BRRR Financing - Cash Out & Delayed Financing Methods

[Jerry Padilla]

This method of financing works best when you find under valued or wholesale property that you can force appreciation by doing some renovations or updates to the property.

This method isn't best used on property that you purchase at retail value. You are better off using conventional purchase financing for this transaction.

Recent changes to CASH OUT Financing;

- Conforming limits increased across the board everywhere! Here is a link to see the max for your area!

Look Up Conforming Limits For Your Area!

BRRR / BRRRR....... Buy Rent Rehab Refinance..........& Repeat

CASH OUT FINANCING

A cash out refinance is a refinance of your property that allows you to pull equity out of a property. The mortgage can either be paid off free and clear or can have a low enough balance on the current mortgage versus the value, to make it worth pulling out the equity in the property. Cash out refinances are available on primary, second homes and investment properties.

• The typical cash out financing is done after 6 months of owning the property, based on ARV and available for mortgaged properties #1-10. Please see delayed financing for less than 6 months after closing.
• On a primary residence you can pull out up to 80% LTV on a SFR and up to 75% LTV on 2-4 unit multi-families.
• On an investment property; A SFR if you have #1-10 mortgaged properties, you can pull out up to 75% of the equity and on 2-4 units is up to 70% equity.
• On an investment property; If you have #7-10 mortgaged properties, including subject you are required to have a credit score of 720, and are subject to a minimum loan amount of $50k!
• PROPERTIES LISTED FOR SALE - Must be taken off of the market prior to disbursement date of the new mortgage.

Cash Reserves Required For Other Properties Owned by Investor, if doing a cash out on investment property;

Cash Reserve Requirements;

6 months PITI is required on subject property. If you have 1-4 financed properties than it is now 2% of all unpaid principle balances.

If you have 5-6 financed properties than it is now 4% of all unpaid principle balances.

If you have 7-10 financed properties than it is now 6% of all unpaid principle balances.

Money must be in account for 60 days or sourced. A HELOC can be used as down payment, but not as cash reserves.

DELAYED FINANCING EXCEPTION

Delayed Financing Exception

A cash-out refinance within 6 months of a purchase transaction when no financing was obtained for the purchase transaction are allowed under the following parameters:

• The new loan amount is not more than the actual documented amount of the borrower’s initial investment in purchasing the property, plus the financing of closing costs, prepaid fees, and points (subject to the maximum LTV).
1. CASH OUT FINANCING AND DELAYED FINANCING HAVE THE SAME LTV REQUIREMENTS - BUT DELAYED FINANCING IS SUBJECT TO A MAX OF PURCHASE PRICE PLUS CLOSING COSTS.
• The purchase transaction was an arm’s length transaction
• The purchase transaction is documented by the HUD-1, which confirms that no mortgage financing was used to obtain the subject property. The preliminary title search or report must also confirm no liens on the subject property.
• The source of funds for the purchase transaction can be documented (bank statements, personal loan documents, HELOC on another property). Any loans used as the source for the purchase transaction will be required to be repaid on the new HUD-1.

  Funds received as gifts and used to purchase the property may not be reimbursed with proceeds of the new mortgage loan. Funds of gifts are not allowed with investment purchases.

• All other cash-out refinance eligibility requirements are met and cash-out pricing is applied. This is allowed on primary residences, second homes and investment properties per cash-out guidelines.

Ineligible Transactions

Freddie Mac's Guide to Refinancing, including Cash Out.

Fannie Mae's Guideline to Cash Out Financing.

Fannie Mae Guideline for Cash Out, Mortgaged Property 5-10.

Feel free to give me a call. I focus my business on assisting investors with financing in all 50 states. 

I am an Investor Friendly Lender Offering a Wide Range of Products for residential 1-4 unit properties,  from Beginners that are "House Hacking" to the experienced investor. We have both conventional and portfolio products for residential property.

Interested in Conventional Financing?

Conventional Investment Property Financing

Interested in starting out with "House Hacking" Here are some blogs, on comparing the difference in Home Possible, & Home Ready, as well as info on FHA Financing.

House Hacking: Home Ready vs Home Possible

House Hacking with FHA Financing

Interested in using the "BRRR method" and coming out with as little out of pocket expenses? Here is some info on Cash Out Financing & Delayed Financing.

BRRR; Cash Out Financing & Delayed Financing

BRRR - What You Need To Know When Using The BRRR Method Podcast

Interested in Rate & Term Refinancing One or Multiple Properties at a time? Here is some info on Rate & Term Refinancing

Rate & Term Refinancing Properties 1-10

Interested in Renovation Loans? These are just for the beginning investor that owns less than 4 financed properties including subject. This is NOT for fix and flip properties that you intend to sell. Here are several loan products for renovating properties.

FHA 203k vs HomeStyle vs EZ - C Renovation Loans

Interested in VA Financing?

House Hacking with a VA Mortgage

VA IRRL

VA Renovation Loans