Cash out Refinance issues

7 Replies

Hello BP Community,

I have a little issue here. I recently sold a rental property that was not cash flowing and purchased a duplex in Texas. The idea was purchase cash, then cash out refinance with the attempts to pull off the BRRR strategy or close too it. My issue is that my credit score is still on the rise, but more importantly, i had multiple late payments on my previous mortgage and now I'm told i need to wait a year to cash out from the last late payment. Does anyone have any experience in ways around this? or using non conforming loans? any advice would be greatly appreciated as i would have to otherwise wait 8 months at this point to refinance. Thanks in advanced.


Stephen

Maybe try getting a secured LOC?

A better strategy next time is use a HML for acquisition then refinance Rate & Term (no cash out) immediately. That will keep your personal funds less exposed.

Thanks Chris, yeah I'm looking into running with a Heloc. The HML option was actually the original plan, i was trying to save on points and interest even though it i was told i would have been able to refinance after 45 days. I didn't expect this bump in the road, lesson learned.

Originally posted by @Stephen McGrath :

Hello BP Community,

I have a little issue here. I recently sold a rental property that was not cash flowing and purchased a duplex in Texas. The idea was purchase cash, then cash out refinance with the attempts to pull off the BRRR strategy or close too it. My issue is that my credit score is still on the rise, but more importantly, i had multiple late payments on my previous mortgage and now I'm told i need to wait a year to cash out from the last late payment. Does anyone have any experience in ways around this? or using non conforming loans? any advice would be greatly appreciated as i would have to otherwise wait 8 months at this point to refinance. Thanks in advanced.

Stephen

HI Stephen,

Most conventional lenders will allow 1 30 day late within 12 months but not 60 day late and if you have multiple 30's you generally have to wait 12+ months to re-apply.

There are other loan products that are called non QM or non qualified mortgages that might entertain your scenario. They're typically priced in the 4-7% ranges so they're not going to give you that ultra low 3's rates that a conventional lender might.

It would be best to figure out what your scenario is currently and see which route would be best for you going forward.

 

To update the thread and anyone interested, i have talked with probably 20 banks/credit unions/Hard Money lenders. I have found a few options for myself and anyone unqualified for a government back fannie/freddie loan. So as far as hard money lenders go, I've been quoted as low as 7% interest (this changes daily), and they would even use the equity in my first home for the down payment on my 2nd property, this however is a last resort for me as i would prefer less risky financing. The upside is that they provide fast closing and interest only payments, which would keep the cash flow on the first property strong. What i found to be the preferable option is a commercial loan. A few credit unions entertained this idea but some had high interest rates, close to 5% and up even, and 10-15 year amortization (this greatly lowers the cash flow on the property), another road bump is that some denied it as the loan size was too small. After all my research i found a local bank that is offering me up to 30 year amortization commercial loan at an adjustable rate interest that changes every 5 years, starting at 4.2%. They are also offering 80% LTV, and there is no seasoning period (all the other banks and credit unions will only give around 70% of purchase price unless owned for 2 years). Right now i am awaiting the appraisal, i will update with my results.

@Stephen McGrath

So you are saying that you got a 5/5 ARM? I've never heard of 5 year ARM that is 5 Years thereafter... Not to say it doesn't exist. Sounds unlikely, that's all. What are the floor and caps on that?

I have a variety of investor products that will go up to 75/80% LTV with 6 month seasoning and get in that same range for your rate. All amortize over 30 years.

I hope it works out for you!  Good luck with the appraisal too!

Nick Belsky

@Nick Belsky

Hey Nick, excuse my ignorance but i actually don't know if its a 5/5 ARM. I was told typically the term of the loan is 20 years adjusting every 5 but they could increase the term to 30 years, i will have to verify that. The floor is the starting rate of 4.2 i believe it was, and as far as Caps, again i have to confirm that. I would love to hear the products you have to offer, i will DM you.


Thank you,

Stephen

@Stephen McGrath

No worries. Typically an ARM is setup like a 5/1, 7/1, etc... Meaning you have a fixed rate for the first 5 years, then it adjust each year thereafter as in a 5/1. Your ceiling or caps are also very important to understand. Each ARM has an index and margin rate added together to give you a Fully Indexed Rate.

Caps are in place to protect the borrower from abnormal rate increases.  The caps are important as each year you get an adjustment, the cap determines what that max adjustment can be at each interval.  The Lifetime cap determines the total amount that the interest can be increased over the course of the entire loan and not just at each interval.

The floor is setup more to protect the lender.  Just like indexes can go up, they can also go down.  The floor keeps the rate from falling too low so that the lender doesn't lose money on the loan.  

Any legit lender has to disclose a document call the CHARM Booklet within 3 days after application to anyone moving forward with an ARM loan. The Truth in Lending Act (TILA) requires this and is enforced by the CFPB. It goes into depth at explaining how ARMs work and how each borrower must be educated on them to ensure they know what they are getting into.

Here is a link to the CHARM Booklet

If the lender you are speaking with isn't disclosing this to you, I'd read the booklet and drill them on these very critical points of the loan and probably ask yourself if this is the lender you should go with...

Cheers!

Nick Belsky