How Does Refi Work?

[Kamil Smith]

I just want to be familiar with this process before I start taking any of my next steps.

If I were to purchase a property via hardmoney then rehab to set up as a rental, how does the refinance process work? Is the refi based on the deal itself (how much equity is left) or is it the same as getting a regular home loan (Based on my personal income and DTI ratio)? The current deal I am analyzing would have about 20-25% equity after rehab

The problem I'm having is that my current situation won't support a typical loan of this size. If anyone can offer some insight from personal experience doing the BRRRR method that would be great.

[Chris Mason]

Originally posted by @Kamil Smith:

If I were to purchase a property via hardmoney then rehab to set up as a rental, how does the refinance process work? Is the refi based on the deal itself (how much equity is left) or is it the same as getting a regular home loan (Based on my personal income and DTI ratio)? The current deal I am analyzing would have about 20-25% equity after rehab

It's both. Need equity, and need DTI, etc, to work. Rental income can be used to qualify, if needed.

Before you've owned it long enough for it to appear on tax returns, it'll be [ lesser of appraised or actual rent, times 75% ]. This is pretty conservative and often hurts.

After 2017 rolls around and you file taxes, lender can use actual rents and actual expenses to calculate DTI. There's a little more to it, but for starters put all your rehab costs on line 19 "see statement 1" of Schedule E, broken down and itemized in a way that I can line up one-time expenses with invoices for $x, $y, and $z that line up perfectly with "see statement 1" to exclude those expenses from DTI.

There's no reason you can't get preapproved for that refinance prior to purchasing the place hard money. HML have a great degree of flexibility; if one feels that the preapproval for a refinance decreases risk, they at their sole discretion might decide to offer you better terms on the hard money.