BRRRR - How long until I can ReFi?
Gardendale, AL · Member since 2017 · 47 posts · 18 votes
I am looking to purchase a house for $50k that is worth $70k for cash. I understand that banks like a property to "season" for a year before they will refinance.
What I do not understand is if this applies to:
1. If you are refinancing with the lender with whom you have your original mortgage.
2. If you already own the property outright, and want to pull cash out.
For simplicity: If I buy a property today and put a tenant in next week, does a bank still want the property to "season" for one year before they will give me a mortgage (70-80% LTV)?
Thanks for your input!
This is a bit lengthy but ready through as it is very informative. I am looking to doing option #3.
1. The Conventional Rules For a Cash Out Loan
Fannie Mae and Freddie Mac are the Government Agencies that sponsor conventional lending. Most banks will have these loans as an option. There are other loan types as well but for brevity we will limit this post to the “Conventional” lending (Fannie/Freddie).
Let’s explore some examples here:
If you purchased a property with a 15% down conventional loan (85% loan to value) and you wanted to get cash out, you wouldn’t be able to do so since the cash out limit is 75% of the “Loan to Value”. The MAXIMUM cash out you can receive is 75% of the value of the property.
If you purchased a property with a loan, but did the rehab on with your own cash, then you would need to wait 6 months to get that cash back. Keep in mind you could only receive 75% back of the After Repair Value.
So if you bought a home with a loan of $50k, it required $30k in renovations, and it appraised for $100k after the repair work was complete then….
You would refinance the $50k loan, receive back $25k in cash…since $75k would be 75% of the After Repair Value.
2. Buying a home with Cash
Buying a home with cash has become increasingly popular for many investors but often an investor will be caught with the restrictions to cash out loans if they need to get their money back. There is a plan to avoid this entire section (In section 3) but it is important for us to know about these restrictions. If an investor is buying with cash and flipping they get their money back when they sell the property. But if they are seeking to hold a property for any length of time and want their cash investment back there are some important rules to understand with conventional loan:
If you buy a property with cash (or with a HELOC) you can receive a cash out loan on Day 1.
There is not a 6 month waiting period with receiving a cash out loan if you purchased a home with cash or with a HELOC
BUT you will be limited to the amount of….
Your purchase price + closing costs (costs when you purchased the home)
OR
75% of the “After Repair Value”…
WHICHEVER IS THE LOWER AMOUNT (super important)
These rules are important to understand so here are two examples:
Example 1: If you purchased a home with $50k of cash, and put $30k of renovations into the loan, and the home was worth $100k. 75% is $75k and $50k is your purchase price. So you could only receive $50k in your first 6 months ofownership since the LOWER amount is your purchase price. After 6 months you could receive the full 75% of the ARV.
Example 2: If you purchased a home with $80k of cash, put $5k into the home, and the home was worth $100k. 75% would be $75k and your purchase price is $80k…so the lower amount is $75k.
When buying a home with cash you can absolutely get cash back right away but you will be limited to the lower of those two amounts.
3. HOW TO PROPERLY STRUCTURE BUYING A HOME WITH CASH
With these rules, you can see how it can be confusing to get conventional lending when buying a home with cash but there is absolutely a proper method to structuring your deals when buying cash. Here’s the secret:
Create an LLC and have the LLC lend you a mortgage on the property you are receiving.
The reason why this works is because instead of you needing cash or receiving a cash out loan, we are now refinancing a loan – your loan. There no reason to wait any time or have any “whichever is lower” rule come into play. We are just refinancing a loan.
Here’s how it works:
You create an LLC
You buy a home
Your LLC gives you a loan for the home
You file the deed for that loan at the county courthouse
You use the money from the LLC to buy and fix up the property
Once the property is completed, your conventional lender comes to refinance the loan
Your conventional lender runs title and sees there is a loan.
Your conventional lender refinances you into a new loan, and cuts a check to your LLC in the amount of 75% of the value.
Please don't confuse this 75% with a "cash out" amount. The non-cash out LTV on a refinance is also 75%. We are refinancing a mortgage. Your LLC's mortgage. Essentially your LLC has become the bank/hard money lender/etc. However you want to think about it. You get to set the interest rate (it can be 0%) and you get your investment amount back sooner.
Some things to think of:
To file a deed at the county courthouse is $100-$150 in cost (depending on which county)
And you want that note to be pretty close to 70% of the ARV for the property if you don't want to bring any money to closing. 70% will allow you to roll in your closing costs. If you want it to be at 75% just keep in mind you would need to bring your closing costs out of your pocket to complete the refinance.
Hi @Adam Bradley!
It's different for every bank. I closed on a duplex this past memorial day weekend, am currently rehabbing it, I don't have a tenant in (I am owner occupying though) and am in the process of doing a cash out refinance.
I called about 8 or so banks. Most required 6 months seasoning, some didn't care about the time, but cared about the renovations and so they wanted receipts of all of the work that was done, and then I found one bank, whom I'm now working with, that didn't have a seasoning period at all, as long as the property appraised correctly.
I recommend just getting on the phone with banks and asking.
I'm going to DM you a post I wrote about the process I'm going through for the cash out refi. Hopefully it's helpful.
Thanks and good luck!
This is a bit lengthy but ready through as it is very informative. I am looking to doing option #3.
1. The Conventional Rules For a Cash Out Loan
Fannie Mae and Freddie Mac are the Government Agencies that sponsor conventional lending. Most banks will have these loans as an option. There are other loan types as well but for brevity we will limit this post to the “Conventional” lending (Fannie/Freddie).
Let’s explore some examples here:
If you purchased a property with a 15% down conventional loan (85% loan to value) and you wanted to get cash out, you wouldn’t be able to do so since the cash out limit is 75% of the “Loan to Value”. The MAXIMUM cash out you can receive is 75% of the value of the property.
If you purchased a property with a loan, but did the rehab on with your own cash, then you would need to wait 6 months to get that cash back. Keep in mind you could only receive 75% back of the After Repair Value.
So if you bought a home with a loan of $50k, it required $30k in renovations, and it appraised for $100k after the repair work was complete then….
You would refinance the $50k loan, receive back $25k in cash…since $75k would be 75% of the After Repair Value.
2. Buying a home with Cash
Buying a home with cash has become increasingly popular for many investors but often an investor will be caught with the restrictions to cash out loans if they need to get their money back. There is a plan to avoid this entire section (In section 3) but it is important for us to know about these restrictions. If an investor is buying with cash and flipping they get their money back when they sell the property. But if they are seeking to hold a property for any length of time and want their cash investment back there are some important rules to understand with conventional loan:
If you buy a property with cash (or with a HELOC) you can receive a cash out loan on Day 1.
There is not a 6 month waiting period with receiving a cash out loan if you purchased a home with cash or with a HELOC
BUT you will be limited to the amount of….
Your purchase price + closing costs (costs when you purchased the home)
OR
75% of the “After Repair Value”…
WHICHEVER IS THE LOWER AMOUNT (super important)
These rules are important to understand so here are two examples:
Example 1: If you purchased a home with $50k of cash, and put $30k of renovations into the loan, and the home was worth $100k. 75% is $75k and $50k is your purchase price. So you could only receive $50k in your first 6 months ofownership since the LOWER amount is your purchase price. After 6 months you could receive the full 75% of the ARV.
Example 2: If you purchased a home with $80k of cash, put $5k into the home, and the home was worth $100k. 75% would be $75k and your purchase price is $80k…so the lower amount is $75k.
When buying a home with cash you can absolutely get cash back right away but you will be limited to the lower of those two amounts.
3. HOW TO PROPERLY STRUCTURE BUYING A HOME WITH CASH
With these rules, you can see how it can be confusing to get conventional lending when buying a home with cash but there is absolutely a proper method to structuring your deals when buying cash. Here’s the secret:
Create an LLC and have the LLC lend you a mortgage on the property you are receiving.
The reason why this works is because instead of you needing cash or receiving a cash out loan, we are now refinancing a loan – your loan. There no reason to wait any time or have any “whichever is lower” rule come into play. We are just refinancing a loan.
Here’s how it works:
You create an LLC
You buy a home
Your LLC gives you a loan for the home
You file the deed for that loan at the county courthouse
You use the money from the LLC to buy and fix up the property
Once the property is completed, your conventional lender comes to refinance the loan
Your conventional lender runs title and sees there is a loan.
Your conventional lender refinances you into a new loan, and cuts a check to your LLC in the amount of 75% of the value.
Please don't confuse this 75% with a "cash out" amount. The non-cash out LTV on a refinance is also 75%. We are refinancing a mortgage. Your LLC's mortgage. Essentially your LLC has become the bank/hard money lender/etc. However you want to think about it. You get to set the interest rate (it can be 0%) and you get your investment amount back sooner.
Some things to think of:
To file a deed at the county courthouse is $100-$150 in cost (depending on which county)
And you want that note to be pretty close to 70% of the ARV for the property if you don't want to bring any money to closing. 70% will allow you to roll in your closing costs. If you want it to be at 75% just keep in mind you would need to bring your closing costs out of your pocket to complete the refinance.
@Adam Bradley forgot to mention that I copied and pasted this from another post here on BP. Credit goes to @Brandon Hall
You can cash out right away under delayed financing exception if you paid cash or used personal loan for that property. But you can't cash out more than what you spend initially.
If you hard money loan you can cash out after 6 month on current appraisal value.
This is a bit lengthy but ready through as it is very informative. I am looking to doing option #3.
1. The Conventional Rules For a Cash Out Loan
Fannie Mae and Freddie Mac are the Government Agencies that sponsor conventional lending. Most banks will have these loans as an option. There are other loan types as well but for brevity we will limit this post to the “Conventional” lending (Fannie/Freddie).
Let’s explore some examples here:
If you purchased a property with a 15% down conventional loan (85% loan to value) and you wanted to get cash out, you wouldn’t be able to do so since the cash out limit is 75% of the “Loan to Value”. The MAXIMUM cash out you can receive is 75% of the value of the property.
If you purchased a property with a loan, but did the rehab on with your own cash, then you would need to wait 6 months to get that cash back. Keep in mind you could only receive 75% back of the After Repair Value.
So if you bought a home with a loan of $50k, it required $30k in renovations, and it appraised for $100k after the repair work was complete then….
You would refinance the $50k loan, receive back $25k in cash…since $75k would be 75% of the After Repair Value.
2. Buying a home with Cash
Buying a home with cash has become increasingly popular for many investors but often an investor will be caught with the restrictions to cash out loans if they need to get their money back. There is a plan to avoid this entire section (In section 3) but it is important for us to know about these restrictions. If an investor is buying with cash and flipping they get their money back when they sell the property. But if they are seeking to hold a property for any length of time and want their cash investment back there are some important rules to understand with conventional loan:
If you buy a property with cash (or with a HELOC) you can receive a cash out loan on Day 1.
There is not a 6 month waiting period with receiving a cash out loan if you purchased a home with cash or with a HELOC
BUT you will be limited to the amount of….
Your purchase price + closing costs (costs when you purchased the home)
OR
75% of the “After Repair Value”…
WHICHEVER IS THE LOWER AMOUNT (super important)
These rules are important to understand so here are two examples:
Example 1: If you purchased a home with $50k of cash, and put $30k of renovations into the loan, and the home was worth $100k. 75% is $75k and $50k is your purchase price. So you could only receive $50k in your first 6 months ofownership since the LOWER amount is your purchase price. After 6 months you could receive the full 75% of the ARV.
Example 2: If you purchased a home with $80k of cash, put $5k into the home, and the home was worth $100k. 75% would be $75k and your purchase price is $80k…so the lower amount is $75k.
When buying a home with cash you can absolutely get cash back right away but you will be limited to the lower of those two amounts.
3. HOW TO PROPERLY STRUCTURE BUYING A HOME WITH CASH
With these rules, you can see how it can be confusing to get conventional lending when buying a home with cash but there is absolutely a proper method to structuring your deals when buying cash. Here’s the secret:
Create an LLC and have the LLC lend you a mortgage on the property you are receiving.
The reason why this works is because instead of you needing cash or receiving a cash out loan, we are now refinancing a loan – your loan. There no reason to wait any time or have any “whichever is lower” rule come into play. We are just refinancing a loan.
Here’s how it works:
You create an LLC
You buy a home
Your LLC gives you a loan for the home
You file the deed for that loan at the county courthouse
You use the money from the LLC to buy and fix up the property
Once the property is completed, your conventional lender comes to refinance the loan
Your conventional lender runs title and sees there is a loan.
Your conventional lender refinances you into a new loan, and cuts a check to your LLC in the amount of 75% of the value.
Please don't confuse this 75% with a "cash out" amount. The non-cash out LTV on a refinance is also 75%. We are refinancing a mortgage. Your LLC's mortgage. Essentially your LLC has become the bank/hard money lender/etc. However you want to think about it. You get to set the interest rate (it can be 0%) and you get your investment amount back sooner.
Some things to think of:
To file a deed at the county courthouse is $100-$150 in cost (depending on which county)
And you want that note to be pretty close to 70% of the ARV for the property if you don't want to bring any money to closing. 70% will allow you to roll in your closing costs. If you want it to be at 75% just keep in mind you would need to bring your closing costs out of your pocket to complete the refinance.
So when the LLC lend to you, the property is in your name instead of the LLC? Can I create 2 LLCs one lend to the other
This is a bit lengthy but ready through as it is very informative. I am looking to doing option #3.
1. The Conventional Rules For a Cash Out Loan
Fannie Mae and Freddie Mac are the Government Agencies that sponsor conventional lending. Most banks will have these loans as an option. There are other loan types as well but for brevity we will limit this post to the “Conventional” lending (Fannie/Freddie).
Let’s explore some examples here:
If you purchased a property with a 15% down conventional loan (85% loan to value) and you wanted to get cash out, you wouldn’t be able to do so since the cash out limit is 75% of the “Loan to Value”. The MAXIMUM cash out you can receive is 75% of the value of the property.
If you purchased a property with a loan, but did the rehab on with your own cash, then you would need to wait 6 months to get that cash back. Keep in mind you could only receive 75% back of the After Repair Value.
So if you bought a home with a loan of $50k, it required $30k in renovations, and it appraised for $100k after the repair work was complete then….
You would refinance the $50k loan, receive back $25k in cash…since $75k would be 75% of the After Repair Value.
2. Buying a home with Cash
Buying a home with cash has become increasingly popular for many investors but often an investor will be caught with the restrictions to cash out loans if they need to get their money back. There is a plan to avoid this entire section (In section 3) but it is important for us to know about these restrictions. If an investor is buying with cash and flipping they get their money back when they sell the property. But if they are seeking to hold a property for any length of time and want their cash investment back there are some important rules to understand with conventional loan:
If you buy a property with cash (or with a HELOC) you can receive a cash out loan on Day 1.
There is not a 6 month waiting period with receiving a cash out loan if you purchased a home with cash or with a HELOC
BUT you will be limited to the amount of….
Your purchase price + closing costs (costs when you purchased the home)
OR
75% of the “After Repair Value”…
WHICHEVER IS THE LOWER AMOUNT (super important)
These rules are important to understand so here are two examples:
Example 1: If you purchased a home with $50k of cash, and put $30k of renovations into the loan, and the home was worth $100k. 75% is $75k and $50k is your purchase price. So you could only receive $50k in your first 6 months ofownership since the LOWER amount is your purchase price. After 6 months you could receive the full 75% of the ARV.
Example 2: If you purchased a home with $80k of cash, put $5k into the home, and the home was worth $100k. 75% would be $75k and your purchase price is $80k…so the lower amount is $75k.
When buying a home with cash you can absolutely get cash back right away but you will be limited to the lower of those two amounts.
3. HOW TO PROPERLY STRUCTURE BUYING A HOME WITH CASH
With these rules, you can see how it can be confusing to get conventional lending when buying a home with cash but there is absolutely a proper method to structuring your deals when buying cash. Here’s the secret:
Create an LLC and have the LLC lend you a mortgage on the property you are receiving.
The reason why this works is because instead of you needing cash or receiving a cash out loan, we are now refinancing a loan – your loan. There no reason to wait any time or have any “whichever is lower” rule come into play. We are just refinancing a loan.
Here’s how it works:
You create an LLC
You buy a home
Your LLC gives you a loan for the home
You file the deed for that loan at the county courthouse
You use the money from the LLC to buy and fix up the property
Once the property is completed, your conventional lender comes to refinance the loan
Your conventional lender runs title and sees there is a loan.
Your conventional lender refinances you into a new loan, and cuts a check to your LLC in the amount of 75% of the value.
Please don't confuse this 75% with a "cash out" amount. The non-cash out LTV on a refinance is also 75%. We are refinancing a mortgage. Your LLC's mortgage. Essentially your LLC has become the bank/hard money lender/etc. However you want to think about it. You get to set the interest rate (it can be 0%) and you get your investment amount back sooner.
Some things to think of:
To file a deed at the county courthouse is $100-$150 in cost (depending on which county)
And you want that note to be pretty close to 70% of the ARV for the property if you don't want to bring any money to closing. 70% will allow you to roll in your closing costs. If you want it to be at 75% just keep in mind you would need to bring your closing costs out of your pocket to complete the refinance.
You deserve the trophy.
This is a bit lengthy but ready through as it is very informative. I am looking to doing option #3.
1. The Conventional Rules For a Cash Out Loan
Fannie Mae and Freddie Mac are the Government Agencies that sponsor conventional lending. Most banks will have these loans as an option. There are other loan types as well but for brevity we will limit this post to the “Conventional” lending (Fannie/Freddie).
Let’s explore some examples here:
If you purchased a property with a 15% down conventional loan (85% loan to value) and you wanted to get cash out, you wouldn’t be able to do so since the cash out limit is 75% of the “Loan to Value”. The MAXIMUM cash out you can receive is 75% of the value of the property.
If you purchased a property with a loan, but did the rehab on with your own cash, then you would need to wait 6 months to get that cash back. Keep in mind you could only receive 75% back of the After Repair Value.
So if you bought a home with a loan of $50k, it required $30k in renovations, and it appraised for $100k after the repair work was complete then….
You would refinance the $50k loan, receive back $25k in cash…since $75k would be 75% of the After Repair Value.
2. Buying a home with Cash
Buying a home with cash has become increasingly popular for many investors but often an investor will be caught with the restrictions to cash out loans if they need to get their money back. There is a plan to avoid this entire section (In section 3) but it is important for us to know about these restrictions. If an investor is buying with cash and flipping they get their money back when they sell the property. But if they are seeking to hold a property for any length of time and want their cash investment back there are some important rules to understand with conventional loan:
If you buy a property with cash (or with a HELOC) you can receive a cash out loan on Day 1.
There is not a 6 month waiting period with receiving a cash out loan if you purchased a home with cash or with a HELOC
BUT you will be limited to the amount of….
Your purchase price + closing costs (costs when you purchased the home)
OR
75% of the “After Repair Value”…
WHICHEVER IS THE LOWER AMOUNT (super important)
These rules are important to understand so here are two examples:
Example 1: If you purchased a home with $50k of cash, and put $30k of renovations into the loan, and the home was worth $100k. 75% is $75k and $50k is your purchase price. So you could only receive $50k in your first 6 months ofownership since the LOWER amount is your purchase price. After 6 months you could receive the full 75% of the ARV.
Example 2: If you purchased a home with $80k of cash, put $5k into the home, and the home was worth $100k. 75% would be $75k and your purchase price is $80k…so the lower amount is $75k.
When buying a home with cash you can absolutely get cash back right away but you will be limited to the lower of those two amounts.
3. HOW TO PROPERLY STRUCTURE BUYING A HOME WITH CASH
With these rules, you can see how it can be confusing to get conventional lending when buying a home with cash but there is absolutely a proper method to structuring your deals when buying cash. Here’s the secret:
Create an LLC and have the LLC lend you a mortgage on the property you are receiving.
The reason why this works is because instead of you needing cash or receiving a cash out loan, we are now refinancing a loan – your loan. There no reason to wait any time or have any “whichever is lower” rule come into play. We are just refinancing a loan.
Here’s how it works:
You create an LLC
You buy a home
Your LLC gives you a loan for the home
You file the deed for that loan at the county courthouse
You use the money from the LLC to buy and fix up the property
Once the property is completed, your conventional lender comes to refinance the loan
Your conventional lender runs title and sees there is a loan.
Your conventional lender refinances you into a new loan, and cuts a check to your LLC in the amount of 75% of the value.
Please don't confuse this 75% with a "cash out" amount. The non-cash out LTV on a refinance is also 75%. We are refinancing a mortgage. Your LLC's mortgage. Essentially your LLC has become the bank/hard money lender/etc. However you want to think about it. You get to set the interest rate (it can be 0%) and you get your investment amount back sooner.
Some things to think of:
To file a deed at the county courthouse is $100-$150 in cost (depending on which county)
And you want that note to be pretty close to 70% of the ARV for the property if you don't want to bring any money to closing. 70% will allow you to roll in your closing costs. If you want it to be at 75% just keep in mind you would need to bring your closing costs out of your pocket to complete the refinance.
@Adam Bradley you have some good comments above but if you can qualify for a Fannie/Freddie loan, you can take cash out right away with no seasoning or waiting. The amount of your loan will be limited to either 75% of the ARV or your original purchase price + closing costs. So if the value is $70k as you were thinking then 75% would be $52,500. By the time you add in your original closing costs that should put you pretty close to the amount of money you invested originally. I would strongly consider going that route since it would be the simplest route to go. Hope all of that makes sense.
@Conte Cuttino can you provide us some numbers of your investment property? What you purchased it for? What the ARV is, etc?