Banks won't approve me for a Cashout REFI!!!
Houston, TX · Member since 2018 · 15 posts · 4 votes
Banks won't approve me for a Cashout REFI!!!
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Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
8yOriginally posted by @Stephanie Medellin:
@Luke Slapa Even if you did show income on your taxes, with an appraised value of $36k, it's going to be very hard to find a loan simply due to loan amount. I would focus on trying to get some good high credit line credit cards with 0% balance transfers, and keep moving the money around until paid off. If you get 2 cards with $10,000 limits at 0% you'll be able to pay them down fairly quickly with the rent. Or shop for a new personal loan - I think you'll have an easier time. Keep in mind a fully maxed out card may temporarily decrease your credit score but it will bounce back as soon as the balance is paid down.
My first ever free and clear was $23k in '05 bought with a 0% (but 3% fee) credit card check. Probably 2 or 3.
I drove a beater, brown bagged my lunch and spent no money for 1 year. I also got an extra job. Buckle down and pay this off. Transfer around with low interest offers if you can, like Stephanie mentions.
In '07 I got a cash-out refi for $106k and sold it last year for $145k. Sacrifice now to harvest later. My guess is you have a car payment and eat out a lot? A beater and pb&j will go a long way and save what sounds like a great investment!
17 Replies
- 8yAndrew PostellPro MemberLender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
@Luke Slapa this is the very reason we preach to get prequalified. This isn't meant to be preachy but others might come across this post and wonder how to prevent it.
The two biggest areas of concern here are...
- Your loan amount. Most banks will NOT lend a mortgage on a loan this size. No matter how good you look. A mortgage at this size means the bank will lose a considerable amount of money even at 10% interest.
- You own the property free and clear in Texas. Texas has some funny cash out rules and this will just scare a lot of banks away from you.
I feel that the strongest chance of success here is to find a private person who will lend you the money. Offer them the same rate you offered above. Maybe post this in the Texas forum here on BP..."Looking for Private Lender in Houston" or something like that. Go to your REI clubs in your area. See if you can find a big investor willing to lend that money in a good equity position. They are out there.
I do believe you can find a solution here. Good luck!
- Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes8yLuke Slapa you should read the comments on your other thread. Like Andrew Postell said you should probably find a private lender for this. Also you don’t down it 100 percent because you bought it with a loan..
- 8yStephanie MedellinBusiness MemberMortgage Broker · CA · Member since 2014 · 1k+ posts · 642 votes
@Luke Slapa Even if you did show income on your taxes, with an appraised value of $36k, it's going to be very hard to find a loan simply due to loan amount. I would focus on trying to get some good high credit line credit cards with 0% balance transfers, and keep moving the money around until paid off. If you get 2 cards with $10,000 limits at 0% you'll be able to pay them down fairly quickly with the rent. Or shop for a new personal loan - I think you'll have an easier time. Keep in mind a fully maxed out card may temporarily decrease your credit score but it will bounce back as soon as the balance is paid down.
Stephanie Medellin, Loan Factory58 Reviews - Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes8y
Flip that sucker like a hot potato. I wish I had some slick advice for you but this was a ballsy, poorly devised plan. In your other post you said the idea was to BRRRR. You can't BRRRR without any of the R's. Rehabbing takes money, refinancing requires financing. There's a reason credit cards can't be used as down payments and the reason is that lenders want you to have skin in the game. Even if you could use a credit card as a down payment it's not wise because owning property requires reserve funds (especially in this asset class). Will you just max out another card every time a water heater breaks, a furnace goes out, or a tenant stops paying? You'll be stuck with a ton of high interest debt, bills you can't pay, and no credit left to continue the scheme. Playing the card shuffle using new cards to pay off old cards may work for a little while but eventually it will just lead to more debt and damaged credit.
As you've discovered, mortgaging a sub $50k property doesn't pencil out for either party. Even if you could qualify for a loan on this, how would you pay the $2k in closing costs or have any cashflow while paying PMI? Beyond that, no lender is going to give you a loan after they see you've just taken on $20k in high interest debt and used it to buy a house. You just made yourself ineligible for a loan right there.
In your other post you mentioned that you couldn't afford insurance on this property, and insurance isn't included in your expenses listed above. Does that mean it's uninsured with a tenant living there? If so that's extremely troubling.
You should sell. My advice is fix it up as much as you can with as little money as you can (clean, repair, do yard work, make lipstick improvements, paint but don't paint yourself into another corner haha) and get out of this deal as soon as possible. A BRRRR with no R's is like calling a piece of lettuce a BLT. Call it your first flip instead and if your valuation at $36.5k is realistic, you may even pocket a few dollars. Curious to see how this works out for you and best of luck.
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes8y
Originally posted by @Stephanie Medellin:
@Luke Slapa Even if you did show income on your taxes, with an appraised value of $36k, it's going to be very hard to find a loan simply due to loan amount. I would focus on trying to get some good high credit line credit cards with 0% balance transfers, and keep moving the money around until paid off. If you get 2 cards with $10,000 limits at 0% you'll be able to pay them down fairly quickly with the rent. Or shop for a new personal loan - I think you'll have an easier time. Keep in mind a fully maxed out card may temporarily decrease your credit score but it will bounce back as soon as the balance is paid down.
My first ever free and clear was $23k in '05 bought with a 0% (but 3% fee) credit card check. Probably 2 or 3.
I drove a beater, brown bagged my lunch and spent no money for 1 year. I also got an extra job. Buckle down and pay this off. Transfer around with low interest offers if you can, like Stephanie mentions.
In '07 I got a cash-out refi for $106k and sold it last year for $145k. Sacrifice now to harvest later. My guess is you have a car payment and eat out a lot? A beater and pb&j will go a long way and save what sounds like a great investment!
- Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes8y
@Steve Vaughan that's a great success story and it's all well and good but wouldn't you agree that much of the reason that scenario worked out for you was due to timing in addition to hard work? It seems the secret to your success is that you worked hard AND benefited from market conditions that are unlikely to be repeated. For example the ship has sailed on being able to cash out refi the way you did in '07, as lending has tightened considerably post crash. Very few if any properties will go from $23k purchase price to being able to cash out refi $106k in two years. It's unrealistic for the OP to expect that, especially with no money to rehab and being unable to qualify for financing being self employed and fresh out of college, and with the property not being a bankable asset. I guess it's possible to buckle down and pay off the loan and work hard and get an extra job and not spend any money, and hope everything works out perfectly with the property and perhaps get super lucky. But for every success story of buying on credit I would wager there are ten where the buyer was under capitalized/ over leveraged and unexperienced and got left holding the bag. I personally think it's irresponsible to hold a rental if you can't afford to maintain it or even insure it. It's not just personal credit at jeopardy here, an owner is responsible for providing a safe and healthy living space which means fixing things which means additional capital. Running up debt for every repair while shuffling cards to pay off existing debt is not sustainable. I guess everyone has their own risk threshold but @Luke Slapa might not even be aware of the risks involved. I'd be up at night worried about water leaking from a faucet, all those pipes just waiting to break, that old window that is about to start leaking, or pests getting in, or mold, or appliances breaking, or tenants causing damage, losing their job or getting divorced or dying, or a tree falling on the house or sewage backing up into the house or any number of unexpected and expensive things that happen at the least opportune times. You can't plan for these things and the only way to prepare is to have insurance and cash reserves. The margins aren't wide enough (cash flow is negative even without paying insurance) and the reserves aren't deep enough in this deal to allow for a cushion when things go wrong, which they inevitably do. This property is one months missed rent or one anything happening away from "The Money Pit". Digging a hole looking for gold is not investing. Might as well buy bitcoin with that cash advance, at least that way the living space/well-being of a tenant isn't in jeopardy. There is enough risk and more than enough moving pieces in real estate as it is, no need to compound the risk by not having a safety net and buying with high interest debt. But I am intrigued that this is even possible, and if the OP pulls it off it will be a great story to tell. I just can't encourage it. Using a cash advance to purchase might be okay if you have the funds or at least some of the funds and can pay off the loan immediately in an emergency, but I think it's a terrible idea and a recipe for disaster if there are no emergency funds available and you can't get financing or even afford insurance. There may be a creative way out. If the deal is actually good a partner may be interested, or it may be possible to get a better source of funds with some extra as a reserve. But the rushed way it was put together and lack of forethought gives me reason to believe other steps may have been skipped such as due diligence on the condition of the property itself. Attempting to BRRRR without any of the R's is a red flag for me in terms of making good decisions. What systems are in place to manage the rental? Flip it like it's stir fry, go back to square one, save for a down payment and also cash reserves, build credit, learn more, try again.
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes8y
@Steve K. I hear you about the specific performance of my little house being unlikely. Never bought for lot value only before from a true don't wanter.
My point was more about the sacrifice I made to pay the credit cards off in 12 months rather than look high and low for a bank or private lender or partner or to sell for a one-time payday. If he sacrifices now, he could have cash-flow for years to come. 2 jobs and a scorched earth budget for 12-18 months in exchange for a potential cash-out refi in 24 months and long-time success. His choice.
- Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes8y
@Steve Vaughan I think you make a great point and agree that tightening the belt and making sacrifices should be a part of any path forward. Hopefully nothing happens to the property in the meantime that requires additional capital. My experience has been that stuff happens though, maybe it's just my bad luck!
- Houston, TX · Member since 2018 · 15 posts · 4 votes8y
@Steve K. It seems that you have painted a completely different scenario in your head that what the reality is. I have plenty of cash on reserve. After reading Brandon Turners book on investing with low or no money I thought I would give a crack at it. Also, I have two pre approvals today for a cash out refi. I am going to be cash flowing $300 a month (allocating for insurance, tax, repairs, CAPX, vacancy, REFI) on an investment with zero money down. It is renting out at over 3% the purchase price. Just because I am getting creative and not doing it the "standard" way does not mean you need to ridicule. Every thing is going just as planned for me, this deal is going to be just as good as anticipated.
- Rental Property Investor · Jacksonville, FL · Member since 2018 · 11 posts · 5 votes8y
@Luke Slapa Who did you find to do cash out refi? Im looking to pull my cash out as well. Thank you in advance!
- Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes8y
@Luke Slapa apologies, I read your earlier post saying you couldn’t afford insurance and took that to mean you didn’t have reserves and that the property wasn’t insured. Unique approach for sure, kudos to you.
- Rental Property Investor · Conover, OH · Member since 2016 · 55 posts · 48 votes8yLuke, Congratulations on the deal! It’s always easy in hindsight to see 20/20. A lot of people are nervous about getting a deal done and stay idle. Be proud of yourself for getting the deal done!
- Bronx, NY · Member since 2014 · 103 posts · 9 votes8y
I too am having a problem, i however made a bad move with another property and crushed my credit. A hard money lender gave me this quote on a cash purchased property and Im trying to figure if its a good deal also, its on a 2 fam building in upstate Ny, if anyone can give advice please respond to me publically so other people can lean as i am. thank you.
Loan Amount: Total loan amount of $63,750 or 65% of After Repair Value, whichever is less (Subject to appraisal, inspection, applicant interview and additional underwriting. All required plans must be approved prior to funding, if applicable). Initial Disbursement of $21,250 (which consists of up to 90% of purchase price). Rehab holdback of $42,500.
Loan Term: 12-month interest-only balloon note.
Payments: Interest-only monthly in arrears with balloon payment
at maturity.
Interest Rate: 9.99% fixed interest rate
Collateral: A first priority lien on Borrower’s fee simple interest
in the Property and the improvements thereon
together with any personal property owned by
Borrowers related to Property
Prepayment Penalty: none
Loan Fees: The following fees shall be due: (1) 3.00 points, plus
customary underwriting, processing, legal,
administrative and site inspection fees to (**) at closing
of the loan; (2) $50 application fee due upon signing of
the term sheet. This fee will cover credit, background,
and initial valuation reports (all of which will be shared
with the borrower). Upon appraisal being ordered an
additional $350 application fee will be due and
credited towards closing costs if the loan closes. If the
loan fails to close this fee will be forfeited.
Closing Fee Schedule
- Lender Points
- $250 Legal Review Fee
- $75 Appraisal Review Fee
- $30 Servicing Setup Fee
- $30 Draw Company Admin Account Setup Fee
- $1,250 Attorney Closing Fee **Draw Fee is $200 per draw and a $30 wire fee for each draw wire**
- Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes8y
Originally posted by @Luke Slapa:
@Steve K. It seems that you have painted a completely different scenario in your head that what the reality is. I have plenty of cash on reserve. After reading Brandon Turners book on investing with low or no money I thought I would give a crack at it. Also, I have two pre approvals today for a cash out refi. I am going to be cash flowing $300 a month (allocating for insurance, tax, repairs, CAPX, vacancy, REFI) on an investment with zero money down. It is renting out at over 3% the purchase price. Just because I am getting creative and not doing it the "standard" way does not mean you need to ridicule. Every thing is going just as planned for me, this deal is going to be just as good as anticipated.
Luke, if you read your opening post again, it's you who "painted a completely different scenario... than what the reality is", (not @Steve K.). I hope you can see that. For your sake, we're pleased that you weren't panicking after all. Cheers...
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