Spoke with a lender yesterday who said they would base their refi numbers on the purchase price and rehab costs and not the ARV. Has anyone out there dealt with something like this?
Refinance appraisal values the subject as is of the day they see the property. A construction type loan appraises from costs, specs, breakdowns, plans plus what the subject will be when complete. A construction type loan gives the borrower/contractor draws as work completes. ARV is not a real valuation for a lender.
Some lenders like to see 12 months of seasoning (vs. 6) before lending on the current appraised value. If the seasoning requirement isn't met, then the value will be the purchase price + improvements.
I recently had a similar conversation, my banker said it would be based off of the purchase price or the appraisal whichever was lower. I thought the name of the game was to buy low, rehab, reappraise and refi off of that number?
Yes, sir. I work with several who do this. Here is an example:
$250,000 Purchase Price
$50,000 Rehab Price
$300,000 Total Cost
$60,000 Down Payment (Or Cash Out Limit) - 20% in this case
$240,000 Loan Amount
~68% ARLTC Ratio (Most of my lenders limit is 70% but a few go to 75%)
These are nice loans to get your rehab costs rolled into your loan with minimal down. On purchases, many of my lenders will do 90% LTC if the borrowers is experienced and fairly well qualified.
Not an abnormal set of numbers at all from what I see.
@Nick Belsky thanks, Nick
@Dusty Buffington thanks, Dusty
@Alex Kim thanks, Alex
@Caroline Gerardo thanks, Caroline