Refinance After Purchase and Renovation?
Hello all,
I have a question regarding refinancing. More specifically, how quickly can you refinance after a purchase if you add value through a rehab? I've seen from many sources that lenders generally don't want to refinance prior to 6 months after because not enough equity has been built up. Maybe I'm thinking too simply about it, but if I'm forcing an equity increase through a renovation, why couldn't I reappraise and refinance immediately after that renovation? Whether that's 3 weeks, or whenever, after the purchase.
I know @Brandon Turner loves the BRRRR strategy and I do, as well. That's how I completed my first rental renovation. But, I also lived in my first property during the renovation so waiting to refi wasn't a huge deal. My next would be non-owner occupant. Unless I'm missing something, having to wait to refinance, would effectively wipe out much of the profit until that 6 month mark, as I'd also be making payments on the funds borrowed to do the renovation. Is the BRRRR strategy assuming that the investor isn't using borrowed money for the rehab and can wait a period of time before refinancing?
Thanks all!
Mikael Winkler
Thanks for the insight, Jason! Does that apply to both cash-out and rate and term refinances? The reason I ask, I've heard that the cash-out is that 6 month wait, but rate and term could theoretically be done the day after one closes on a property.
@Mikael Winkler If you decide to go with a commercial loan through a portfolio lender you can cash out refi with no seasoning requirements. The terms won't be as attractive but it's another option for you.
Ah okay, Ryan, thanks! I'm exploring all my options currently, so I'll look into that. Essentially, I just want to refi quickly because I'd be borrowing the reno funds and would want to pay them back ASAP to not have those payments eat into profits for months. I'm beginning to think creative financing, hard, private financing is the route to go.
@Mikael Winkler you don't have to wait for rate and term financing. You have to wait for 6 month if you want to cash out if the property has mortgage.
Thank you Harjeet! That's what I'd seen in my research regarding cash-out vs. rate and term, but, as with everything on the internet, there were 100 differing opinions, as well.
@Mikael Winkler, if you paid all cash, ask the lenders about delayed refinancing option available under Fannie Mae guidelines without having to wait the 6 months for seasoning. If you financed the property, go back to the same lender and ask to explore options for a cash out refinance with that lender. If they worked with you for the acquisition loan, sometimes they'll provide you some creative options for the refinance cash out.
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Attorney California (#258836)
- Esquire Real Estate
Hi Mikael--
The quickest/easiest way to refi out of a completed reno project is a no-seasoning cash-out or rate/term refi with Private Equity Lender. If you already have a tenant under lease, you can get no seasoning up to 70% and rates (ARM) will start at about 6% with high credit scores. If you can wait out the six months seasoning, you can go up another 5-10% LTV and rates starting in the low 5's. Stated Income and 6 months reserves required.
Hope this helps.
@Mikael Winkler try using a different funding source instead of a traditional mortgage for the purchase. If you have enough equity in another property, you can set up a line of credit on it to make cash purchases. Also, talk to local private banks. They can help you structure financing to accomplish what you are trying to do. Rates will be higher than a traditional mortgage but see if the numbers work for you.
Hello Mikael,
Is the property located in the same state that you reside? If so, call around to some local community banks and ask if they offer portfolio loans. Many times, local banks offer cash refinancing with out any value seasoning restrictions.
Thank you all! I will look into some of these options!