How do I buy in cash and convert to a conventional loan?

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How do I buy in cash and convert to a conventional loan?

Brant Richardson
Investor · Santa Barbara, CA · Member since 2013 · 658 posts · 315 votes
I am seeing better opportunities for cash buyers and I actually have enough cash to do a deal. However, it would take most of my cash. I have no properties at this point so I would like to take advantage of the low rates of traditional financing and buy 4 properties leveraged rather than own one outright. Is it possible to buy in cash, do the necessary renovations and then convert to a normal 30 year fixed at the same rate as if I bought the property with financing in the first place?
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Dawn AnastasiPro Member
Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
13y

When you get a mortgage AFTER renovating the property, it's called a "cash out refinance". However many lenders will only do this with a "seasoning" period. This period is usually 12 months, but can be 6 months as well. Different banks, especially portfolio lenders, have different requirements/guidelines.

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  • Dawn AnastasiPro Member
    Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
    13y

    When you get a mortgage AFTER renovating the property, it's called a "cash out refinance". However many lenders will only do this with a "seasoning" period. This period is usually 12 months, but can be 6 months as well. Different banks, especially portfolio lenders, have different requirements/guidelines.

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  • Chris L.
    Investor · Cincinnati, OH · Member since 2013 · 38 posts · 16 votes
    13y
    Originally posted by Brant Richardson:
    I am seeing better opportunities for cash buyers and I actually have enough cash to do a deal. However, it would take most of my cash. I have no properties at this point so I would like to take advantage of the low rates of traditional financing and buy 4 properties leveraged rather than own one outright. Is it possible to buy in cash, do the necessary renovations and then convert to a normal 30 year fixed at the same rate as if I bought the property with financing in the first place?

    I have done it, usually a 12 month waiting period to do a cash out refi. I also did a "home Improvement" loan from a local bank at 4.25% 30 year fixed.They would do up to 85% loan to value. Oh, AND it was only $125 closing cost. They wanted a six months of owner occ.

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  • Brant Richardson
    OP
    Investor · Santa Barbara, CA · Member since 2013 · 658 posts · 315 votes
    13y

    I see, thank you for the responses. I don't really like the thought of being tied up for 6 months and hate the idea of being tied up for 12. I love the $125 closing cost though. Is owner occupancy an important part of the equation or is that different bank by bank? My plan is not to occupy.

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  • Shane Johnson
    Hudson, WI · Member since 2012 · 189 posts · 30 votes
    13y

    Its only an important part for the home improvement loan that Chris is speaking of I believe, not so much on the cash our refinance. Unfortunately, the 12 month seasoning is pretty standard. Maybe consider buying a few properties cash, and the others with conventional owner-occupy financing, or conventional investment loan (20%) cash down. You may be able to be competitive with a 20% down , no contingencies, solid EM upfront, and proof of funds and proof of reserves included in your offer. I have no idea on that last bit, but just thinking out loud.

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  • John Thaxton
    Sugar Land, TX · Member since 2012 · 28 posts · 1 vote
    13y

    I'm in the same situation right now. First property under contract for cash. My mortgage guy is saying I can finance after close under the Delayed Financing guideline from FannieMae. Within the first 6 months you can get a loan for 70% of your purchase price. Otherwise their guidelines say 6 months for a cashout.

    Still more money in this particular property than I wanted in my acquisition stage, I'm also trying to work out a private mortgage that I could do a rate and term refi on but I'll have to see if that works out. Good luck!

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  • Brant Richardson
    OP
    Investor · Santa Barbara, CA · Member since 2013 · 658 posts · 315 votes
    13y

    I have just enough cash to buy one property and rehab it in all cash unless I drop my standards big time on the properties I'm interested in. I will be living about a 2 hour drive from my investing area so I don't really want to get into the low end rentals where they will need constant help.

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  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
    13y

    Find the right lender who doesnt have that long of a seasoning period. Our lender can start the refi process right away. You buy cash today and start refi tomorrow.

    Curt Davis - KAIZEN Realty538 Reviews
    WebsiteView Page
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  • Derek Carroll
    Syndicator and Fund Manager · Victor, NY · Member since 2012 · 760 posts · 345 votes
    13y
    There was an article about exactly this in the Wall Street journal a couple weeks back. Look it up. You don't have to do a cash out refinance, there's another option where it almost treats the loan as a purchase funds without the seasoning requirements and happens after closing. Sorry I don't remember the details but the article is good if you can find it and that should give you enough to start asking banks and brokers if they can offer you this service.
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  • Shane Johnson
    Hudson, WI · Member since 2012 · 189 posts · 30 votes
    13y

    @Curt Davis

    What lender is this? Local bank?

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  • Shane Johnson
    Hudson, WI · Member since 2012 · 189 posts · 30 votes
    13y

    @Derek Carroll



    Any help with a link? I tried searching for the article unsuccessfully.

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  • Derek Carroll
    Syndicator and Fund Manager · Victor, NY · Member since 2012 · 760 posts · 345 votes
    13y

    @Shane Johnson

    I'm also having a tough time with finding the link. i read it in the phycical paper a couple weeks back.

    here's an old article from last year that covers much of the same thing

    http://online.wsj.com/article/SB10001424052970204712904578094792765083264.html

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  • John Thaxton
    Sugar Land, TX · Member since 2012 · 28 posts · 1 vote
    13y

    google "Delayed Financing Rule" or go to this link, then page 216.

    https://www.fanniemae.com/content/guide/sel040913.pdf#page214

    Hope it helps.

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  • Donovan H.
    Residential Landlord · Flat Rock, MI · Member since 2012 · 27 posts · 5 votes
    13y

    My CCU will do a day 1 cash out refi, but they want 6 months reserves (mortgage, taxes, & insurance) for BOTH the income property and my principal residence. They are out there ...

    2Reply
  • John Thaxton
    Sugar Land, TX · Member since 2012 · 28 posts · 1 vote
    12y

    I think I misstated the rule in my reply above.

    After rereading and confirming with my mortgage broker it seems the "delayed financing exception" referred to in the FNMA guidelines allows you to finance in less than 6 months for up to 70% of the appraised value but not in excess of the purchase price. I had incorrectly thought it was 70% of purchase price.

    Here's to hoping the appraisal comes through after my rehab:)

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  • David Beard
    Investor · Cincinnati, OH · Member since 2010 · 1k+ posts · 928 votes
    12y

    @John Thaxton - just for the record on the DFE program, you can finance up to the total of your purchase price PLUS closing costs and prepays (which can add a few more percent to how much you can refinance). Works great for moderate rehabs (enough rehab to force equity, but not so much that you can't get your LTC as high as you want).

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  • Chris Adams
    Contractor · Valparaiso , IN · Member since 2013 · 604 posts · 327 votes
    12y

    Keep knocking on bank doors, banks that do portfolio loans are your target.

    I know you want to buy and hold, but it sounds like your stretching your available funds to the limit, and thats why you don't want to season the property for 6-12 month. Maybe flipping the first house would be better. This will add to your cash reserves and help you get thru the seasoning period on the next house.

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  • Sam Craven
    Houston, TX · Member since 2011 · 673 posts · 360 votes
    12y

    I work with a lender in Houston that will refi me immediately after purchase up to 75% of the purchase price. The good lenders are out there but their names aren't BoA, Wells Fargo ect.

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  • David A.
    SFR Investor · Friendswood, TX · Member since 2013 · 136 posts · 11 votes
    12y
    Originally posted by Sam Craven:
    I work with a lender in Houston that will refi me immediately after purchase up to 75% of the purchase price. The good lenders are out there but their names aren't BoA, Wells Fargo ect.

    yes the big banks shy away from this look local.

    0Reply
  • Thomas Mitchell
    Wholesaler · East, TX · Member since 2012 · 88 posts · 61 votes
    12y

    @Brant Richardson I would caution you to do your first deal as though you have no money at all. New investors usually have cash or knowledge. It's rare to have both. If you have knowledge you can make a deal happen with none of your own money. If you have cash and no knowledge then you run the risk of making a HUGE mistake. I speak from experience as well as witnessing it happen to those around me. I would warn you against using all of your money for your first real estate deal. At this point you don't know what you don't know and there are many mistakes you can make that you aren't even aware of this early in the game. If you find a deal that is a homerun people will partner with you on it. If no one will partner with you (i.e. a seasoned investor) then why would you want to put your own money into it? You won't make as much as you would going at it by yourself, but the education you will receive from doing your first deal will be well worth the money lost.

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  • Thomas Mitchell
    Wholesaler · East, TX · Member since 2012 · 88 posts · 61 votes
    12y

    If i have misunderstood your post and you have done deals in the past, then I apologize. When you say, "I have no properties at this point" what do you mean?

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