Cash-out refinance income requirements?

Question

Hey all,

Just had a general quick question.. What is the income requirements for a cash-out refinance on a property? More specifically, how many years of tax returns is needed to be shown to qualify for a cash-put refinance? I'm looking to do a personal project of mine where i'll be building my own personal residence and decided to do it with just straight cash, and the idea was to cash-out refinance the property after it's completed. However, the issue I have is that I only have 1 year of solid income from the business, the year prior to that is inadequate, and I know most mortgage companies require 2 years of income to qualify. I wasn't sure if that'd also apply to a cash-out refinance on a property that's already paid off?

Thanks!

River Sava · Answer

Hi Faiz - Have you looked into DSCR loans. No DTIs as the loan is primarily based on the property not the borrower. The main factors that are considered are cashflow/DSCR ratio, LTV, and FICO.

Happy to dicuss further!

Jacob Sherman · Answer

You are able to utilize 1 year income programs using non qm loan products . What is the full scenario looking like ?

Kristen L Garner · Answer

Hi Faiz, The same rules will apply whether the property is paid off or if it has an existing mortgage.  It sounds like you may have 2 years of income history on your tax returns but the second year is substantially higher than the first?  If this is the case, most lenders would average the two when calculating your income.  There are some conventional loan products that will allow you to use just one year of tax returns but it depends on many factors.

Alternatively, there is a category of loans called non-QM.  This includes bank statement loans where income is calculated based on 12 months analysis of your bank statements and not taxes.  This is most common for self employment situations and in most cases you need to show you have been in that line of work for 2 years (business license or CPA letteR). There are P&L loans where income calculation is based off of a P&L made by your CPA.  There are also P&L loans where a self made P&L statement can be used.  In that case, most guidelines would require 3 months bank statements to confirm the info.  There is also DSCR but it sounds like this will be your primary residence.  DSCR is awesome, but only works for investment properties.  DSCR (debt service coverage ratio) qualifies you based on the asset itself cash flowing. You take the monthly rental income and divide it by the monthly payment (principal + interest + taxes + insurance) and if that number is greater than 1 you have met the basic requirement for DSCR.  There are products that allow you to go under 1, but 1+ will get you the best LTV for a cash out refi.

Lots of options! Best of luck!

AJ Exner · Answer

Hello Faiz,

If the property is paid off and it is rented out, I might recommend a DSCR loan as it is based off of the asset itself and most DSCR lenders do not need W2/Tax Returns. Some DSCR lenders would even utilize the After Repair Value and can still be vacant if you are completing the rehab.

Good luck, happy to explain further if needed.

Erik Estrada · Answer

Hey Faiz,

It will depend on the type of loan you do. You may do a 12 month bank statement program or 1 year Profit and Loss statement to validate your income for the past year. Conventional financing may require 2 years of income to show depending on how many years you have been self-employed for.

Cash-out refinance income requirements?

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