Making a mistake with a cash-out refinance?

Investor · Denton, TX · Member since 2016 · 35 posts · 20 votes

I recently started the process of doing a cash-out refinance on my single investment property. It cash-flows at $700 a month. Mortgage balance is $130,000. Appraised at $357k, although past appraisals have been higher. The max amount they approved to be pulled out was $123k. This makes the property break even. I only have $30-40k though, so I’ve felt stuck with this single property.

I wanted to use the cash to do some fix and flips and in the rare event a BRRRR presented itself early on, go that route and then continue with fix and flips. The market I'm looking at has plenty of houses in the 30-50k range that could be fixed. However, I'm wondering if I should have simply sold my investment property and used the full $220k-ish I would have had then. Was my move probably the least effective method?

P.S.: I also did not enjoy the $18k in closing on this number. Insanely high from what I was expecting.

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AJ ExnerPro Member

Lender · Springfield, MO · Member since 2023 · 651 posts · 314 votes

Quote from @Axel Scaggs:

Quote from @Patrick Roberts:

Couple questions -

What's the rate and remaining life of the $130k first position?

For the closing costs, how much of that was escrows? If you're currently escrowing with the existing first lien, you would be refunded the balance of that escrow account about a month or so after closing on the new loan.

The original loan rate was high, at 8.75%, new rate is 7.5%. House was purchased in 2017, so restarting it has certainly affected things in that regard. I attached images of the closing costs.

$10k in Origination is tough, ~3.5 points + lender fee sounds like did the heavy lifting, plus title/prop tax in TX can add up quickly.

As for the numbers, I think its easier to regret not selling in the short term, but the hope is for long-term gains/appreciation. If they can cover your mortgage and you can slowly payoff a 350k property over time, that should give you a good equity position in no time.

Plus, if rates get better that will always help. 30k-40k + Cash-out proceeds should put you in a great spot to snatch up a few of those 30-50k properties to fix up and scale.

I wouldn't be upset, sounds like you are in a good spot.

[email protected]417-427-2612

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Patrick Roberts
Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes
1y
Couple questions -
What's the rate and remaining life of the $130k first position?
For the closing costs, how much of that was escrows? If you're currently escrowing with the existing first lien, you would be refunded the balance of that escrow account about a month or so after closing on the new loan.
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- Axel Scaggs
  OP
  Investor · Denton, TX · Member since 2016 · 35 posts · 20 votes
  1y
  Quote from @Patrick Roberts:
  
  Couple questions -
  What's the rate and remaining life of the $130k first position?
  For the closing costs, how much of that was escrows? If you're currently escrowing with the existing first lien, you would be refunded the balance of that escrow account about a month or so after closing on the new loan.
  
  The original loan rate was high, at 8.75%, new rate is 7.5%. House was purchased in 2017, so restarting it has certainly affected things in that regard. I attached images of the closing costs.
  0 Reply
- AJ ExnerPro Member
  Lender · Springfield, MO · Member since 2023 · 651 posts · 314 votes
  1y
  Quote from @Axel Scaggs:
  
  Quote from @Patrick Roberts:
  
  Couple questions -
  What's the rate and remaining life of the $130k first position?
  For the closing costs, how much of that was escrows? If you're currently escrowing with the existing first lien, you would be refunded the balance of that escrow account about a month or so after closing on the new loan.
  
  The original loan rate was high, at 8.75%, new rate is 7.5%. House was purchased in 2017, so restarting it has certainly affected things in that regard. I attached images of the closing costs.
  
  $10k in Origination is tough, ~3.5 points + lender fee sounds like did the heavy lifting, plus title/prop tax in TX can add up quickly.
  As for the numbers, I think its easier to regret not selling in the short term, but the hope is for long-term gains/appreciation. If they can cover your mortgage and you can slowly payoff a 350k property over time, that should give you a good equity position in no time.
  Plus, if rates get better that will always help. 30k-40k + Cash-out proceeds should put you in a great spot to snatch up a few of those 30-50k properties to fix up and scale.
  I wouldn't be upset, sounds like you are in a good spot.
  [email protected]417-427-2612
  2 Reply
- Axel Scaggs
  OP
  Investor · Denton, TX · Member since 2016 · 35 posts · 20 votes
  1y
  Quote from @AJ Exner:
  
  Quote from @Axel Scaggs:
  
  Quote from @Patrick Roberts:
  
  Couple questions -
  What's the rate and remaining life of the $130k first position?
  For the closing costs, how much of that was escrows? If you're currently escrowing with the existing first lien, you would be refunded the balance of that escrow account about a month or so after closing on the new loan.
  
  The original loan rate was high, at 8.75%, new rate is 7.5%. House was purchased in 2017, so restarting it has certainly affected things in that regard. I attached images of the closing costs.
  
  $10k in Origination is tough, ~3.5 points + lender fee sounds like did the heavy lifting, plus title/prop tax in TX can add up quickly.
  As for the numbers, I think its easier to regret not selling in the short term, but the hope is for long-term gains/appreciation. If they can cover your mortgage and you can slowly payoff a 350k property over time, that should give you a good equity position in no time.
  Plus, if rates get better that will always help. 30k-40k + Cash-out proceeds should put you in a great spot to snatch up a few of those 30-50k properties to fix up and scale.
  I wouldn't be upset, sounds like you are in a good spot.
  
  Thanks so much for your feedback! I suppose I’ll just be happy retaining the original asset and see what I can do to build with the funds I’ve taken out.
  0 Reply
- Erik EstradaBusiness Member
  Lender · Member since 2022 · 6k+ posts · 1k+ votes
  1y
  Quote from @Axel Scaggs:
  
  Quote from @Patrick Roberts:
  
  Couple questions -
  What's the rate and remaining life of the $130k first position?
  For the closing costs, how much of that was escrows? If you're currently escrowing with the existing first lien, you would be refunded the balance of that escrow account about a month or so after closing on the new loan.
  
  The original loan rate was high, at 8.75%, new rate is 7.5%. House was purchased in 2017, so restarting it has certainly affected things in that regard. I attached images of the closing costs.
  
  You are getting killed on the fees. I would recommend shopping this.
  But in the event you do decide to sell, you can also look into a cash out bridge loan while the property is being listed for sale to purchase more flips. This is very beneficial in markets where homes are not selling as quickly.
  [email protected]818-269-7983
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- Andrew Zamboroski
  Lender · Member since 2021 · 495 posts · 130 votes
  1y
  Quote from @Axel Scaggs:
  
  Quote from @Patrick Roberts:
  
  Couple questions -
  What's the rate and remaining life of the $130k first position?
  For the closing costs, how much of that was escrows? If you're currently escrowing with the existing first lien, you would be refunded the balance of that escrow account about a month or so after closing on the new loan.
  
  The original loan rate was high, at 8.75%, new rate is 7.5%. House was purchased in 2017, so restarting it has certainly affected things in that regard. I attached images of the closing costs.
  
  While the fees are a little tough to stomach, as long as the end game outweighs the cost, I hope you will be okay on this one! Granted you did not pull as much out as a sale, but, you do own an asset still which is a huge win!
  1 Reply
Patrick Roberts
Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes
1y
Depending on the PPP and the FICO score, box A might be reasonable or it might be high - Im leaning toward high. I would ask for a rate near par to see what the breakeven period is on the points. At the very least, see if the breakeven approximately matches the PPP. I dont lend in TX, but box C looks high as well compared to what I regularly see; this could be state specific, though.
0 Reply
Alan Lacey
Lender · Grand Rapids, MI · Member since 2019 · 175 posts · 82 votes
1y
I would certainly recommend shopping that around a bit just to make sure that is best available. Assuming dscr because that would be too much in fees to be allowed on a conventional deal
0 Reply
- Axel Scaggs
  OP
  Investor · Denton, TX · Member since 2016 · 35 posts · 20 votes
  1y
  Quote from @Alan Lacey:
  
  I would certainly recommend shopping that around a bit just to make sure that is best available. Assuming dscr because that would be too much in fees to be allowed on a conventional deal
  
  It is a conventional cash-out refinance on an investment property I own. My W-2 was required to meet dti.
  
  I actually went through a broker recommended here by several people on BP.
  0 Reply
- Patrick Roberts
  Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes
  1y
  Quote from @Axel Scaggs:
  
  Quote from @Alan Lacey:
  
  I would certainly recommend shopping that around a bit just to make sure that is best available. Assuming dscr because that would be too much in fees to be allowed on a conventional deal
  
  It is a conventional cash-out refinance on an investment property I own. My W-2 was required to meet dti.
  
  I actually went through a broker recommended here by several people on BP.
  
  This is conventional? Yeah, you definitely need to get another quote. This would be reasonable for a DSCR with a short PPP and FICO below 700. If this is conventional, the lender fees are ridiculous.
  
  This loan should be somewhere around 7.125 - 7.375 at worst with a decent FICO while going borrower-paid. I could see this quote being realistic if it was lender-paid and you werent having to pay the broker out of pocket. Total loan fees (not including broker commission) should be at or under $2,500; maybe $2,700 at worst. Even below 700 FICO, you should be at or under par at 7.5% on borrower-paid and under 75% LTV, not paying points.
  0 Reply
- Axel Scaggs
  OP
  Investor · Denton, TX · Member since 2016 · 35 posts · 20 votes
  1y
  Quote from @Patrick Roberts:
  
  Quote from @Axel Scaggs:
  
  Quote from @Alan Lacey:
  
  I would certainly recommend shopping that around a bit just to make sure that is best available. Assuming dscr because that would be too much in fees to be allowed on a conventional deal
  
  It is a conventional cash-out refinance on an investment property I own. My W-2 was required to meet dti.
  
  I actually went through a broker recommended here by several people on BP.
  
  This is conventional? Yeah, you definitely need to get another quote. This would be reasonable for a DSCR with a short PPP and FICO below 700. If this is conventional, the lender fees are ridiculous.
  
  This loan should be somewhere around 7.125 - 7.375 at worst with a decent FICO while going borrower-paid. I could see this quote being realistic if it was lender-paid and you werent having to pay the broker out of pocket. Total loan fees (not including broker commission) should be at or under $2,500; maybe $2,700 at worst. Even below 700 FICO, you should be at or under par at 7.5% on borrower-paid and under 75% LTV, not paying points.
  I appreciate the the feedback. My FICO is a 770 and the LTV I believe was over 75%. It’s unfortunate, but I guess I learned the importance of shopping around as I only talked with one other lender. If I’m locked into this, I’ll just be much more careful in the future.
  0 Reply
- Jay HurstBusiness Member
  Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
  1y
  Quote from @Axel Scaggs:
  
  Quote from @Patrick Roberts:
  
  Quote from @Axel Scaggs:
  
  Quote from @Alan Lacey:
  
  I would certainly recommend shopping that around a bit just to make sure that is best available. Assuming dscr because that would be too much in fees to be allowed on a conventional deal
  
  It is a conventional cash-out refinance on an investment property I own. My W-2 was required to meet dti.
  
  I actually went through a broker recommended here by several people on BP.
  
  This is conventional? Yeah, you definitely need to get another quote. This would be reasonable for a DSCR with a short PPP and FICO below 700. If this is conventional, the lender fees are ridiculous.
  
  This loan should be somewhere around 7.125 - 7.375 at worst with a decent FICO while going borrower-paid. I could see this quote being realistic if it was lender-paid and you werent having to pay the broker out of pocket. Total loan fees (not including broker commission) should be at or under $2,500; maybe $2,700 at worst. Even below 700 FICO, you should be at or under par at 7.5% on borrower-paid and under 75% LTV, not paying points.
  I appreciate the the feedback. My FICO is a 770 and the LTV I believe was over 75%. It’s unfortunate, but I guess I learned the importance of shopping around as I only talked with one other lender. If I’m locked into this, I’ll just be much more careful in the future.
  
  @Axel Scaggs You are NOT locked in until you sign the closing documents. Assuming you credit score is 770 that is an awful loan, and you should NOT close with those terms.
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  2 Reply
- Patrick Roberts
  Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes
  1y
  Quote from @Jay Hurst:
  
  Quote from @Axel Scaggs:
  
  Quote from @Patrick Roberts:
  
  Quote from @Axel Scaggs:
  
  Quote from @Alan Lacey:
  
  I would certainly recommend shopping that around a bit just to make sure that is best available. Assuming dscr because that would be too much in fees to be allowed on a conventional deal
  
  It is a conventional cash-out refinance on an investment property I own. My W-2 was required to meet dti.
  
  I actually went through a broker recommended here by several people on BP.
  
  This is conventional? Yeah, you definitely need to get another quote. This would be reasonable for a DSCR with a short PPP and FICO below 700. If this is conventional, the lender fees are ridiculous.
  
  This loan should be somewhere around 7.125 - 7.375 at worst with a decent FICO while going borrower-paid. I could see this quote being realistic if it was lender-paid and you werent having to pay the broker out of pocket. Total loan fees (not including broker commission) should be at or under $2,500; maybe $2,700 at worst. Even below 700 FICO, you should be at or under par at 7.5% on borrower-paid and under 75% LTV, not paying points.
  I appreciate the the feedback. My FICO is a 770 and the LTV I believe was over 75%. It’s unfortunate, but I guess I learned the importance of shopping around as I only talked with one other lender. If I’m locked into this, I’ll just be much more careful in the future.
  
  @Axel Scaggs You are NOT locked in until you sign the closing documents. Assuming you credit score is 770 that is an awful loan, and you should NOT close with those terms.
  
  Agree
  0 Reply
- Axel Scaggs
  OP
  Investor · Denton, TX · Member since 2016 · 35 posts · 20 votes
  1y
  Quote from @Jay Hurst:
  
  Quote from @Axel Scaggs:
  
  Quote from @Patrick Roberts:
  
  Quote from @Axel Scaggs:
  
  Quote from @Alan Lacey:
  
  I would certainly recommend shopping that around a bit just to make sure that is best available. Assuming dscr because that would be too much in fees to be allowed on a conventional deal
  
  It is a conventional cash-out refinance on an investment property I own. My W-2 was required to meet dti.
  
  I actually went through a broker recommended here by several people on BP.
  
  This is conventional? Yeah, you definitely need to get another quote. This would be reasonable for a DSCR with a short PPP and FICO below 700. If this is conventional, the lender fees are ridiculous.
  
  This loan should be somewhere around 7.125 - 7.375 at worst with a decent FICO while going borrower-paid. I could see this quote being realistic if it was lender-paid and you werent having to pay the broker out of pocket. Total loan fees (not including broker commission) should be at or under $2,500; maybe $2,700 at worst. Even below 700 FICO, you should be at or under par at 7.5% on borrower-paid and under 75% LTV, not paying points.
  I appreciate the the feedback. My FICO is a 770 and the LTV I believe was over 75%. It’s unfortunate, but I guess I learned the importance of shopping around as I only talked with one other lender. If I’m locked into this, I’ll just be much more careful in the future.
  
  @Axel Scaggs You are NOT locked in until you sign the closing documents. Assuming you credit score is 770 that is an awful loan, and you should NOT close with those terms.
  
  Ok thank you for the advice, I’ll look elsewhere. What is a generally expected closing cost on a loan of that amount? I was expecting $7-10k. Second, would this lender modify the fees if I presented a competing offer? Or is that not a typical thing to do.
  0 Reply
- Jay HurstBusiness Member
  Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
  1y
  Quote from @Axel Scaggs:
  
  Quote from @Jay Hurst:
  
  Quote from @Axel Scaggs:
  
  Quote from @Patrick Roberts:
  
  Quote from @Axel Scaggs:
  
  Quote from @Alan Lacey:
  
  I would certainly recommend shopping that around a bit just to make sure that is best available. Assuming dscr because that would be too much in fees to be allowed on a conventional deal
  
  It is a conventional cash-out refinance on an investment property I own. My W-2 was required to meet dti.
  
  I actually went through a broker recommended here by several people on BP.
  
  This is conventional? Yeah, you definitely need to get another quote. This would be reasonable for a DSCR with a short PPP and FICO below 700. If this is conventional, the lender fees are ridiculous.
  
  This loan should be somewhere around 7.125 - 7.375 at worst with a decent FICO while going borrower-paid. I could see this quote being realistic if it was lender-paid and you werent having to pay the broker out of pocket. Total loan fees (not including broker commission) should be at or under $2,500; maybe $2,700 at worst. Even below 700 FICO, you should be at or under par at 7.5% on borrower-paid and under 75% LTV, not paying points.
  I appreciate the the feedback. My FICO is a 770 and the LTV I believe was over 75%. It’s unfortunate, but I guess I learned the importance of shopping around as I only talked with one other lender. If I’m locked into this, I’ll just be much more careful in the future.
  
  @Axel Scaggs You are NOT locked in until you sign the closing documents. Assuming you credit score is 770 that is an awful loan, and you should NOT close with those terms.
  
  Ok thank you for the advice, I’ll look elsewhere. What is a generally expected closing cost on a loan of that amount? I was expecting $7-10k. Second, would this lender modify the fees if I presented a competing offer? Or is that not a typical thing to do.
  
  If we were doing the loan, Box A (origination fees) at 75% loan to value with a 770 middle credit score on a single family home at 7.5% would be like 900 dollars, your box A is 10k. and doubtful anyone that is trying to get the margins they are trying to get from you would be able to do the loan much cheaper, but more then that why would you award them for trying to job you but getting caught?
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Axel Scaggs
OP
Investor · Denton, TX · Member since 2016 · 35 posts · 20 votes
1y
I may be too far along in the process to back out now. I’m not super familiar with refinances, but I’d assume there’s a grace period to pull out and I have probably passed that by now.
0 Reply
Chris Barrett
Investor · Madison WI · Member since 2021 · 139 posts · 103 votes
1y
If you don't have a project to fund yet, I would rather get a HELOC than cash out refi. Also those fees seem really high unless it's a DSCR with few requirements.
0 Reply
Ben FernandezBusiness Member
Realtor · Lancaster, PA · Member since 2025 · 169 posts · 97 votes
1y
Although you'd encounter the variable rate, why not pursue a line of credit? That way when you find an investment you write the check. Versus with the cash out refinance you start paying on the debt from day one and haven't found your new investment yet...That'll just eat away at your positive cash flow way too early.

Also, try to optimize your operations in the asset you're leveraging the equity on as much as possible before pulling the trigger. Be certain you have properly accounted for capex in your operating expenses as well. You must be prepared if a repair/replacement arises being that it sounds as though you'll be at max usage of your leverage, accessible cash and your cash flow will be washed. (Know your break even point occupancy as well.)

Overall, breaking even isn't bad. You just need to make sure the equity you're utilizing provides a return. Whether that be a lump sum payoff (flip or BRRRR) or if its another buy and hold. Ideally, it'll be the flip or BRRRR so you don't encounter a stopping point where you're waiting on equity to rebuild (before you can invest again).
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