Before you can refinance, you have to rent it out. Bank will base its maximum amount of financing on the debt coverage ratio of the property based on your revenues and expenses OR on the market value of the property (always the lowest of the two). They will also likely consider your personal debt ratios in their calculations (unless you go for a commercial loan). This is based on my Canadian knowledge, other members could confirm if this also applies to the US or not. The other way to get your money out is by selling the property. Hope this helps!
You're talking about doing a cash-out refinance.
Did you buy the property all cash? I'm assuming so.
They will give you 70-80% LTV based on the ARV depending on the lender.
So if the house is worth $100k now that it's fully rehabbed you could pull $70-80k out.
Debt coverage ratio is not used for a 1-4 unit residential property for a conventional loan. I assume that's what you want. Your personal DTI will be a factor. The rental income will only be counted if you have at least two years landlord experience. That is, rental income on two tax returns. Have a look at these Fannie Mae guidelines. Freddie Mac is similar, and these are what will apply to you, assuming you want a conventional loan. For a one unit property you can go up to 75% LTV for a cash out refi, 70% for 2-4 units. There's more info in that guide for DTI and cash reserves.
If this is a 5+ unit property then you are into commercial loan territory. Debt coverage ratio does matter there.
Hi Kevin, Is it currently rented? I've found a few banks that will work with you in Kansas City once it is rented out. Most banks however will require a minimum 6 months seasoning period however there are a few that will do a commercial loan immediately.
It depends on the bank, but right now most who are willing to lend to investors seem fine with cash out and going up to 75% LTV. Some want a period of seasoning (having owned the property for so long) before lending on appraised value versus cash into the property, but many are willing to loan on appraised value as soon as the property is rehabbed and rented.
@Joshua Ibarra what banks are you working with that will allow a refinance without seasoned tenants?
@Blake Brose I've currently done a few cash out refinances with Great American Bank. Matt Hoefer is my contact. He lends on a commercial note though as long as you have a renter in there but doesn't require seasoning period. Biggest drawback is it is only a 5 year loan so going to have to figure out long term solution at that point. I've also been talk to Bank 21 and they are willing to do that same thing.
Let me know if I can introduce you as I'm happy to help. Thanks!
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