Trying to understand cash out refi

12 Replies

Suppose I buy property with cash (to get a better deal, quick close etc). Can I refi with a mortgage and get the same rate down the road?

Let me explain. Say price of home is 500K and investor mortgage rate is 4.5%. I pay full cash and get the house. 2 months later can I take a mortgage and get 400K back (20% of 500K is downpayment) and still get the 4.5%. In all of this, I am assuming price and interest rate hasn't changed for 2 months. Is there a time or financing limit to the above.

@Roy Mitle

In a nut shell yes.  Talk to a lender.  Imortage has been very good. 

Once you control and own a property you have more options.

Frank

@Roy Mitle , I am not a banker but here is my experience.  Interest rates do not usually matter on how long you have owned property it is usually based upon your credit rating and length of loan and things like that.  If you are buying or refinancing has not mattered to my bank.  I find it easier to refinance than to get a loan to buy because there is not the same rush.  Title insurance can be a problem as banks want title insurance on their mortgage interest.  I get a 50% cut in the mortgage title insurance when I buy because the Title company just did the title check for the purchase.  I assume that is standard everywhere.  If the title insurance was obtained within 1 year I usually get a break in price if I need a title policy again on the same property.

    To be sure talk to your banker ahead of time and get his feedback.  If you can pay $500K cash for a property I assume he will want to loan you money.

Thanks for the information. 

However, when I had talked to my mortgage broker he had said that when you re-fi like this there is no way you get the good rate of 4.5% (in my example).  Am I wrong? From websearch, it seems a better deal than heloc in terms of interest rate.

Also is there a limit of how much cash I Can take out. Is it standard. for instance, from example above, can I take out 400K?

One more thing to add it seems that fannie mae requires 6 month holding period before you can do cash out re-fi.

Did I get this correct?

https://www.fanniemae.com/content/guide/selling/b2/1.2/03.html

@Roy Mitle - As others mentioned, I suggest you talk to a few lenders.  There are alot of different options out there and separate guideline for different property types.   

I recently purchase a condo for cash and am doing a HELOC on it at 3% because I want to cashout ASAP to use that money. Granted I'd love to lock in a rate with a traditional mortgage but I would have had to wait six months to do so. I was told it was because it was a condo by Quicken Loans and another FL based Lender.

You're situation is different so call a few lenders and ask.

Originally posted by @Roy Mitle :

Thanks for the information. 

However, when I had talked to my mortgage broker he had said that when you re-fi like this there is no way you get the good rate of 4.5% (in my example).  Am I wrong? From websearch, it seems a better deal than heloc in terms of interest rate.

Also is there a limit of how much cash I Can take out. Is it standard. for instance, from example above, can I take out 400K?

Not sure why your lender is telling you different but, as others have mentioned, you should be able to get the same rate based on what you posted. 

Is this going to be an owner-occupied property or an investment property? You would likely be able to get the 400k (80% LTV) if it's owner-occupied, but not if it's an investment property. Those are usually done at 70-75% LTV.

Originally posted by @Roy Mitle :

One more thing to add it seems that fannie mae requires 6 month holding period before you can do cash out re-fi.

Did I get this correct?

https://www.fanniemae.com/content/guide/selling/b2/1.2/03.html

No, see the Delayed Financing Exception further down on the page you linked to. 

My only question is why are you even trying to do this?  First, yes, what you are suggesting should be possible.  Second, if you can get a $400k loan for 4.5% now and buy the house why would you tie up $500k for the 6-12 months the bank will probably require that you hold it before refi and "hope" to get a 400k loan at 4.5% then?  Just get the $400k loan at 4.5% now and be done with it :)

Am I missing something?

@Justin B. 

The reason is that in SF area the market is quite hot with all cash deals. I was thinking this will allow me to get a lower price etc. and then I can re-fi with a bank later on. 

Let me know if there are any other suggestions from folks.

Roy - yes, cash offers can enable you to get a contract that you might not otherwise get. And the Delayed Financing Exception (DFE) allows (actually requires) you to close your refi within 6 months. Not all lenders will do DFE, so they will quote you the 6 month seasoning thing. If you don't need the cash back right away and own less than 5 properties, it doesn't really matter which way you go. I believe the LTV will only be 70% on DFE, but check with the lender (I recommend you go through a mortgage broker who works with investors - most other folks don't know about DFE).

6 month vesting required for conventional, FHA is option too for

If you don't already have a mortgage on the property the cash-out/refi is even easier..

1. You are taking out a first mortgage on the property and essentially walking away with a check for the equity at closing. Just like a regular mortgage you pay principle and interest right away and the rate is fixed for the life of the loan

2. Most major investors require you to hold the loan for a certain period of time for a few reasons 

-buys them time to sell your loan on the secondary market 

-bankers lose their commission if a loan is refinanced with another investor/lender within that 6 month period 

-required vesting is part of federal regulation  that keeps an individual from essential making a living by doing constant cash-out refis 

-if you refinance or pay off the loan in the first 6 months, typically you will not incur any pre-payment penalty..but the bank does and it eats that cost

-required vesting allows you to establish payment history that shows on credit 

3. Rates have nothing to do with vesting. Rate has everything to do with LTV, term and credit score and rates vary depending on the program (Fannie Mae, FHA or VA) Fannie Mae rates are higher, FHA rates are typically within the 3-4% range and VA rates are the best-one of the perks of sacrificing for your country

4. You need at least a 620 MIDDLE credit score to "qualify" but if you are looking for a rate at or below 4.5% you'll need at least a 690 for a conventional loan

5. A cash-out/refi only makes sense if you are looking to do 1 or 2 things: consolidate debt and/or have unrestricted access to a large chunk of money for whatever reason (the bank doesn't really care why you need it). If you are trying to do home improvements just try for he HELOC first

@Roy Mitle

Your rate will be slightly higher - but not much at all. A mortgage banker is going to charge you an origination fee or a higher rate than the bank would and they are typically limited to Fannie Mae and Freddie Mac guidelines at the same time. This limits their ability of what they can do for investors. Fannie Mae is more investor friendly and it is best when a lender can follow just their guideline. 

Here is some information on cash out financing after 6 months .....

http://www.biggerpockets.com/blogs/5110/blog_posts...

Here is some information on cash out financing prior to 6 months - using the delayed financing exception......

http://www.biggerpockets.com/blogs/5110/blog_posts...

Medium prime lendingJerry Padilla, Prime Lending | [email protected] | 585‑204‑6923 | https://lo.primelending.com/jerry.padilla | NY Lender # NMLS #1084877

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