Delayed Financing Exemption - appraised value or cost?

Question

Say I buy a home on 50+ acres using money from IRA 60 day rule, personal bank loan and maybe a loan from a friend.  This would either be a rental or 2nd home.  If I separate the house from most of the acreage, and cash-out refinance the house, how does the house value get determined? If the lower of the appraisal or cost, how do I determine the cost?  I think this is my first post. Should I ask/post somewhere else?  Many thanks!

Stephanie Medellin · Answer

@Mike Richards  I see what you're saying and I think this would be looked at on more of a case-by-case basis by the lender funding the loan.  Since you're refinancing the parcel with the house, they may still use the original purchase price, but that really would be a question for the lender who will be funding the loan since this is not really a common or typical scenario.

The other issue is will you be able to subdivide this property and close a loan on it within 6 months?  If the process of separating the parcels is not complete within the first 6 months you're just looking at a regular cash-out refinance, and the original cost won't be such a big issue, as they'll just go off of appraised value at that point.

Mike Richards · Answer

Thanks. Say I separate the house and a few acres from the rest of the acres.  How do I determine "the actual documented amount of the borrower's initial investment in purchasing the property..."?  The "property" being the house and a few of the acres.  The actual documented amount of the borrower's initial investment would include the price for all of the acres and house together.

Stephanie Medellin · Answer

@Mike Richards  The current value is determined by an appraisal.  The cost of the house is the amount listed on your closing statement when you purchased the property (purchase price plus closing costs).  If the max LTV for the transaction is 75%, you can borrow 75% of the current value of the home - up to the amount that you initially invested.  So if you bought for $75,000 (including closing costs) and home is worth $100,000, you can borrow the whole amount you invested.  If the appraisal only comes in at $75,000, you can borrow 75% of that (assuming 75% LTV is the maximum for your scenario).

"The new loan amount can be no more than the actual documented amount of the borrower's initial investment in purchasing the property plus the financing of closing costs, prepaid fees, and points on the new mortgage loan (subject to the maximum LTV, CLTV, and HCLTV ratios for the cash-out transaction based on the current appraised value)."