Refinance immediately after purchase loan close (investment prop)

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Refinance immediately after purchase loan close (investment prop)

Jain P.
Investor · Modesto · Member since 2017 · 14 posts · 6 votes

Can i refinance immediately next day, after closing the purchase loan on investment property.

City: Jarrell, Texas - 76537

The local city lender which i picked has following :

Advantages: 

1.)Can commit to close on time. 

2.)Which means my earnest money of $10K is not at great risk. 

3.)They have good network of appraisal folks, so they can get that in 1 week timeframe.

Disadvantages: 

1.)Section A: origination fees, discount points and worst rate overall, 

2.)No lender credit. 

3.)Total $5K cost difference compared to online lender, along with 1% interest rate difference.


Online Lender: LoanDepot, Better.com, which provides competitive rates.

Local Lender: Keeping it anonymous in this forum.

Also, if it is allowed, can i bump up my interest rate way higher, so that my closing costs(A+B+C+E) are close to $0, so that immediate refinance will not cost be double closing costs?

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Joseph Hummel
Rental Property Investor · Crystal Bay · Member since 2019 · 59 posts · 38 votes
5y

@Katie Greenman

Would you like me to lend you $100 to buy that broken ps5 so you can fix it and resell it on ebay? If so I want you pay me back the original $100 plus 8% due in 90 days. Instead of monthly payments I can roll the interest into the final payment and no payments are due for 90 days, that should give you enough time to fix it and sell it. Since I don’t know you that well I’m going to need $2 up front. Deal?

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  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    5y
    Originally posted by @Jain P.:

    Can i refinance immediately next day, after closing the purchase loan on investment property.

    City: Jarrell, Texas - 76537

    The local city lender which i picked has following :

    Advantages: 

    1.)Can commit to close on time. 

    2.)Which means my earnest money of $10K is not at great risk. 

    3.)They have good network of appraisal folks, so they can get that in 1 week timeframe.

    Disadvantages: 

    1.)Section A: origination fees, discount points and worst rate overall, 

    2.)No lender credit. 

    3.)Total $5K cost difference compared to online lender, along with 1% interest rate difference.


    Online Lender: LoanDepot, Better.com, which provides competitive rates.

    Local Lender: Keeping it anonymous in this forum.

    Also, if it is allowed, can i bump up my interest rate way higher, so that my closing costs(A+B+C+E) are close to $0, so that immediate refinance will not cost be double closing costs?

    A few things:

    • Unless you're talking about paying cash and then refinancing using delayed financing, you can't get a conventional loan the next day after you purchase an investment property. There's a 6 month seasoning requirement
    • Loan Depot and Rocket Mortgage and Better.com are notorious for making sausage out of an investment loan.
    • Jarrell by itself may be difficult to find comps, especially rental comps
    • All lenders say they'll close on time.  Sometimes we do, sometimes we don't.  Lots of things have to go right to close quickly
    • You should be able to bump up the interest rate for lender credit and cover some or all of the closing costs depending on how high you buy it up
    • Shop around for another local lender is what I would do

    Stephanie

    6Reply
  • Jain P.
    OP
    Investor · Modesto · Member since 2017 · 14 posts · 6 votes
    5y

    I see 6-months waiting period is only for cash-out refinance. Did not see any restriction on regular refinance.

    1Reply
  • Jesse LeBlanc
    Investor · Atlanta, GA · Member since 2016 · 627 posts · 374 votes
    5y

    Yes, you 100% can. I do this for all of mine and have ZERO of my own funds left in the deal for infinite ROI.

    Utilize private money, then if I’m rehabbing it I’ll start the refi and have the appraiser come in right after our rehab.  Whether that be 3 weeks or 2 months after purchase.


    I do a Rate and Term Refi.  DO NOT mention a cash out refi in this scenario.

    8Reply
  • Katie Greenman
    Real Estate Agent · San Antonio, TX · Member since 2020 · 103 posts · 78 votes
    5y

    @Jesse LeBlanc

    I’m such a noob but could you please explain utilize private money.. I have a general understanding.. but any details/or specific examples you could provide would be very helpful , thx!!

    6Reply
  • Katie Greenman
    Real Estate Agent · San Antonio, TX · Member since 2020 · 103 posts · 78 votes
    5y

    @Katie Greenman

    I as well thought there was a seasoning period.

    1Reply
  • Joseph Hummel
    Rental Property Investor · Crystal Bay · Member since 2019 · 59 posts · 38 votes
    5y

    @Katie Greenman

    Would you like me to lend you $100 to buy that broken ps5 so you can fix it and resell it on ebay? If so I want you pay me back the original $100 plus 8% due in 90 days. Instead of monthly payments I can roll the interest into the final payment and no payments are due for 90 days, that should give you enough time to fix it and sell it. Since I don’t know you that well I’m going to need $2 up front. Deal?

    16Reply
  • Jesse LeBlanc
    Investor · Atlanta, GA · Member since 2016 · 627 posts · 374 votes
    5y

    Season periods for majority of lenders are common when doing a CASH OUT.  If you already have an existing loan, then just want to refinance (rate and term refinance) then majority of lenders won't have a season period requirement.

    An example would go something like this: Buy the property at 60k with 10k rehab.  Borrow 70k from private money lender (your friend, neighbor, family, or someone else.  Can also be Hard Money lender but fees are higher).  Rehab the house, now you have ~70k all in (to keep it simple).  You start the refi process lets say a month later when your cosmetic rehab is done.  The lender sends out appraiser, appraises the house for 100k.  

    The lender will now give you max of 80% Loan To Value, most like to be at max 75% loan to value.

    Since you only have existing loan at 70k, they max they can give you is 70%, or 70k BUT can also roll in their lender fees. So lets say at the end of the day if their max was 75% LTV, but you have 70k loan with 3k in fees, they'll give you a loan of 73k on the refi.

    You go to closing, and BOOM, you have ZERO of your own capital left in the deal and then you rent or do whatever you want with the property from there.

    @Katie Greenman

    6Reply
  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    5y
    Originally posted by @Jain P.:

    I see 6-months waiting period is only for cash-out refinance. Did not see any restriction on regular refinance.

    https://www.biggerpockets.com/...

    Here's a thread that explains delayed financing better than I could.

    1Reply
  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    5y
    Originally posted by @Jesse LeBlanc:

    Season periods for majority of lenders are common when doing a CASH OUT.  If you already have an existing loan, then just want to refinance (rate and term refinance) then majority of lenders won't have a season period requirement.
    An example would go something like this: Buy the property at 60k with 10k rehab.  Borrow 70k from private money lender (your friend, neighbor, family, or someone else.  Can also be Hard Money lender but fees are higher).  Rehab the house, now you have ~70k all in (to keep it simple).  You start the refi process lets say a month later when your cosmetic rehab is done.  The lender sends out appraiser, appraises the house for 100k.  
    The lender will now give you max of 80% Loan To Value, most like to be at max 75% loan to value.
    Since you only have existing loan at 70k, they max they can give you is 70%, or 70k BUT can also roll in their lender fees. So lets say at the end of the day if their max was 75% LTV, but you have 70k loan with 3k in fees, they'll give you a loan of 73k on the refi.
    You go to closing, and BOOM, you have ZERO of your own capital left in the deal and then you rent or do whatever you want with the property from there.

    @Katie Greenman

    So your private lenders give you money without a lien on title and since enough time has elapsed, the new lender doesn't ask where the large deposit in your bank account came from.

    Genius and well played.  For most of us, our private lenders would want some security and will put liens on the properties.

    Stephanie

    1Reply
  • Jesse LeBlanc
    Investor · Atlanta, GA · Member since 2016 · 627 posts · 374 votes
    5y

    Ummmm I’m not sure where or how you ASSUMED that @Stephanie P..


    I 100% have them in 1st lien position with a recorded lien. Just as I do when I loan to my investors as well. I didn’t realize I’d have to explain the obvious to a Lender/Broker.

    2Reply
  • Jesse LeBlanc
    Investor · Atlanta, GA · Member since 2016 · 627 posts · 374 votes
    5y

    It’s quite simple and unfortunately people overthink it or get caught up and STUCK in the mindset of “cash out” refinance which then most of the time requires seasoning vs the SAME PROCESS but a different name which then moves the refi right along without question.

    If you don't need to pull cash out, if you want to have the lowest rate and lowest loan amount, if you want the lower PITI payment, if you want to cash flow more, DO A RATE & TERM REFI! Don't mention "cash out" and you'll be just fine and DO NOT have to wait. You can literally get the final appraisal as the paint is drying in the wall from your rehab (if you worked that quick lol).


    pay off your prior loan, then get into a conventional loan at the lowest rate and out of your interest only prior loan (if that’s how your prior loan was structured).

    7Reply
  • Eric James
    Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
    5y

    Sounds like youay be taking about a portfolio loan, not a conventional mortgage. Each banks policies on those can be different.

    1Reply
  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    5y
    Originally posted by @Jesse LeBlanc:

    Ummmm I’m not sure where or how you ASSUMED that @Stephanie P..

    I 100% have them in 1st lien position with a recorded lien. Just as I do when I loan to my investors as well. I didn’t realize I’d have to explain the obvious to a Lender/Broker.

    In the scenario you laid out, the max loan amount would be 75% of the new appraised value or the purchase price, whichever is lower.  You're right, you don't have to explain it to me.  I laid it out in my previous answer.

    1Reply
  • Jesse LeBlanc
    Investor · Atlanta, GA · Member since 2016 · 627 posts · 374 votes
    5y

    @Eric James no sir, I’m 100% talking about conventional loans.  I’m staring at 3 loan statements right now from just a few of my past loans before I refi into a portfolio loan.

    guys, this isn’t hard.  Stop getting caught in the trap of having blinders on and ONLY assuming that what the majority knows is all that’s available.

    use your PML, your HML etc and refi into a conventional (unless you maxed out) very very simple. I personally use a Mortgage Broker who then finds the best one, I personally refi into United Wholesale Mortgage. On of my last refi's were only 3.25% on my rental.

    3Reply
  • Jesse LeBlanc
    Investor · Atlanta, GA · Member since 2016 · 627 posts · 374 votes
    5y

    @Stephanie P. the max LTV the majority will give you is actually 80% (which I stated), all fees can roll into the loan if the appraised value was high enough and the investor did a good job finding a deal with equity from the start is key.

    here is another one for you and some others, you’re ALSO allowed to receive up to 2% back or $2000 whichever is lower which is somewhat like cash back and can cover your 2nd closing costs.


    0Reply
  • Eric James
    Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
    5y

    So this isn't a cashout refi, it's just a refi ? And your financing twice just so you can close a little quicker in the original purchase? If that's the case it sounds dumb. You take a few weeks longer to close and save thousands of dollars by financing once.

    1Reply
  • Jesse LeBlanc
    Investor · Atlanta, GA · Member since 2016 · 627 posts · 374 votes
    5y

    @Eric James yes, I can agree with your statement in some cases. 

    However, it comes down to holding costs. At the end of the day, regardless you will refi and incur those costs, you will close a 2nd time regardless.

    so if the holding costs monthly with interest only is greater than your new conventional rate and are paying interest only, then the majority of time it makes sense to refi sooner than later.


    the entire point of this is to obtain rentals with ZERO of your own capital left in the deal. It’s better than putting 20% down and only have 1 closing. I don’t have 1 rental with any of my own capital left in them, thus having infinite return 😉😁

    2Reply
  • Eric James
    Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes
    5y
    Originally posted by @Jesse LeBlanc:

    @Eric James yes, I can agree with your statement in some cases. 

    However, it comes down to holding costs. At the end of the day, regardless you will refi and incur those costs, you will close a 2nd time regardless.

    so if the holding costs monthly with interest only is greater than your new conventional rate and are paying interest only, then the majority of time it makes sense to refi sooner than later.


    the entire point of this is to obtain rentals with ZERO of your own capital left in the deal. It’s better than putting 20% down and only have 1 closing. I don’t have 1 rental with any of my own capital left in them, thus having infinite return 😉😁

    If someone is refinancing to pull their original downpayment out....then that's a cashout refi. It doesn't sound like that's what he's doing. 

    0Reply
  • Jesse LeBlanc
    Investor · Atlanta, GA · Member since 2016 · 627 posts · 374 votes
    5y

    @Eric James yes sir, IF you used your own cash and needed that out you would have to wait for the cash out. Agreed.

    I’m just trying to share a far better option to save investors from using their own capital and leave the minimal amount in the property as possible giving the investor greater buying power.


    the toughest part is finding the deal with equity then making sure your appraisal comes back at or above your initial assumption.  It works great for Wholesalers who are also very wise and ready to keep as many of their own wholesale deals as rentals instead of selling them to other investors for the quick buck at the highest taxable rate.

    1Reply
  • Andrew Kougl
    Chula Vista, CA · Member since 2017 · 195 posts · 104 votes
    5y

    @Jesse LeBlanc

    Trouble following how that first private investor, who loaned you 70k is getting their capital and interest back without a cash out refi?

    2Reply
  • Jesse LeBlanc
    Investor · Atlanta, GA · Member since 2016 · 627 posts · 374 votes
    5y

    @Andrew Kougl let’s say your PML’s monthly interest equaled $750/month.  It took you 1 month to rehab and 1 month until refi.  At the time of your refi, your PML’s $ is returned to them from the closing company.

    0Reply
  • Terri Wyzkoski
    Lender · Vienna, VA · Member since 2021 · 61 posts · 33 votes
    5y

    A seasoning period is only for a cash-out refinance. No bank can prevent you from refinancing 24 hours later, and another bank will finance you.  I’m not sure why anyone would do that, but it’s perfectly okay to do so, unless you have a prepayment penalty.

    2Reply
  • Jesse LeBlanc
    Investor · Atlanta, GA · Member since 2016 · 627 posts · 374 votes
    5y

    @Terri Wyzkoski 👍🏼👍🏼
    The reason why would be to avoid being forced to put 20% down for a rental.


    the cost eats away a tad at your equity in exchange for not having any of your own capital left in the deal.

    1Reply
  • Terri Wyzkoski
    Lender · Vienna, VA · Member since 2021 · 61 posts · 33 votes
    5y

    @Jesse LeBlanc

    Every commercial lender (I don’t know about residential loans) will finance at the lower of cost or appraised value.  If you purchase with cash one day, and try to finance with commercial lender the next day or next week, the lender will finance no more than 75% of the purchase price, unless the appraisal value is lower, then it would be 75% of the appraised value.
     

    4Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    5y

    Paying financing costs and indigestion twice if you don't need to is just a bunch of work, costs and pain.

    I pay cash and self-encumber for PP and rehab.  I can rate and term refi if I want to, only going through the crap once. 

    And why so afraid to leave any $ in a property?  I get the bragging rights of infinite returns,  but it's not like ROE is zero. 

    4Reply
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