No seasoning period for cash out refi?

Question

Hello, I have an investment property in Philly; it's a BRRRR. It's been renovated and will be rented out November 1, but I'd rather do the cash out refi sooner rather than later.

Any lenders do 80% cash out refi with no seasoning period?

Greg Downey · Answer

@Jessica Stern, to consolidate some thoughts here AND add in a bit. There is typically a misconception on what a c/o refi is vs a rate and term refi when it comes to a recently rehabbed property. Not all lenders see it this way, but a good mtg broker should be able to navigate your specific situation.

On a small handful of DSCR products, you can do a refinance not to exceed your TOTAL cost basis (ie. purchase price + rehab + holding costs) and have that transaction considered a rate and term refinance vs a cash-out. This transaction very well might feel like a cash-out to YOU but, if framed properly, to the lender, it is a lower risk, rate and term refinance. I do this regularly for our clients that are moving fast at or near 90 days seasoning.

The is a newer program to the space that will allow for 80% c/o but rates are a bit (maybe ~50bps) higher than your top-of-the-line DSCR products.

The best thing that you can do is share your completed scope of work and pre-rehab photos with the appraiser AND your lender.

Matt Cartwright · Answer

I can do 80% and no seasoning if the property was recently renovated. Let me know if you are still in the market!

Greg Downey · Answer

@Tim Lewellen, its all about how you approach the deal and frame it to the lender and ultimately the underwriter. You've got to be working with a lender that looks at deals this way to begin with though. This is how we earn our keep; Navigating complicated situations and making them as straightforward as possible AND pairing you with a loan program that can actually do whatever it is that you are trying to do.

Tim L. · Answer

That is so genius... why is that new to the lending industry!? or perhaps it's not and is just new to me. Might have to call you up for my next deal.

Stacy Raskin · Answer

@Jessica Stern, the most I'm seeing right now is 75% max LTV for cash out for DSCR lenders. Also, that's with 6 months seasoning. There are lenders that will do 0 seasoning based on purchase price and receipts for remodel. There are some that will do 0 seasoning based on the new appraisal if a substantial remodel. These lenders that do 0 seasoning will generally not go up to 75% LTV. Conventional lenders will generally not do a cash out refi with less than 6 months of seasoning.

DSCR loans won't use your income to underwrite the loan.

DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.

Here's a bit more in detail about how rates are calculated for DSCR loans:

1. Credit score- the higher the best. 760+ generally gets best pricing for investment property loans with most lenders

2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.

3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.

4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. This criteria is for 1-4 and 5-8 unit programs.

I've included an example below to help illustrate this.

So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.

See example below:

DSCR < 1

Principal + Interest = $1,700

Taxes = $350, Insurance = $100, Association Dues = $50

Total PITIA = $2200

Rent = $2000

DSCR = Rent/PITIA = 2000/2200 = 0.91

Since the DSCR is 0.91, we know the expenses are greater than the income of the property.

DSCR >1

Principal + Interest = $1,500

Taxes = $250, Insurance = $100, Association Dues = $25

Total PITIA = $1875 Rent = $2300

DSCR = Rent/PITIA = 2300/1875 = 1.23

DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.

I'll send you a message as well.

Jay Hurst · Answer

The seasoning period is almost always for cash out loans, NOT rate/term. So, what we do to get around the seasoning issue is give a bridge loan up to 75% or 80% with the cash out. Then we turn around and refi that loan into a permanent loan right away. That way you have your cash and into the long term loan with no waiting period.  The loan to value, the 75% or 80% will depend on the max loan to value for a rate /term on the final loan program's max loan to value.

Ryan Muska · Answer

80% is hard to come by, and if you do the interest rates will be exceptionally high.

Lots of lenders do 75% and you will see a much more reduced interest rate.

Ginna Stauble · Answer

Without a tenant, you could only get 70% with the lenders I know for cash out with zero seasoning. With tenant, 80%.

Nick Belsky · Answer

@Jessica Stern

Yes.  I work with a few lenders who will do 80LTV on cash outs with completed rehab in PA.  If the appraisal FMR comes in lower than the lease, we can also blend between the two to help secure the DSCR.  Need to have at least experience of at least 3 properties in the past 36 months, completed rehab, a mid-FICO over 700, and it has to have a DSCR of around 1.05% or higher to qualify for 80LTV.

Cheers!

Brayden Hrycko · Answer

Hello @Jessica Stern,

I have a few lenders I work with that are 0-3 month seasoning and I am right here in the Lehigh Valley. I would love to connect.

No seasoning period for cash out refi?

No seasoning period for cash out refi?

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