Help! What type of refi do I use for BRRRR?

Question

This is my first BRRRR project and am not sure if I'm getting a great deal on my hard money loan. I'm also confused as to what type of refi structure I should go with? I read on Bigger Pockets that finding a lender to refi is something that should be done right away once funding is approved. I'm looking to refi and cash out on the difference of the appraisers ARV.

Below are the terms the hard money lender is offering. Can someone tell me if it's a decent deal?

• -Amount $146,000.00 ($136,000.00 Purchase Funds + $10,000.00 Rehab Holdback)-Terms Two months
• -Rate: 12%-Fees: $3,920.00 Total Fees. 2% Origination Fee, $500.00 Loan Processing Fee, plus all reasonable closing costs, including but not limited to appraisals, title work, legal, etc and the $250.00 doc prep fee.. The Desktop Appraisal worth $250.00 is going to be added to the fees on this Term Sheet.
• -Payment Schedule to Lender: $1,460.00 interest payment due the 10th of each month until maturity of loan or sale of property. Principle and all remaining interest due upon maturity of loan.
• -Payment Schedule to Borrower: Purchase Funds of $136,000.00. Total Rehab Holdback of$10,000.00 to be released as work is completed.
• -Contingencies: This loan approval is contingent on a Post-Closing Desktop Appraisal.
• -Late Charge: $120 if payment not received by the due date, then an addition $50 per day until payment is received.
• -Loan may be extended for an additional 1 month with 1 point paid provided that the loan, insurance, and taxes are current. Loans cannot be extended past 12 months. An onsite inspection is also required for any loan extension.
• -Collateral: 1st Deed of Trust and Assignment of Rents and Leases on the property located at __"property"__ . __"lender"___ will lend up to the lesser of 85% of Cost (purchase price) or 65% of Market Value, not to exceed $146,000.00.
• -Interest Rate Adjustment: The interest rate payable on this Note will be subject to adjustment from time to time in the event "lender" deems it necessary or prudent.
• The above terms are not all inclusive and any final commitment and documentation would include other such conditions that are customary for similar transactions.

Robin Tan · Answer

@Jesse Rivera, @Steve Vaughan,

Thank you guys for your input. 2 months may be a typo but should be 6. I'll have them adjust. However, I may have a buyer for the property at $50k over ARV. Does this change things? She's willing to sign a contract for a lease option. I'm going in on it with a mindset of renting out. House needs a roof and some updating.

Purchase:185000 - Repairs: 20-23k - ARV 250-260k

I can't do conventional because I have another property being processed and took a lot of my capital. Conventional lender advised I wouldn't approve for this other project so I went the HM route.

Are there banks that allow you to refi sooner than 6 months without it being a 5 year or short term loan?

Steve Vaughan · Answer

@Robin Tan  The HML seems expensive and restrictive and they can change your rate whenever they want.  i wouldn't touch it. What does term 2 months mean?   The refi loan itself can take 2 months.

Does this property need too many repairs to qualify for a conventional mortgage?   What you want is to be able to do a rate/term refi. These have no seasoning period.   Borrow initially the total funds you'll need by adding repairs into the HUD-1/Settlement Sheet.   Banks will rate/term refi to the purchase price without seasoning so you want the purchase price to reflect the rehab amount.

My direct lender (community bank) told me I can rate/term refi with a new appraisal after 6 months,  cash-out after 12 months.  These seasoning requirements may be  a little on the harsh side but is what they said GSE loans require.  Don't forget seasoning requirements when getting short term HMLs. They can extend your refi time significantly.

Jesse Rivera · Answer

Those terms look pretty standard for HM loan.

For your refinance, I don't care what your HM terms are. As to what kind of refinance, conventional should be your first option, but you will need to qualify with your income, DTI, FICO, time on job etc. And loan balance vs appraisal value (LTV). You will get the best rate with conventional.

If you can't qualify with conventional, there are other options. Bank statement (less stringent personal requirements), DSCR (look at rental income vs mortgage amount), and some other outliers. Your interest rate will be higher.

But all loans are driven by FICO score and LTV.

Hope this helps.