BRRRR with HM and refinancing options without a W2
I was hoping someone can help me understand the process of BRRRing using a hard money lender for acquisition and then refinancing after renovation and renting. If I do not have a W2, am I still able to refinance into a longer term mortgage after I season the property? Or am I still not qualified w/o a W2? I've read through the forums but read conflicting comments 😬 help would be greatly appreciated!
#1 All Forums Contributor
- Investor
- Virginia
@Kerry Krienitz
Lenders typically want to see w2 income - assuming your self employed there are options.
If you have no income then you will not be able to refinance to a conventional loan and a DSCR May be your only option and those are drying Ip very quickly
Quote from @Kerry Krienitz:
I was hoping someone can help me understand the process of BRRRing using a hard money lender for acquisition and then refinancing after renovation and renting. If I do not have a W2, am I still able to refinance into a longer term mortgage after I season the property? Or am I still not qualified w/o a W2? I've read through the forums but read conflicting comments 😬 help would be greatly appreciated!
Are you specifically self-employed? Look into setting up a solo 401k with a Roth sub account. Won't help you out much at square one, but you you can build it into an investing vehicle, and it's geared specifically to self-employed individuals.
Beyond that, I'm finding lenders who still talk to me about refinancing after seasoning a property for 6 months, but I don't know about the trend mentioned by @Chris Seveney. Worth asking about as you're speaking with lenders. It's always good to have more than one viable exit strategy in mind for a selected property. While RE moves slower than some investments, circumstances can still change significantly from the time you first set your eye on a property and when it is time to exit.
DSCR loans are definitely an option. However try to really understand how those programs work, there is some nuance that could break a good deal.
#3 BRRRR - Buy, Rehab, Rent, Refinance, Repeat Contributor
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#3 BRRRR - Buy, Rehab, Rent, Refinance, Repeat Contributor
- Investor
- Austin, TX
You would have to use DSCR lending to cash out refinance
I'm not sure where you are in your real estate journey, but please proceed with caution if you go down this path. Hard money is expensive, BRRRR is difficult, and DSCR loans have high interest rates and pre-payment penalties. If you have no money to cover a low appraisal... you still have to pay that HML back...
There are alternative options, but as mentioned, they are going to be more expensive. DSCR is probably your best bet if you can't prove personal income. If you are self employed and have been for 2 years, your tax returns can be used to document income for a conventional loan.
Quote from @Kerry Krienitz:
I was hoping someone can help me understand the process of BRRRing using a hard money lender for acquisition and then refinancing after renovation and renting. If I do not have a W2, am I still able to refinance into a longer term mortgage after I season the property? Or am I still not qualified w/o a W2? I've read through the forums but read conflicting comments 😬 help would be greatly appreciated!
Hey there, originator advice: Some lenders don't look at your tax returns, aren't worried about your DTI (debt-to-income). They qualify on property income. If there were renovations done a new appraisal is ordered at 6 months of seasoning with executed leases - 75% LTV cash-out refi into perm financing (30 yr DSCR). If you use a bridge loan (20% down) to acquire the property those are typically 12 month terms with extensions possible w/ no prepay or early exit fees (hint - refi when work is complete, tenants in place). Interest-only payments (P*r/12). Loans are qualified on liquidity, experience, credit and property profitability/rent yields. Considering your exit is to hold the property, for 1-4 units the DSCR program is still a good option because a lender will not issue debt on a property that has a DSCR <1.0 , however floor rates are at about >7.5% right now...
As others have mentioned, I would recommend using a lender who can provide a hard money loan for you and then a DSCR loan for your long-term refinance. This would be a viable option especially since you are worried about not having W-2 income. In terms of seasoning, this will only be necessary if you are looking to get equity out of the property - most lenders will require a minimum of 3-6 months seasoning for a cash-out refinance. If you are just trying to pay off your hard money debt, you can pursue a rate-term refinance at any point. Good luck and happy to continue the conversation if you are interested!
Don't always assume DSCR is the only path in this scenario. There are other options such as Bank Statement and 1099 based loans out there. They include more paperwork and the rates are generally slightly better than DSCR, but DTI is a factor.