Rental Property Investor · Dallas, TX · Member since 2018 · 5 posts · 0 votes
Hi All,
My partner and I are in the process of preparing to purchase our first property in the Dallas, TX market. Our goal is to use the BRRRR method, buy a fixer upper multi-family property using a hard money loan, rehab, and refinance. My question is: After rehabbing a property with a hard money loan, do I have to pay a down payment when I get ready to refinance with a bank or credit union? What fees should I expect when refinancing from a hard money loan to a bank or credit union? Also, do I have to owner occupy the residence?
Investor · Pleasant Hill, CA · Member since 2019 · 58 posts · 21 votes
5y
@Cillora Hicks the down payment aspect will depend on the ARV of the property. If you're getting an 80% LTV loan, your "down payment" will be 20% of the ARV. Obviously if you score a perfect BRRRR, the forced appreciation / equity gain would "pay" for your down payment, so you wouldn't be out of pocket anything. For BRRRR refinance, it's simpler to think of it as money left in rather than a down payment to get the refinance.
Loan costs will depend on who you go through, but will probably be in the ballpark of $3-5k. You can always call around to different lenders and give them a hypothetical scenario and they’ll tell you what the fees would be.
You don't have to owner occupy unless you're getting a specific loan that requires owner occupancy (like FHA). One note around the "owner occupancy" area is to make sure your insurance is for a rental, otherwise you could get in trouble down the road when making claims. Good luck!!
Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes
5y
All of this will really depend on your lender....but normally YES, you will need a down payment to finance a property. Depending on your credit and if you use FHA or conventional financing, normally 3-5% down payment or more. I normally tell people to budge another 2-3% for closing costs on the permanent loan, but depending on how good of a shopper you are, you might be able to reduce those. This would be for owner occupied residences. Plan for 20-30% down for investment properties vs owner occupant properties. Best to check this out now, BEFORE you buy with hard money as you will want to be able to refinance if that is your plan and hard money is too expensive normally to use longer term.
Investor · Pleasant Hill, CA · Member since 2019 · 58 posts · 21 votes
5y
@Cillora Hicks the down payment aspect will depend on the ARV of the property. If you're getting an 80% LTV loan, your "down payment" will be 20% of the ARV. Obviously if you score a perfect BRRRR, the forced appreciation / equity gain would "pay" for your down payment, so you wouldn't be out of pocket anything. For BRRRR refinance, it's simpler to think of it as money left in rather than a down payment to get the refinance.
Loan costs will depend on who you go through, but will probably be in the ballpark of $3-5k. You can always call around to different lenders and give them a hypothetical scenario and they’ll tell you what the fees would be.
You don't have to owner occupy unless you're getting a specific loan that requires owner occupancy (like FHA). One note around the "owner occupancy" area is to make sure your insurance is for a rental, otherwise you could get in trouble down the road when making claims. Good luck!!
Flipper/Rehabber · DFW · Member since 2020 · 374 posts · 208 votes
5y
@Cillora Hicks First off congrats on taking this first step! It can definitely change the trajectory of your life. If you are able to skip the hard-money route and find a home that has value where others aren't looking, that could be a viable option for you as well. For instance, I just had some friends buy their first home with 5% down and it had a detached garage apartment in the back over in Casa Linda. They are going to get every dollar they put in back in year one. I suppose my encouragement for you is to think outside the box. In my opinion, hard money is a too expensive and with prim rates below 3% right now you can find much much cheaper money out there. Feel free to PM me with any questions you have. I love helping local DFW investors where I can.