How soon can I refinance?

30 Replies

Hi everyone. I'm planning to buy rental properties in Baltimore, MD and nearby areas. And I really concern about the refinancing, because my capital is limited. I have a few questions:

1) How soon can I refinance after renting out the property? 

2) Will any lenders/ banks let me refinance based on only the rental income of the house? (I don't have a job now). I really appreciate if I can receive some referrals to those lenders/banks. 

3) How to add more value to a property which is bought at the market value? Are there any ways to make sure the appraisal for the refinancing will come at a higher value than the purchase price?

Thank you!

Hi

@Vee Vu

Hard to say but we experienced a 1yr 'seasoning period' that we were told from any lenders we approached.

I've read on these forums that 6mo can be common sometimes.

That was on the first NON OWNER OCCUPIED pure investment house we executed.  

My guess is that it was a combination of 'wait and see' to ensure there wasn't anything goofy going on with the property (IE we had the chops to do it right and keep a tenant in and cash flowing), but also simply our track record and credibility with owning and managing rentals, in general - at the time was a tougher sell.

If capital is limited, that's fine but I guess I'd make sure you have that figured out BEFORE moving into this world - you obviously need to have enough to get through the project but you need enough to absorb the period above as well as any unforeseen stuff that can come up.

Most lenders I work with need 6 month "seasoning" which basically means the amount of time you or your LLCs name is on title.  A couple only need 90 days and other its a year.  It really depends on your strategy.  

Asset based lenders are not going to care about your income they will underwrite the asset and check that your credit is over a certain threshold and they will give you a 70-75% cashout based on appraisal value.  Your last question is harder to answer without some more information.  Let me know if you want to talk through it. 

Hi Vee, for local Baltimore Banks, I've seen anywhere from 3 months seasoning to 12 months, depending on whom you use.  Not having any type of income and no experience in Baltimore will make it harder to get a loan from a traditional bank.  As far as Banks, the main ones investors use are Revere Bank, Bay Bank(soon to be Old Line Bank), Harbour Bank, Essex Bank, and People's Bank, sometimes Colombo Bank.  The only way to add value is to use really good contractors who know what they are doing.  If you want referrals of contractors, DM me.  

The reality is, if your plan is to BRRRR these houses and pull money out after the rehab with a low interest rate long-term mortgage, you're going to have a very tough time finding a bank who will do that if you don't have a job. Sure, there are "asset based" hard money lenders out there, but that's really not ideal (or sustainable) if you're planning on keeping these properties as rentals. The rates/terms of those type of hard money loans are better suited for deals where you're in and out quick, like with flips.

There are plenty of lenders, banks and credit unions that can do a cash out refinance for those without jobs and/or proof of income. Yes the rates and terms will be slightly less favorable than conventional Fannie/Freddie loans but they can absolutely be done through a commercial loan. Seasoning time varies from lender to lender but you should assume 6 months.

How are you buying these in the first place is the real question.... if it's cash you have no seasoning requirement. I think you need to refi it though w/ in 6mo to take advantage of the delayed financing option.

However, if you're using a loan AND buying at market value it's highly unlikely (even with forced appreciation) that you're going to make enough where a refi makes sense. First, you're paying closing costs on the original loan. Second, since these are investments you're limited to about 80% MAX LTV, which if you bought at market price you're probably already at. Third, even with rehab you'd have to a) find a way to pay for it and b) it'd have to increase the value by enough to make it worth the time to pull out up to 80% of the new value. Then you still have closing costs again.... which probably make it pointless.

There are nationwide NON-QM Non-Owner Occupied Investment lenders that don't require seasoning (on down payment, LLC, etc) and no income verification without going hard money. The challenge is "the skin in the game" at 25% to 30% down. Then, waiting the year of seasoning for appraised value to not be taken off the purchase price to get your cash out when you refi.  

It all depends on the lender. Some want a year or even two of "seasoning" (you having owned the property) while others will refinance you at appraised value (instead of the cash you have into the property) as soon as its rehabbed and rented. This is why it's important to network with as many banks as you can.

Thanks@Jim Goebel . Do you know if the seasoning period will be shorter or longer for an owner-occupied rental?

And I definitely try to figure this out before making the first step.   

Thanks @JJ Bliss . For me, I'm not an experienced investor yet. Do you know if it's easier to get refinance if the title in under my name or an LLC?

Hi @Ian Barnes . Thank you so much for all the recommendations. I would love to keep in touch with you, please accept my college request.

Thanks @Kyle J. Yes I know about the hard money lenders, but like you said, their money is too expensive for rentals. 

I'm trying to find a job now, so it will help a lot to get cheap mortgages through traditional banks. But to be qualified, I need to have 2 years W-2. And I don't want to wait for that long.

Hi @Brian Garrett . I didn't know about the commercial loan option. I thought I need to have a commercial property to get a commercial loan. I will do more research on this. Thank you!

Hi Vee - I wouldn't say it is easier either way it just will attract different lenders. Most commercial lenders would be fine with re-titling it in your LLC at the closing of the refinance if it is in your name. You may be able to get higher LTVs using traditional banks through your name I am not super experienced in that area. The commercial lenders and banks I work with will want it titled in an LLC and would cap out at 70-75% LTV on a cash out. It is a big misnomer that you need to have a job or income verified to get a decent rate. I use banks and non banks and in this environment the rates are from 4-10%+ dependent on program. Average asset based lenders will lend at 4-7% and you can get them permanent for 30 years but the average is 3,5,7,10 year arms. With okay credit and not much experience you would probably be looking at a 6-7% interest rate and a 3-5 year term which is amortized at 25-30 years.

Hi @Matt K. I will buy by cash in the first place, then do the refinancing. Did you mean that in this case, I can refinance as soon as I rent out the place? (no seasoning period)

Could you please explain a little bit more about the "Delayed financing option"?

Thank you!

Thanks @Sean Baker , I will do more research on NON-QM Non-Owner Occupied Investment lenders.

Originally posted by @Vee Vu :

Hi @Matt K. I will buy by cash in the first place, then do the refinancing. Did you mean that in this case, I can refinance as soon as I rent out the place? (no seasoning period)

Could you please explain a little bit more about the "Delayed financing option"?

Thank you!

This won't work if you go the LLC route, unless you want to risk the due at sale clause when you transfer ownership to the LLC from you're name.

https://www.fanniemae.com/content/guide/selling/b2/1.2/03.html

@Vee Vu

I found this posted on a different forum and decided to copy and paste it for reference. It helped me understand delayed financing. Here it is:

Buying a home with cash has become increasingly popular for many investors but often an investor will be caught with the restrictions to cash out loans if they need to get their money back. There is a plan to avoid this but it is important for us to know about these restrictions. If an investor is buying with cash and flipping they get their money back when they sell the property. But if they are seeking to hold a property for any length of time and want their cash investment back there are some important rules to understand with conventional loan:

If you buy a property with cash (or with a HELOC) you can receive a cash out loan on Day 1.

There is not a 6 month waiting period with receiving a cash out loan if you purchased a home with cash or with a HELOC

BUT you will be limited to the amount of….

Your purchase price + closing costs (costs when you purchased the home)

OR

75% of the “After Repair Value”…

WHICHEVER IS THE LOWER AMOUNT (super important)

These rules are important to understand so here are two examples:

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 ofownership since the LOWER amount is your purchase price. After 6 months you could receive the full 75% of the ARV.

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.

When buying a home with cash you can absolutely get cash back right away but you will be limited to the lower of those two amounts.

Thanks @Jorge Ruiz for a very detailed answer. So If I buy by cash, then rehab to increase the house value, put in tenants and wait for 6 months. Can I always cash out 75% ARV?

@Andrew Syrios  

It all depends on the lender. Some want a year or even two of "seasoning" (you having owned the property) while others will refinance you at appraised value (instead of the cash you have into the property) as soon as its rehabbed and rented. This is why it's important to network with as many banks as you can.

What banks or type of banks should i be looking for? Would private money be more advantageous than a traditional bank in terms of less seasoning and lower rates and less requirements to get approved for a loan on BRRRR (asset based versus my credit profile, job income etc) ?

I currently have HML to get a distressed property to rehab but im hung up on the refi after the rehab is complete and I want to try to refi out of that HML as quickly as possible. I estimate my rehab to be max 60 days but if the least seasoning is is 6 months then the interest on the HML would eat away any forced appreciation and not to mention closing costs, so whats the solution?

Wow! A post from 11 months ago!  This is exactly why Bigger Pockets is such a great site.  People can research things from the past to get answers to what they need now.  @Mike G. I've got 2 suggestions for you here:

1. Please read my post on this subject HERE the first 2 sections speak on the restrictions we face (which I think you may be familiar with) but the 3rd section is the solution phase.

2. I would also suggesting asking EVERY lender you interview these 7 questions.  If they can answer these questions properly, then we can work with that lender.  If they can't, then we need to go to a different lender.  Feel free to ask anything additional.  Thanks!

Questions for Lenders

  1. When do you start using rental income to help me qualify? (the answer needs to be immediately)
  2. How long do you need me to be on title to refinance? (this is important if you do need a short term loan to purchase then refinance out - and the answer should be 1 day...very important that it is 1 day on title is all that is needed to refinance)
  3. What is my minimum down payment required? (if they only require 15% down on a single family home that is usually a good sign that you are working with a flexible lender)
  4. Can I change title to my LLC?
  5. Do you sell your mortgages?
  6. What is your loan minimum?
  7. Can you explain to me what your reserve requirements are?

@Andrew Postell

Wow! A post from 11 months ago! This is exactly why Bigger Pockets is such a great site. People can research things from the past to get answers to what they need now. @Mike G. I've got 2 suggestions for you here:

1. Please read my post on this subject HERE the first 2 sections speak on the restrictions we face (which I think you may be familiar with) but the 3rd section is the solution phase.

2. I would also suggesting asking EVERY lender you interview these 7 questions. If they can answer these questions properly, then we can work with that lender. If they can't, then we need to go to a different lender. Feel free to ask anything additional. Thanks!

Questions for Lenders

  1. When do you start using rental income to help me qualify? (the answer needs to be immediately)
  2. How long do you need me to be on title to refinance? (this is important if you do need a short term loan to purchase then refinance out - and the answer should be 1 day...very important that it is 1 day on title is all that is needed to refinance)
  3. What is my minimum down payment required? (if they only require 15% down on a single family home that is usually a good sign that you are working with a flexible lender)
  4. Can I change title to my LLC?
  5. Do you sell your mortgages?
  6. What is your loan minimum?
  7. Can you explain to me what your reserve requirements are?

these are excellent questions to ask prospective lenders when comparing and shopping their terms/requirements. So thank you for that extremely informative article and  contribution with tons of details. 

For me specifically, i wont be buying with cash but im looking to use HML to buy at 90% purchase / 100% rehab refi in 60 days or less. A lender i have had several conversations with meets the criteria of the questions that you posed so that is good news. Im just concerned that ill be stuck in the HML after the 60 days and have issues refi out of that loan to a more long term less points favorable term loan. How do i go about getting that lined up before im locked into a timeline?

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