Financing a Cash Purchase

27 Replies

Hi There,

I picked up a Triplex that is currently vacant and require some work. it has a great value add opportunity and in good location. 

My aim is to have conventional, 30 years fix loan.

I would like to purchase the property for cash $55k and then spend about 30k in rehab. total cost $85k

the ARV should be around $135k-$150k. I would like then to receive finance at 70%-75% of the ARV with 30y conventional loan.

I was told that for 75% of an appraisal i need to wait 6 month seasoning. well, with the way interest rates are going UP i rather lock it in earlier. 

and for 70% of "Delay" refi i can only get whats on the closing documents - which is 55k as thats what Im paying for it. 

Can anyone advise if there is another conventional product in the market that allows financing existing property earlier then 6 months after purchase? 

Thanks H.

Originally posted by @Hadar Orkibi :

Hi There,

I picked up a Triplex that is currently vacant and require some work. it has a great value add opportunity and in good location. 

My aim is to have conventional, 30 years fix loan.

I would like to purchase the property for cash $55k and then spend about 30k in rehab. total cost $85k

the ARV should be around $135k-$150k. I would like then to receive finance at 70%-75% of the ARV with 30y conventional loan.

I was told that for 75% of an appraisal i need to wait 6 month seasoning. well, with the way interest rates are going UP i rather lock it in earlier. 

and for 70% of "Delay" refi i can only get whats on the closing documents - which is 55k as thats what Im paying for it. 

Can anyone advise if there is another conventional product in the market that allows financing existing property earlier then 6 months after purchase? 

Thanks H.

 Those are conforming guidelines, You can try commercial or asset based loans but neither offer 30 year fixed or rates as good as what conventional can

Brie Schmidt, Real Estate Agent in Illinois (#471.018287) and Wisconsin (#57846-90)

@Hadar Orkibi , Hi,  You need to factor in the Seasoning of 6 months into your calculations.  It might not be as profitable at your originals numbers but you can change your purchase price to make it work.  Do not worry about trying to find a way around the rules, just follow them and add that into your price .  

903-452-8843

Thanks @Brie Schmidt   and @Tom Keith , the deal is a good one - What i would like to achieve is to refi my money out like the BRRRR Strategy.

And to end up with long term conventional loan.  I wouldn't have mined waiting 6 months for seasoning if Interest rates were to stay low.  But It is very likely that they would be higher by at-list 0.25 base points.

so i rather get the finance locked in sooner rather then later.  

@Hadar Orkibi that would be the request of everyone knowing how to refinance early when they know the rates are going up.  Sorry but I am not that smart. LOL.  Good Luck to You!   

903-452-8843

You are correct- you can do delayed financing before the six month seasoning period, but it cannot exceed the purchase price and closing costs. So, if your numbers are right, you could cash out right away, but you'd eat the rehab costs.

Corby Goade, Real Estate Agent
208-297-3010

can I pre lock interest rate? For how long? 

I can probably use local bank for 6 months then refi.

This is because I have possibly have another great deal and will need some of the cash back. Local bank will give 75% of cost includ rehab.

@Hadar Orkibi Even though you refinance after 6 month you won't be able to cash out more than 70% of appraisal value because its more than 1 units under conventional loan.  Yes you will be able to cash out more than delayed financing exception amount. 

Harjeet Bhatti, Lender in IL (#230554)
+18479628229

Hi there. Much of the information here is partially correct. You can refinance immediately with no seasoning using the current appraised value however you are limited to 75% (not 70% as alluded here) and the total new loan cant exceed your initial acquisition + closing costs. If you wait 6 months the acquisition loan amount restriction no longer applies. Direct message me if you need further details.

Originally posted by @Richard A. :

Hi there. Much of the information here is partially correct. You can refinance immediately with no seasoning using the current appraised value however you are limited to 75% (not 70% as alluded here) and the total new loan cant exceed your initial acquisition + closing costs. If you wait 6 months the acquisition loan amount restriction no longer applies. Direct message me if you need further details.

This is incorrect. It's 70% for MFR's and 75% for SFH's as someone else has already mentioned.

https://www.fanniemae.com/content/eligibility_information/eligibility-matrix.pdf

Sorry I missed the MFH part above, Yes that is correct, 70% for MFH, 75% for SFH.

The one part that people seem to miss with BRRRR and delayed financing is adding rehab costs to your settlement statement

before you close the house, get an invoice from your contractor for the work and have this included on the HUD

You'll pay for it up front and the escrow will disburse to that your contractor

then when you refi WITHOUT SEASONING you can get back your entire cash input

@Hadar Orkibi

A couple of questions haven't been answered.

Is the property in the US and are you a US citizen?  I'm not completely sure about the conventional rules, but there are very specific guidelines in my world about foreign nationals and many of those guidelines include reduced loan to values.

Stephanie

yes I’m in the US and citizen @Stephanie Potter  

@Richard A.  you are saying that I can refinance with the appraised value BUT can only get 70% of Purchase price or with cost for that . - in that case the appraised value is not relevant, isn’t it?

My ARV is 150k but my cost is 85k.

Hi there, 

You can refinance up to 70% of the appraised value but the max new loan cant exceed your acquisition cost. Using the current appraised value vs. your purchase price to determine the loan to value is the relevant part here. With the older rules you had to use the purchase price to determine loan to value.

In your scenario the 70% puts you at $105k but you are capped at 85k + the closing costs.

The appraised value is relevant as if the home lets say had appraised for 100k, you would only be able to get 70k out.

Ok so i need to put the Purchase price 55k and the rehab cost on the HUD/ Settlement statement.

it needs to be invoices so i pay the money in on closing and it will be then forwarded to the contractors. 

Can someone advise how do i get it on the Closing docs, do i just ask the title company to do so? 

This post has been removed.

Read this forum post by Andrew Postell for a more advanced technique to pull out cash with no wait:

http://www.biggerpockets.com/forums/48/topics/460294-how-to-cash-out-1-4-unit-property

I thought to update you all that,  I now got this under full control and have clear understanding of the processes. 

To use the Delay Refinance product, which is done after the property is closed on and renovated one need to follow this process I will explain without waiting for 6 months seasoning. If you wait you can get up to 75% of ARV.

In my case, i don't want to wait and happy with 70% of ARV or to cost.

This is for conventional, conforming loan. the kind that gives you 30 years fixed rate, in this case buying a triplex. 

this will be applicable to 2-4 units clarified residential. (over 5 units is commercial lending) 

1. Purchase the property for cash.

2. On the settlement statement: the title company should list the purchase price and underneath that brake down of the rehab cost. for example: Purchase price: $55k + New Roof $10k + Fencing 2k + GC quote $15k (GC quote should be provided as scope of work) . 

3. For the title company to list these items on the settlement statement one need to provide invoices for the subcontractors and GC. 

4. On closing you pay in to escrow the TOTAL cost, which includes the Purchase price and the itemised Rehab cost. 

5. on closing the Title company pay the seller his part ie. $55k and keep the the rest for the rehab.

6. Once the rehab is completed the Title company pay the contractors directly. 

7. while all of the above take place you apply for the delay refi. 

8. Once rehab is completed - The second closing take place, and you get Up To 70% of Appraised Value OR to Cost, whichever is the lowest. 

9. Well, if you didn't Over Capitalise you will be getting ALL your cost back (including the purchase price).

10, In my case that is bellow 70% of appraised value so I will get All the money back and have 0% down in the deal. 

But still be bellow 70% LVR, and great cashflow. 

I hope that helps. 

@Hadar Orkibi very sorry I did not see this post previously or else I would have commented.  I wrote a pretty lengthy article on how you don't have to do ANY of this if you structure your purchase correctly.  You can find it HERE.

@Tom Keith I tagged you as well since you are here in Texas.

Let me know if you have any questions.  Thanks!

Andrew Postell, Lender in Texas (#392627)
817-873-0621

Thanks @Andrew Postell , yes I read the article but fined it a little bit confusing.

From what I understand the Conventional conforming loans has to me in person own name not LLC do to the Due-on-sale Claus. At list at closing.

do you have a visual diagram of this exercise ?

I re read the article @Andrew Postell   and under buying a home with cash. 

It is stating in both examples that :

Example 1: If you purchased a home with $50k of cash, and put $30k of renovations into the loan, and the home was worth $100k. 75% is $75k and $50k is your purchase price. So you could only receive $50k in your first 6 months of ownership since the LOWER amount is your purchase price.

Example 2: If you purchased a home with $80k of cash, put $5k into the home, and the home was worth $100k. 75% would be $75k and your purchase price is $80k…so the lower amount is $75k.

My example above does allow me to get 70% of the cost (70% because its Teri plex)

immediately, once the renovation is completed (additional cost added to the Settlement statement ) without waiting 6 month. 

By Having the cost added to the first purchase and showing at the settlement statement you don't need an LLC to own the property first. --- Juts refinance.

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