BRRRR cash-out refi hiccup

21 Replies

I recently began interviewing local credit unions after learning they require lower or no seasoning period, versus a traditional lender, for a cash-out refi on investment properties.  The issue I am finding is that they will only loan against the amount I paid for the property (purchase price + rehab cost), and not the appraised value.  This is my first time attempting to work with a credit union and I would like to know if this is standard practice?

I can always go back to the traditional lender and get a loan based on appraised value, but they require a 6 month seasoning period.  I originally started speaking with credit unions thinking they could help my money grow faster, and therefore allow my business to scale faster.  

Originally posted by @Derek Sperzel :

I recently began interviewing local credit unions after learning they require lower or no seasoning period, versus a traditional lender, for a cash-out refi on investment properties.  The issue I am finding is that they will only loan against the amount I paid for the property (purchase price + rehab cost), and not the appraised value.  This is my first time attempting to work with a credit union and I would like to know if this is standard practice?

I can always go back to the traditional lender and get a loan based on appraised value, but they require a 6 month seasoning period.  I originally started speaking with credit unions thinking they could help my money grow faster, and therefore allow my business to scale faster.  

 It's actually not a CU v traditional difference you are seeing... you're being told standard Fannie requirements. The 6 month wait is a Fannie requirement for cash out refinances. The 6 month wait is waived on an exception basis for delayed financing. Hence "delayed financing exception." 

My best advice is find a hard money lender that can transact the original purchase for you.  It may cost a little more in holding costs, but then you shouldn't have any trouble getting a mortgage with a traditional bank, and can recycle that cash faster. 

Good luck.

@Derek Sperzel it sounds like you purchased this property with cash (if this is not the case please let me know) but I wrote a pretty lengthy article on this subject and it will show you how to do 80% with no seasoning.  The article can be found HERE

Feel free to tag me and ask any questions on it. Thanks!

@Andrew Postell  

That post is packed with information, and I appreciate you pointing me to it. Everything in your post makes sense, but I want to clarify step two of my LLC issuing me a loan after buying with cash. Does it matter if I purchase the property in my personal name or an LLC (so long as it isn't the LLC that will later issue the loan)? Thanks again for all your help!

I've had a difficult time finding anyone to do it.  They pretty much have to be a bank who plans on keeping the loan on the books.  My commercial guy will do them days after purchasing, but the term is nearly as good.

@Derek Sperzel most title companies will want the vesting party to be different than the party on title. So if you have one LLC, and you want that LLC to lend you the mortgage, you would likely need to change title to your name. I can't speak for every title company on this issue but that's what has been the normal stance taken from title companies in this scenario. If you have 2 LLC's then one LLC can lend to another.

@Jorge Ruiz you can certainly write the down payment as a loan from your company but I don't think there's any reason to do that? Meaning, the strategy I talk about is to recoup as much money back as you can, so if your down payment is 20% and your refinance is 80% of the ARV....then you won't get your downpayment back. Am I missing something? If so, just give me some numbers to see what you are thinking about.

Originally posted by @Derek Sperzel :

I recently began interviewing local credit unions after learning they require lower or no seasoning period, versus a traditional lender, for a cash-out refi on investment properties.  The issue I am finding is that they will only loan against the amount I paid for the property (purchase price + rehab cost), and not the appraised value.  This is my first time attempting to work with a credit union and I would like to know if this is standard practice?

I can always go back to the traditional lender and get a loan based on appraised value, but they require a 6 month seasoning period.  I originally started speaking with credit unions thinking they could help my money grow faster, and therefore allow my business to scale faster.  

 You have to find a credit union that won't use Fannie Mae guidelines to close the loan.  The rates may be higher and the loan to value may be lower than standard.  I've heard those credit unions do exist, but I haven't found one.   

I'm literally at the closing now. We amended the purchase agreement to state that I am purchasing the property in my name, my LLC will be issuing ne a loan on said property, and I have a promissory note that I will be filing at the County Recorders Office. Once that filing has occurred I will apply for a normal refi with a local mortgage company to get my cash out. Wish me luck, and thanks for all you help!

Originally posted by @Derek Sperzel :

I'm literally at the closing now. We amended the purchase agreement to state that I am purchasing the property in my name, my LLC will be issuing ne a loan on said property, and I have a promissory note that I will be filing at the County Recorders Office. Once that filing has occurred I will apply for a normal refi with a local mortgage company to get my cash out. Wish me luck, and thanks for all you help!

 Hi Derek, how did the cash out work for you? 

Originally posted by @Andrew Postell :

@Derek Sperzel it sounds like you purchased this property with cash (if this is not the case please let me know) but I wrote a pretty lengthy article on this subject and it will show you how to do 80% with no seasoning.  The article can be found HERE

Feel free to tag me and ask any questions on it. Thanks!

Hi Andrew, this post is so awesome! And unfortunately still a bit over my head ha ha and i do look forward to the day i can understand it, but for now i am going to keep things as simple as i can ha ha. I would like to know how a HML plays into this: if our purchase is made with a HML, would they need to put the money into the bank account of our LLC and then the LLC makes the loan to me personally?

Appreciate all of your knowledge and willingness to share! 

Thank you

I've learned a lot throughout this process, and next time should be much smoother. We're scheduled to close on the refi next week! I ultimately had to get my attorney to create and file a Mortgage note with the County Recorder, because they won't record a Promissory note ( your county could be different and I would check in advance). My attorney also filed a quit claim deed to move the property into my LLC and he insures me that won't throw a wrench into my refi, fingers crossed. Hope my mistakes help you!

@Erin Elam if you borrow money from a Hard Money Lender, you don't really see any of the money.  The lender gives the contractors the money for the work and pays the seller of the home.  The strategy I wrote about is if you have your own funds.  Meaning, if you spent money out of your own pocket, how do you receive that money back.   I hope that makes sense but feel free to tag me with any other questions.