Purchasing in cash ; immediately getting an adjustable rate loan; then refi'ing that loan down the line

4 Replies

hello geniuses :

I have been purchasing buy and hold properties with a line of credit then immediately after rehab get a cash out refi for 75% of the appraisal value. The loan is an adjustable rate loan which is fine temporarily but not for the long haul for a buy and hold portfolio. I have owned these loans over 6 months ; some over 1 year and would like to refinance them to permanent fixed 30 year terms :

I would like to know how the amount I will get is determined and what are the terms 

Thanks :)

@Westin Hudnall  

You can refinance those lines of credit into a conventional 30 year (non cash out) immediately right after acquisition if the line of credit was used to obtain the property. If the line of credit was obtained after the property was purchased paying it off might be considered a cash out which has strict requirements. It all depends on when the line of credit was obtained on the property.

Paying off non purchase money 2nd's and loans can be considered a cash out with conventional financing and not with other types of financing like portfolio/community/local lenders and etc. Hopefully that is clear (if you're using conventional as opposed to local bank of kansas etc). Guidelines can vary but the above is for conventional.

You can cash out up to 70% of market value up till you recover all of your acquisition and closing costs if you cash out under 6 months after a cash purchase (no other liens on the property or lines of credit).

If you cash out after 6 months you can go up to 75% off the lower of purchase price or market value

If you cash out after 12 months its based on market value - 

Its important to make a clear distinction on what constitutes a cash out refinance or a rate/term refinance (regular refinance with less than 2k back to borrower at close). The R/T refinance can be done at anytime.

In you case if you acquired the line of credit after I believe your situation would be classified as a cash out refinance and subject to the time frame and LTV rules above.

Hope that helps.

@Albert Bui  

I may have not been clear enough. My goal is fixed rate 30 year financing. I will include an example of one of the properties . Please explain if I can get 30 year fixed rate and what the terms would be.

May 2013 -- Purchased a house for $119,000 with my line of credit. Put $16000 in rehab from my line of credit.

July 2013 -- Got a cash out refi for 75% of appraisal (appraised at $174,000) so was loaned $130,500 with rates that would adjust every 5 years.

August 2014 - Now :) . I want to get fixed 30 year rates so I can rent it forever without worrying about rates increasing. 

Originally posted by @Westin Hudnall:

@Albert Bui 

I may have not been clear enough. My goal is fixed rate 30 year financing. I will include an example of one of the properties . Please explain if I can get 30 year fixed rate and what the terms would be.

May 2013 -- Purchased a house for $119,000 with my line of credit. Put $16000 in rehab from my line of credit.

July 2013 -- Got a cash out refi for 75% of appraisal (appraised at $174,000) so was loaned $130,500 with rates that would adjust every 5 years.

August 2014 - Now :) . I want to get fixed 30 year rates so I can rent it forever without worrying about rates increasing. 

 Yes in that scenario you can obtain 30 year fixed rates with no pts on conventional financing as its considered a regular refinance (Rate & Term only).

Terms are conventional loan so its vanilla 30 year fixed with typical escrow/title/recording/notary/etc, and generally can be priced with no pts paid at a reasonable rate too (4.5-4.875% depending on your particular circumstances).

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here