Process of Cash out Refi

21 Replies

I hope you enjoyed your Holiday season,

I'm working a deal for a triplex, the unit cost 32.5k, needs 45k in repairs. The ARV should be 150k-160k. I should be closing before the end of the year.

I'm using hard money for acquisition and repairs. I'm looking to cash out refinance out of this loan to a standard 30yr fixed rate at least 75%ARV. I can have the entire building renovated in 3 months. How soon can I get out of the loan?

I am getting mixed answers

-Some brokers are telling me I have to wait 6 months,

-Some banks are telling me I have to wait a year.

I am in Philadelphia, PA

Any recommendations, suggestions or lender referrals will be appreciated.

Thank You,  

Hello Lorenzo,

I posted a post similar to this a few weeks ago. I am in the process of trying to acquire a second property to do exactly what you have done. I spoke to one particular bank so far and they told me that I would have to have an existing 12 month mortgage paying history in order for them to refi my hard money loan at their bank. I bought my first home in September so I do not yet have 12mos of mortgage history even though I do have good credit history elsewhere with other and different loans. I was also told by that same bank that you may not get appraised for much if you do an appraisal within six months because an appraisal is typically good for six months and the only way that the home will appraise for more money is if the home gets some sort of serious repair such as adding a bedroom or breaking down walls or adding a new bathroom and that regular cosmetic work (paint, floors) would not count. I believe that this varies among the property in question in respect to the neighborhood. If you did your comps correctly, I believe that you can still profit.

However, some banks will not refi you for the entire cost of the new loan (it is usually only a percentage of the new appraised value) but you can double check that. BTW, do you plan on bringing in tenants or re-selling after the refi?

Please let me know how your deal turns out because I am looking for advice to do the same exact thing. Best of luck to you!

keep calling banks, but the best I have gotten was 6 months 70% LTV of appraised.

Good luck!

Originally posted by @Lorenzo Jackson :

I hope you enjoyed your Holiday season,

I'm working a deal for a triplex, the unit cost 32.5k, needs 45k in repairs. The ARV should be 150k-160k. I should be closing before the end of the year.

I'm using hard money for acquisition and repairs. I'm looking to cash out refinance out of this loan to a standard 30yr fixed rate at least 75%ARV. I can have the entire building renovated in 3 months. How soon can I get out of the loan?

I am getting mixed answers

-Some brokers are telling me I have to wait 6 months,

-Some banks are telling me I have to wait a year.

I am in Philadelphia, PA

Any recommendations, suggestions or lender referrals will be appreciated.

Thank You,  

For a regular refi you'll need to season at least 6 months, more likely 12 months. However, you should consider "delayed financing exemption". This is a Fannie Mae program that let's you finance the deal within the first 6 months after purchase (assuming you used cash, HML, etc). You can get 65-70% of appraised value (after renovation) up to the original purchase price (plus closing costs). So, in your case, the max you could get out would be around 34K, assuming it actually appraises where you think it does. I realize that this may not be enough cash-out for you to bother and moreover, it may be hard to find a lender that will do such a small loan. Nevertheless, delayed financing is attractive in some cases.

@Josh C.  what bank did you use to cash out?

@Jessica F.  Im looking to going to bring in tenant and add it to the portfolio.

Originally posted by @Lorenzo Jackson :

I hope you enjoyed your Holiday season,

I'm working a deal for a triplex, the unit cost 32.5k, needs 45k in repairs. The ARV should be 150k-160k. I should be closing before the end of the year.

I'm using hard money for acquisition and repairs. I'm looking to cash out refinance out of this loan to a standard 30yr fixed rate at least 75%ARV. I can have the entire building renovated in 3 months. How soon can I get out of the loan?

I am getting mixed answers

-Some brokers are telling me I have to wait 6 months,

-Some banks are telling me I have to wait a year.

I am in Philadelphia, PA

Any recommendations, suggestions or lender referrals will be appreciated.

Thank You,  

 conventional financing you will have to wait 6 months per fannie mae.

community banks, its depends some will allow you to cash out to 75% of market or up to 90-95% of Cost (they want to you to keep some skin in the game). Have I found a community bank you who will lend me up to 75% of market with out other restrictions? Yes I have. Have I found them often? No its difficult but they are out there you just have to search all community banks.

Community banks are like individual Fannie Mae's as they all have their own set of guidelines.

If the banker says no they dont do that upfront its probably that they don't do it for you but if you build the relationship and track record with them you'll be surprised what they wont' do because they'll slowly remove all of their original guidelines they told you they "couldnt," do. 

Like Robert Kyiosaki mentions about banks, they want to know how smart you are financially.

If you can prove to the banker you understand your investment and how it affects your cash flow and balance sheet and show them your game plan step by step they will probably lend you all you need.

Originally posted by @Andrew S. :
Originally posted by @Lorenzo Jackson:

I hope you enjoyed your Holiday season,

I'm working a deal for a triplex, the unit cost 32.5k, needs 45k in repairs. The ARV should be 150k-160k. I should be closing before the end of the year.

I'm using hard money for acquisition and repairs. I'm looking to cash out refinance out of this loan to a standard 30yr fixed rate at least 75%ARV. I can have the entire building renovated in 3 months. How soon can I get out of the loan?

I am getting mixed answers

-Some brokers are telling me I have to wait 6 months,

-Some banks are telling me I have to wait a year.

I am in Philadelphia, PA

Any recommendations, suggestions or lender referrals will be appreciated.

Thank You,  

For a regular refi you'll need to season at least 6 months, more likely 12 months. However, you should consider "delayed financing exemption". This is a Fannie Mae program that let's you finance the deal within the first 6 months after purchase (assuming you used cash, HML, etc). You can get 65-70% of appraised value (after renovation) up to the original purchase price (plus closing costs). So, in your case, the max you could get out would be around 34K, assuming it actually appraises where you think it does. I realize that this may not be enough cash-out for you to bother and moreover, it may be hard to find a lender that will do such a small loan. Nevertheless, delayed financing is attractive in some cases.

This is a great exception only that he mentioned he used a HML, this exception is only for a cash purchase or cash/loans obtained through the borrowers own means. A HML implies other peoples money and would invalidate the DFE - delayed financing exceptions.

DFE will require the borrower to track all funds used to purchase on the final settlement statement (every cent used) and allows up to 70% if the borrower has 1-4 financed properties and up to 65% if the borrower has 5-10.

Originally posted by @Lorenzo Jackson :

I hope you enjoyed your Holiday season,

I'm working a deal for a triplex, the unit cost 32.5k, needs 45k in repairs. The ARV should be 150k-160k. I should be closing before the end of the year.

I'm using hard money for acquisition and repairs. I'm looking to cash out refinance out of this loan to a standard 30yr fixed rate at least 75%ARV. I can have the entire building renovated in 3 months. How soon can I get out of the loan?

I am getting mixed answers

-Some brokers are telling me I have to wait 6 months,

-Some banks are telling me I have to wait a year.

I am in Philadelphia, PA

Any recommendations, suggestions or lender referrals will be appreciated.

Thank You,  

 waiting 1 year was an old fannie mae rule in which the borrower had to wait 1 full year to use the market value to cash out 75%, currently they have reduced that time frame to use market value to 6 full months after acquisition to "cash out."

Originally posted by @Andrew S. :
Originally posted by @Lorenzo Jackson:
  You can get 65-70% of appraised value (after renovation) up to the original purchase price (plus closing costs).  So, in your case, the max you could get out would be around 34K, assuming it actually appraises where you think it does.  I realize that this may not be enough cash-out for you to bother and moreover, it may be hard to find a lender that will do such a small loan.  Nevertheless, delayed financing is attractive in some cases.

When asking my mortgage broker about this last week, his response after looking into it was I could receive 70% of the original purchase price, not new appraisal value. And the loan has to close within 6 months of purchase. So I guess there are differences in the way someone is reading/interpreting the rules...

Originally posted by @Robert Schmidt :
Originally posted by @Andrew S.:
Originally posted by @Lorenzo Jackson:
  You can get 65-70% of appraised value (after renovation) up to the original purchase price (plus closing costs).  So, in your case, the max you could get out would be around 34K, assuming it actually appraises where you think it does.  I realize that this may not be enough cash-out for you to bother and moreover, it may be hard to find a lender that will do such a small loan.  Nevertheless, delayed financing is attractive in some cases.

When asking my mortgage broker about this last week, his response after looking into it was I could receive 70% of the original purchase price, not new appraisal value. And the loan has to close within 6 months of purchase. So I guess there are differences in the way someone is reading/interpreting the rules...

It is 70% but depending on the borrowers situation if they own 1-4 financed properties the max LTV lowers to 65% if they own 5-10 financed properties so it depends.

The exact verbiage for value calculation is 70% of market value up to the acquisition costs so the DFE - delayed finance exception - can go up to 70% of the current market up till all the costs are returned to the buyer but nothing more (only costs on the final HUD, not rehab costs). This is so the buyer cannot receive more than they put into the deal.

I've funded 4-6 of these in varying situations. Just make sure all funds were from your "sources," if you're unsure of what this means I would recommend to get clarification so you dont put your deal at risk.

Originally posted by @Albert Bui :
Originally posted by @Andrew S.:
Originally posted by @Lorenzo Jackson:

I hope you enjoyed your Holiday season,

This is a great exception only that he mentioned he used a HML, this exception is only for a cash purchase or cash/loans obtained through the borrowers own means. A HML implies other peoples money and would invalidate the DFE - delayed financing exceptions.

DFE will require the borrower to track all funds used to purchase on the final settlement statement (every cent used) and allows up to 70% if the borrower has 1-4 financed properties and up to 65% if the borrower has 5-10.

Thanks Albert for correcting that oversight of mine!  It's a crucial detail obviously

@Albert Bui Can you explain further the exceptions to using HML for this kind of deal?

Are you saying that you cannot use a HML and then cash out and refinance? Does this vary bank to bank?

Originally posted by @Cody Steck :

@Albert Bui Can you explain further the exceptions to using HML for this kind of deal?

Are you saying that you cannot use a HML and then cash out and refinance? Does this vary bank to bank?

The DFE exception requires a cash purchase and then you can cash out within 6 months. If you use Hard money you didnt obtain the property with your "own," funds you used financing to purchase the property so now you have to wait 6 months to cash out.

Are there ways around this sure? But its beyond the discussion here.

@Albert Bui  So if you use your own funds, you can cash out before 6 months but if you use hard money, you have to wait 6+ months? But it is still possible to actually cash out at that point. 

Sure if you have value and 6 months you can cash out, not sure what exactly your asking but hopefully I addressed it correctly

@Albert Bui Basically, I am asking if you can find a property at a good enough price to be able to buy it with hard money and then do some rehab and still be able to add enough value to cash out after 6 months and get enough cash to pay off the hard money and maintain 75-85% LTV.

From my end sure, from your end you'll probably have to find a deal with enough meat on the bone for you to be at 75% LTV using ARV relative to acquisition/rehab/holding costs in the deal.

@Albert Bui  do you provide a service to re-finance out of the loan?

Only in select states WA, CA, TX, TN, for other states my team would be licensed in those states.

So, it sounds like it is possible. Yes, the hard part is finding the deal with that amount of 'meat'. Thanks for the help!

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