REFINANCING RESTRICTIONS - 80% of cost / value
in TX - is there a time period you have to wait to refinance? I bought my first property with cash. first 2 banks said they would only refinance with a loan of 80% of the COST of the purchase price plus rehab. I thought it would be 80% of the ARV? 3rd bank said I have to wait 6 months to refinance and pull equity out of the property. I want to get this right, but getting mixed messages. help the new comer.
"seasoning" of the loan/property is a two part restriction. First, Fannie guidelines / requirements don't allow action on a Title within 6 months. Second, the financing market needs/wants you to keep the loan for 6 payments. If you extinguish the loan within 6months, the lending and the loan officer lose the money they made on the deal and even have to pay penalties. So, for a conforming loan you really need to keep it for 6 payments. Also, since the Title needs to "stay settled" for lack of better term for 6 months, even if you purchased the property with cash you aren't supposed to be able to get a loan on it.
Non-conforming loans such as HML don't need to follow the Fannie guidelines. Its a cost/benefit issue. If you want the "cheapest" money, you go with a conforming loan and live with their restrictions. If you pay the higher rates and additional points for non-conforming loans, you don't necessarily have those restrictions...
Since you purchased with cash, you can do delayed financing, still a conforming loan, and within 6 months close on a loan with the LTV based on the purchase price. Remember, the market value of the property is automatically set by the purchase price. That data point is good for 6 months...
These are all things you need to look into before jumping in. Or, I guess you are learning on the fly. Again, this is regarding conforming loans.... Good luck.
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@David Bull Your 3 lenders are working from the same rule book….
Before 6 months…80% of actual investment…purchase plus rehab
After 6 months…80% of Appraisal.
Almost al lenders have a minimum seasoning requirement of six months in order to use the after repair value as the basis for a new loan. You should calculate and plan for six months carrying charges on all of your fix and hold deals. This holds true for properties acquired by auction or sheriff sale ,if you are lucky enough to steal one below market value. Simply rent the property out as soon as it is ready and use the income to pay the carrying charges until you have exhausted the seasoning period. You can start on the refinance prior to the expiration of the six months and not close until the six months have expired.
Remember you need a minimum of 1.0 debt service coverage for a funding company and 1.25 for many banks. Good luck.
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The max you can typically pull is %80 of its value after a 6 month seasoning period
Quote from @David M.:
"seasoning" of the loan/property is a two part restriction. First, Fannie guidelines / requirements don't allow action on a Title within 6 months. Second, the financing market needs/wants you to keep the loan for 6 payments. If you extinguish the loan within 6months, the lending and the loan officer lose the money they made on the deal and even have to pay penalties. So, for a conforming loan you really need to keep it for 6 payments. Also, since the Title needs to "stay settled" for lack of better term for 6 months, even if you purchased the property with cash you aren't supposed to be able to get a loan on it.
Non-conforming loans such as HML don't need to follow the Fannie guidelines. Its a cost/benefit issue. If you want the "cheapest" money, you go with a conforming loan and live with their restrictions. If you pay the higher rates and additional points for non-conforming loans, you don't necessarily have those restrictions...
Since you purchased with cash, you can do delayed financing, still a conforming loan, and within 6 months close on a loan with the LTV based on the purchase price. Remember, the market value of the property is automatically set by the purchase price. That data point is good for 6 months...
These are all things you need to look into before jumping in. Or, I guess you are learning on the fly. Again, this is regarding conforming loans.... Good luck.
thank you very much!
Thank you! this helps alot
@David Bull There are commercial/DSCR based programs out there (available in Texas) which allow you to cash out as high as 75% of NEW VALUE as early as 90 days of ownership. Amid a volatile rate environment like we find ourselves in now this short seasoning is crucial for fast paced BRRRs.
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Seasoning requirements not mentioned much with BRRR is a great disservice and surprise to many.
Needs to be/should be BRRSRR.