How can I roll closing costs into a cash-out refi?

Question

I have a BRRRR property with an ARV of $130k. I plan on taking advantage of the cash-out refinance (75% LTV) to recoup my purchase and rehab costs. I'd like to avoid coming out of pocket at closing for the closing costs (about $5k). If I roll the $5k closing costs into the loan, how would this look? Would the 75% LTV simply just shift by $5k and be based on $125k now instead? $130k ARV, $5k rolled into loan amount of $130k provides a cash-out refi of 75%LTV on $125k instead which is $93,750?

Albert Bui · Answer

Your maximum loan to value or LTV will be 75% on 1 unit SFR or condo when you complete the BRRR you're not going to get an extra 5k on top of this 75% LTV otherwise that would be like 78% LTV so that doesnt make any sense.

Hopefully the 75% of the appraisal (of which we pray comes in at 130k) will be 93,750. The question now is will this figure compensate you back for all the money you have spent in the property along with having the ability to payoff your existing 1st position mortgage?

Taylor Chiu · Answer

Account Closed Generally they will bake the 5k into the 75% ltv. So $130,000 x .75 = $97,500. That's the max you can pull out in cash. If you wrap closing costs into the loan, then that comes out of the $97,500, which means you will have $92,500 left to pull out.

Does that make sense?

Account Closed · Answer

@Matt Michaelson awesome - what were the loan terms?

Matt M. · Answer

@James Hawkins

20 year amortization, 5 years fixed at 5.25%, variable after but they will renegotiate another 5 fixed. Hope to have it paid off in 5-10.

Matt M. · Answer

@James Hawkins

I just did a cash out on an investment I own free and clear. Small local bank, commercial loan, fees were $885, quicken loans wanted $4500 fees plus $1500 to put into escrow for taxes.

Justin Kane · Answer

be careful with junk fees from lenders and title, that could save your 1000s

Jason D. · Answer

@James Hawkins by definition, a cash out refinance has the closing costs rolled into the loan. It all comes out of your cash back at closing.

Nicholas Covington · Answer

@James Hawkins cash out refinances will never have your physically coming to the table with money for closing costs unless you don’t get enough cash to cover.

Unfortunately you are unable to roll it into the actual loan as you LTV is capped. This means that it will just be coming out of your perspective cash in hand.

Andrew B. · Answer

@James Hawkins when you talk to your mortgage broker, just tell them you wanna roll the fees into the loan. They will just give you less cash at the end.