I am about to buy a house with private loan, and they want to use the house as collateral. Neither of us are sure if this will affect my ability to do a cash out Refi after the six months. If anyone has some insight I'd greatly appreciate it.
Meaning they are putting a lien on the property you are buying? I think that's what you mean and it will not affect your refinance option unless your numbers are off or you have something in your terms with the lender that is not in your favor to refinance. Whatever is owed to the lender will be paid off when you refinance the property. It's a numbers game with what's owed to the lender and what you can refinance for to get into a conventional loan.
@Mike Flora Thanks for the response, that was my assumption, I just wanted to make sure.
Private money is asset based lending, so yes, the property will be collateral. A cash out ReFi after 6 months depends on how much equity is in the property at the time. If you're doing a Max LTV loan, the property will have to appreciate significantly or undergo a rehab in order to take cash out.
@Matthew Evan Rabinowitz Yea we are doing a full rehab, so appreciation is not the issue. We were just trying to assess if the first Private note with collateral would affect the ability to cash out refinance. I finally heard back from a local lender and discussed with him, and I have come to the conclusion it will not.
Thanks everyone for the responses!
@Jonathan Bukowiec Before you take the loan, ensure they don't have a prepayment penalty if you're taking out a longer (1-2 year) term loan. If so, refinance would hit you with the penalty.
Best of luck on your venture and congrats on the purchase!
I do this all the time. You'll be fine.
If you are cashing out after 6 month that won't be problem.