, such a lender has to adhere to criteria that allows for selling off the loan. 

Call as many banks/credit unions as possible.  I would almost always ask to speak to a business lender since they typically seem to have the most experience with "unusual" requests and if they can't help you they usually know who can. 

Also do not hesitate to ask for a referral from someone who can't help you.  Almost everyone in my industry knows who their local competition is, they usually don't freely refer you to them but if you ask most are more then happy to provide some names :)

Here's one question though. Is it that you actually only make 24k a year or that, because your self employed, you only end up with net income of 24k a year because of all the deductions and such that are afforded most businesses?

If you actually are only making 24k a year, then you should not be surprised that you don't qualify for a loan. Thats 2k a month and if you have a primary residence and a car loan, thats likely going to push well over the dti ratio most banks want to see.

That being said, I think I'd strongly recommend you consider Jon's suggestion of looking for a portfolio lender. To me, thats going to be your best bet. I have a friend here by me that was trying to pull cash out of his home. He had 80k in the bank. But he has a small business that allows him to write off quite a bit so that his tax returns don't truly reflect the money he makes.

He couldn't find a loan on his house to save his life. But thats because he was looking at all the normal residential lenders. I sent him to one of the local banks I work with and they were able to dig a little deeper into his business to see what his true income was and they gave him the loan.

I think thats what you're going to be limited to. I think you need to find a local bank and go to the commercial department. None of the larger banks will do investment property loans on SFH's. But the small/local banks (or credit unions) will. And they are more likely to walk through your tax return and get a sense of whether your business is really generating more revenue than your tax returns are able to show.

If so, then they'll likely do that loan.

But I do think you're going to have a difficult time getting loans without being able to show income. I would either suggest you possibly take the hit and show more income on your returns. OR find a partner with good income and credit and let them qualify for the loans for you.

Otherwise, I think even a portfolio lender is going to have some pause when it comes to doing more than 1 or 2 loans with someone that is only able to show 2k a month in income. They get audited too. And it would likely look a little odd if they had 300 to 400k in loans to one person that was making 2k a month - even if that was only on paper. :-)

Lastly, there are some loan programs coming out today that won't look at your income. B2R is one and there's another one I just ran into a week or two ago (sorry, can't remember the name). Their rates are a bit higher and they do require a min loan amount of 250k so you'd likely have to bundle several homes together.

But it might be one way to overcome your reportable income issue.....

Good luck.

This is some great info here. 

Mike, i do bring in 2,000 after all my deductions, alot more before.

I really appreciate everyone 's  help here -i see what i need to do. 

will go to smaller banks, crediit unions, next REI meeting in feb---

thanks a million everyone!

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