I would like some expertise on this current issue I'm facing.
I have this house 155,000 purchase price. I want to do all cash and refinance.
I am going to get an appraisal done Monday, the seller is very confident the appraisal will come out to 200k or above.
Lets say it comes out to 200K, as soon as i close the house i want to refinance the home.
The bank that im using is saying they will give me back 75% of the appraised value.
So say i put 155,000K cash in.
Appraised value 200,000.
Bank gives back 75% of money= 150,000 back.
So in essence i get this house for 5,000 down cash.
How can i lose here? What am i missing? I feel like this is a deal to good to be true.
I have 1 investment home, this will be my second, so im pretty new to this.
Also the appraisal for the house will be the same appraiser the bank will be using when i refinance.
This property is in NJ, i will be holding this property its a 2 family home.
@Neil P. What you just described is our main entrance and exit strategy. It works only if you get enough cash flow after the refinance though...how much is enough is up to you. One of the huge benefits of doing this is the ability to reinvest the cash again after you refinance it out.
As @Larry Turowski mentioned, be careful of the appraisal. They don't always come out the way you need them too, so you need to be really good with your analysis before hand.
Having said that though, in your scenario, getting a lower appraisal doesn't kill the deal (I guess that depends on how low though). Here's why:
I'm assuming there are no rehab costs in addition to the 155 since you didn't mention them. With it also assumed then, that the 155 covers all costs (buy/rehab.closing/etc...), then 75% of a 200k appr. would get you 150k...and you'd only have 5k in the deal. Now you made no mention of what the cash flow would be AFTER you figured in the REFI monthly payments. If you were making 250/month in CF, then it would take you only 20 months to get the rest of your cash back and be 100% whole again.
In the mean time, you've reinvested 150k of your original cash into the next deal. If you keep repeating this over and over, you can collect a number of cash flow properties quickly, without ever really spending any cash...since you get all of your cash back with the last refi.
As a side note, if you can get deals, or your refi can substantially increase your LTV at REFI, you may be able to cash out on some of these refis.
Joe Villeneuve
REcapSystem
A2REIC
This is clearly NOT the case. The Delayed financing exemption is based on the appraisal and NOT on the original purchase price. It is true that the ultimate loan amount cannot exceed 100% of the original purchase price (plus closing costs) but with that upper limit in place, the actual loan amount will be 70% of appraisal.
So basically, if the Home Buyer bought the property for $100,000 cash and the appraised value after repairs is $200,000, the maximum loan amount will be $100,000 and not $140,000 under the delayed financing loan program?
Gustan Cho
This is clearly NOT the case. The Delayed financing exemption is based on the appraisal and NOT on the original purchase price. It is true that the ultimate loan amount cannot exceed 100% of the original purchase price (plus closing costs) but with that upper limit in place, the actual loan amount will be 70% of appraisal.
So basically, if the Home Buyer bought the property for $100,000 cash and the appraised value after repairs is $200,000, the maximum loan amount will be $100,000 and not $140,000 under the delayed financing loan program?
Gustan Cho
Yes, that is correct. Well, its probably 102K because you can add the original closing costs also. However, in your example, if the appraised value is 130K then you can get out 70% of that (i.e. 91K).
The point is that loan amount is DETERMINED by the after repair appraisal (70% of appraised value), but capped by the original purchase price.
I have just recently done two DFE deals, one in the former category (your example), and one in the latter (my example).
This is clearly NOT the case. The Delayed financing exemption is based on the appraisal and NOT on the original purchase price. It is true that the ultimate loan amount cannot exceed 100% of the original purchase price (plus closing costs) but with that upper limit in place, the actual loan amount will be 70% of appraisal.
So basically, if the Home Buyer bought the property for $100,000 cash and the appraised value after repairs is $200,000, the maximum loan amount will be $100,000 and not $140,000 under the delayed financing loan program?
Gustan Cho
Yes, that is correct. Well, its probably 102K because you can add the original closing costs also. However, in your example, if the appraised value is 130K then you can get out 70% of that (i.e. 91K).
The point is that loan amount is DETERMINED by the after repair appraisal (70% of appraised value), but capped by the original purchase price.
I have just recently done two DFE deals, one in the former category (your example), and one in the latter (my example).
Got it! Thank you Andrew. Really appreciate the information. Did the lender require two appraisals and if so, did they go with the lower one?
Gustan Cho
@Andrew S. @Gustan Cho @Paul Wurster @Doug McLeod
So in my situation, should i go with this DFE?? Do i need to get something signed by the lender if so what?
I am going to get this appraisal on monday. Once i get the appraisal back im going to purchase the property. I am going to do about 5k of work, then im going to get another appraisal by the same company. This will be within 30 days, the lender agreed i can do this, and refinance. So I am def protected here correct?
This property will bring in about 1000 positive cash flow a month with the 30 year fixed on a 4.75 loan with bi weekly payments is what the lender said i have to do if i refinance right away. Do i need to get this all written out as well?
I do not want to get stuck with my 150k cash in that property for 6 months thats one thing i am afraid of.
Scenario 2: which i dont want to do is put 25% down of the purchase price ill end being in for about 40k cash which i want to avoid. Cash flow stays the same obv., however the loan is a 4.25 in this situation.
@Andrew S. @Gustan Cho @Paul Wurster @Doug McLeod
So in my situation, should i go with this DFE?? Do i need to get something signed by the lender if so what?
I am going to get this appraisal on monday. Once i get the appraisal back im going to purchase the property. I am going to do about 5k of work, then im going to get another appraisal by the same company. This will be within 30 days, the lender agreed i can do this, and refinance. So I am def protected here correct?
This property will bring in about 1000 positive cash flow a month with the 30 year fixed on a 4.75 loan with bi weekly payments is what the lender said i have to do if i refinance right away. Do i need to get this all written out as well?
I do not want to get stuck with my 150k cash in that property for 6 months thats one thing i am afraid of.
Scenario 2: which i dont want to do is put 25% down of the purchase price ill end being in for about 40k cash which i want to avoid. Cash flow stays the same obv., however the loan is a 4.25 in this situation.
Cash out refinance mortgage rates are higher than rate and term refinance rates. I have never done a deferred financing deal for any of my borrowers but I am sure the fact that it is a delayed borrower loan, you will take another hit for that too. If you are intending on refinancing rate and term at a later date, see if your lender will offer an adjustable rate mortgage (ARM) rather than a fixed rate where your mortgage rates will be much lower.
Gustan Cho
Gustan Cho
Gustan, I needed one appraisal only in both cases - but that may depend on the lender, some might ask for two, especially if the value increased a lot (say, it doubled or something).
As far as rates, the DFE rates are normal market rates (i.e. whatever the rate would be for a conventional mortgage will be the rate for DFE mortgage - there is no rate penalty for using DFE).
So in my situation, should i go with this DFE?? Do i need to get something signed by the lender if so what?
I am going to get this appraisal on monday. Once i get the appraisal back im going to purchase the property. I am going to do about 5k of work, then im going to get another appraisal by the same company. This will be within 30 days, the lender agreed i can do this, and refinance. So I am def protected here correct?
This property will bring in about 1000 positive cash flow a month with the 30 year fixed on a 4.75 loan with bi weekly payments is what the lender said i have to do if i refinance right away. Do i need to get this all written out as well?
I do not want to get stuck with my 150k cash in that property for 6 months thats one thing i am afraid of.
Scenario 2: which i don't want to do is put 25% down of the purchase price ill end being in for about 40k cash which i want to avoid. Cash flow stays the same obv., however the loan is a 4.25 in this situation.
If I'm understanding right what you are getting it's pretty similar to what you could achieve with DFE. The 4.75% sounds pretty OK for a conventional investment property mortgage (I assume this is a non-owner occupied quad or smaller?). I'm a little confused about the biweekly requirement - essentially, they are giving you a 25year loan with a 30year amortization then?
I'm also not sure why you needed to get the appraisal next week (unless you are just curious). Are you saying that the lender will need two appraisals and the one you get on Monday can be counted as one of those? DFE would have minimally saved you that appraisal.
Of course, all of this is only relevant if the property really does appraise that much higher than purchase price. Let us know how it goes!
@Neil P. - there should be several lenders who will do DFE since it is a standard Fannie Mae rule (though many lenders have additional rules and won't do them). First step is to be sure of your value based on comps and then buy the property. Then you can "officially" start the loan process for the DFE.
We used local banks that were giving us portfolio loans so none of this applied. We didn't even get appraisals after a few deals.
Remember that establishing a track record is really important at the beginning stages.
In my experiences most of the banks use the actual purchase price and discount the appraised value. I have 3 all cash properties that I bought all at a discount, the local banks insist on the appraisal and the loan amount never exceeds the purchase price if I had them for less than 1 year.
If you can send me the bank info love to refi based on actual appraised value.
@Andrew S. @Doug McLeod @Chris Wosnitzer
So I got the house under contract, i have 14 days to get my appraisal and my home inspection if, my appraisal does not come to 205,000 or above im walking away from the deal. Any major issues with the property, the owner will either have to repair or we re negotiate the sale price. This is the way i structured the deal, so worse case scenario i lose out on 800$ from the appraisal and home inspection.
What are your thoughts? My final offer was 164,000 all cash. I spoke to the lender again he assured me i can refi as soon as the record date is posted on the house. The appraisal guy told me the appraisal that comes out this week is the same one they will use when i refi they will NOT do an appraisal again and i will NOT have to pay for an appraisal again when i refi.
Sounds like you've got it handled. Hope it all works out.
Please let me know your thoughts as well on this.
This is clearly NOT the case. The Delayed financing exemption is based on the appraisal and NOT on the original purchase price. It is true that the ultimate loan amount cannot exceed 100% of the original purchase price (plus closing costs) but with that upper limit in place, the actual loan amount will be 70% of appraisal.
So basically, if the Home Buyer bought the property for $100,000 cash and the appraised value after repairs is $200,000, the maximum loan amount will be $100,000 and not $140,000 under the delayed financing loan program?
Gustan Cho
Yes, that is correct. Well, its probably 102K because you can add the original closing costs also. However, in your example, if the appraised value is 130K then you can get out 70% of that (i.e. 91K).
The point is that loan amount is DETERMINED by the after repair appraisal (70% of appraised value), but capped by the original purchase price.
I have just recently done two DFE deals, one in the former category (your example), and one in the latter (my example).
This is true above as I have done DFE's personally as a loan officer. There is however a strategy as well to get above the purchase price + closing costs through hard money lenders using repair hold backs that will allow you to obtain your rehab money and potentially cash back. Hard money will be more costly but if its a quick rehab in 1-2 months you would only get charged 2-3 pts probably on the back end when ordering your payoff to refinance from a local lender or conventional lender.
@Gustan Cho @Doug McLeod @Chris Wosnitzer @Paul Wurster @Andrew S.
Guys, so now things got confusing.
I got the appraisal back it came out at 230,000 much more than i thought it was going to be.
The house is costing me 155,000. However, the bank is saying now i cant refinance for 6 months, and they will only give me 70% of the appraised value.
Is this how most banks work?
I dont mind my 155 being tied up for 6 months, however i am going to do some work to the property and im sure the appraisal will either stay the same or a little more.
What do you guys think of this. The loan officer said i may even have to wait a year but he said 6 months i should be fine.
Are all banks like this? Anyway around this? Please advise thank You
@Gustan Cho @Doug McLeod @Chris Wosnitzer @Paul Wurster @Andrew S.
Guys, so now things got confusing.
I got the appraisal back it came out at 230,000 much more than i thought it was going to be.
The house is costing me 155,000. However, the bank is saying now i cant refinance for 6 months, and they will only give me 70% of the appraised value.
Is this how most banks work?
I dont mind my 155 being tied up for 6 months, however i am going to do some work to the property and im sure the appraisal will either stay the same or a little more.
What do you guys think of this. The loan officer said i may even have to wait a year but he said 6 months i should be fine.
Are all banks like this? Anyway around this? Please advise thank You
You should be fine doing a cash out refinance in 6 months up to 80% loan to value. Some lenders may have their own overlays where they require it for a year, but conventional guidelines on a cash out refinance is 6 months. Go to a lender who has no overlays. My company is licensed in Illinois, Florida, Indiana, Wisconsin, Washington, and California and I can help you if you are in these states but if you are not, there are many conventional lenders that will just go off automated findings. Worst scenario, the lender may require two appraisals. For FHA loans, needs to be owner occupant, cash out refinance seasoning requirements is one year from the purchase date and maximum loan to value is 85%.
Gustan Cho
@Gustan Cho @Andrew S.
Guys, so now things got confusing.
I got the appraisal back it came out at 230,000 much more than i thought it was going to be.
The house is costing me 155,000. However, the bank is saying now i cant refinance for 6 months, and they will only give me 70% of the appraised value.
Is this how most banks work?
I dont mind my 155 being tied up for 6 months, however i am going to do some work to the property and im sure the appraisal will either stay the same or a little more.
What do you guys think of this. The loan officer said i may even have to wait a year but he said 6 months i should be fine.
Are all banks like this? Anyway around this? Please advise thank You
Neil,
based on that appraisal, you can actually get your full original purchase price (150K) plus closing cost out of the deal right now by using the delayed financing exemption. No need to tie up your money for 6 or 12 months.
If you want even more, explore @Gustan's path
@Andrew S. I never used DFE, do i talk to my local lenders about this?
@Gustan Cho this is an investment property cant do FHA. The lender i spoke to today said he will only give me 70% not 75%
And i live in NJ
@Andrew S. I never used DFE, do i talk to my local lenders about this?
@Gustan Cho this is an investment property cant do FHA. The lender i spoke to today said he will only give me 70% not 75%
And i live in NJ
Contact anyone who does Fannie Mae products. I work with a mortgage broker who tends to have several options available.
Here is a link that may be useful http://themortgagereports.com/14208/delayed-financing-mortgage-cash-out
Consider what @Albert Bui is saying. It might make sense in your situation with the appraisal you got. Assuming you have fewer than 4 Fannie Mae loans currently, you hopefully can find a HML to lend $70% of the ARV/appraisal value. You will get most of that in cash right away and they will hold back the amount you have estimated for rehab and you will get that back based on lender inspections as the work is done. Then you will refi into a 30 year conventional (make sure you work with a HML who can arrange both loans) at 75% LTV - again based on the $230k (or whatever their appraisal says - the HML will likely want to do their own and may or may not require another one for the refi). The first closing will come out of your HM loan proceeds and the second closing is covered by the 5% spread on the LTV between the 2 loans.
DFE is perfect when you have a smaller spread between purchase and ARV. HML may give you better returns (less dollars, but higher % on your money) when you have a larger spread. Look at the numbers both ways. If you find a lender who will do DFE where your LTV will cover full purchase + closing costs (so you get full purchase price back), that is still quite good. With HML you may not get much more money back than DFE (due to higher financing costs from 2 closing + holding costs), but you will have less cash in the deal which can boost your return substantially.
If you don't know any HMLs, do a new forum post asking other BP members in New Jersey about them. Same with lenders who do DFE. You might try Caliber - http://caliberhomeloans.co/Edison-NJ.html - they have a branch in Edison. I almost used them on a deal in Houston but ended up backing out. But the loan officer had checked and had confirmed that they do DFE (not sure about whether they will do LTV based on appraisal above purchase). Also connect with a local REI group and ask around. You have two good options that will not require you to wait 6 months.
@Neil P. scratch the phrase "Assuming you have fewer than 4 Fannie Mae loans currently," - I had started off thinking about DFE and then change my direction after re-reading Albert Bui's post.
@Joe Villeneuve was talking regarding this post
Hello Mr. Villeneuve,
What methods would you suggest for getting a loan on a house purchased with cash and not having to wait the 6 month waiting period. I was told by one mortgager, I'll be inquiring smaller banks today. Ideally i would like to get a 30 year term.
Thanks in advance for your assistance.
@Mehran K. , positive cash flow for this property will be about 1000 a month with a 30 year mortgage that i showed above.
This property does need about 5k worth of work cosmetic repairs.
So what type of appraisal should i ask for? The same company will be doing the appraisal for the bank.