Question on refinancing a property after rehab.

6 Replies

So on the BRRRR method the investor is supposed Rehab the property and then rent the property and then refinance the property. After the rehab the house is going to look the best it will probably look until it is rehabbed again one day down the road. If you put a renter in there and then try to refinance it the appraiser could look at the mess that the renter has created and give you a lower appraisal possibly. Are there any refinance programs that has the ability to appraise and start the refinance prior to placing a renter in it?

@Joe S. If you spend the time to find the right tenant, then I don't think you should have to worry about a messy tenant. If you notify the tenant prior to the appraisal to clean up a bit, then most of them will be cooperative.

Best of luck!

@Joe S. the purpose of renting before refinancing is to prove you can get at least market (hopefully higher) rents. Appraisals for investment properties often include the income approach and the sales comparison approach. 

There's also a timing benefit if your lender requires a 6-month+ seasoning period. Let's say you complete rehab within 2 months but you can't refi until month 6. You want to place a tenant to collect rent beginning in month 3. 

So let me simplify this. What I’m asking is does anyone know of a lender that can do a refi with very short seasoning.

@Joe S. to touch on your clarification question ... if you plan to do a conventional residential mortgage in your own name, the lender will most likely require you to wait the 6 month seasoning period. Fannie and Freddie require a 6-month seasoning period. You can cash-out refi with a conventional loan within 6 months ONLY on the purchase price; but it isnt until the 6 month mark that you can cash-out refi on the APPRAISED value. So most lenders will either sell the loan to Fannie/Freddie or want the OPTION to sell to them, thus they will follow the 6-month rule instated from F/F. 

You may be able to find a small bank and convince them to give you a portfolio loan, which is much more leniant. Or you could try to go commercial loan, but not sure on the timing/rules of those for SFH.

Originally posted by @Joe S. :

So let me simplify this. What I’m asking is does anyone know of a lender that can do a refi with very short seasoning.

There are no seasoning products out there, but the best products have a minimum of 6 months from purchase date.  If you can wait, it's better.

 

Some lenders modify their seasoning requirements according to how you bought the house.

For example, if you bought the home with cash, then most lenders will require 6 months or even 1 year seasoning.

On the other hand, if you bought the property via a loan (and thus went through a formal underwriting and appraisal process) then a few lenders offer as little as 90-days seasoning in such cases. 

The home must be a 1-4 unit property. For 5+ units, 1-2 years seasoning is usually required as that would come under a commercial deal.