Requirements for brrrr refinance

[Dustin Pavlik]

Looking at buying a SFR for approx. 30-40k. Only needs 15k in renovations. Let's say I'm all in for 50k and the property should rent for $850. ARV would be roughly 95k.

What are the requirements for refinancing? Are they the same for buying a home? I am self employed so it's usually difficult dealing with banks as it is. I would like to put the property in my LLC. To me it seems that if there's enough equity and expenses are covered well enough by the rent then there shouldn't be any Issue refinancing? What has everyone else experienced with this?

[Kyle Brodwater]

Dustin, I'm sort of in the same boat as you. I'm about maxed out bank lending wise for DTI so I'll be forming an LLC in 2020 to utilize hard money lending. There are some lenders that offer long term (30yr FR) and their requirements aren't as strict as a banks. They more so look at a deal than at your financials other than your credit score....so I've been told. I'm interested in some other peoples opinions.

[Tony Cimino]

Originally posted by @Dustin Pavlik:

Looking at buying a SFR for approx. 30-40k. Only needs 15k in renovations. Let's say I'm all in for 50k and the property should rent for $850. ARV would be roughly 95k.

What are the requirements for refinancing? Are they the same for buying a home? I am self employed so it's usually difficult dealing with banks as it is. I would like to put the property in my LLC. To me it seems that if there's enough equity and expenses are covered well enough by the rent then there shouldn't be any Issue refinancing? What has everyone else experienced with this?

I have a local lender who will give me a 5/1 ARM on 80% of the LTV.

The only thing he needs is a lease to ensure "proof of funds." The lender takes the lease as a guarantee that the house will rent what the loan payments are. He is able to do this because it's a commercial loan and it is in an LLC. I hate ARM loans, but money is so cheap it's better for me to take more money out now and do another BRRRR than only get 75% on a typical 30 yr mortgage. If I'm 5 years mortgage rates rise a ton, I can always sell the property, or since I can refi into another 5/1 ARM.

If you don't have an LLC the local lenders I found will only give you 75% LTV.

[Andrew Postell]

@Dustin Pavlik as hinted at above the true answer here is what type of loan you can get qualified for.  So basically we need to get you PREQUALIFIED to answer this.  In the investment world there are 2 main types of loans for us:  Conventional and Portfolio.

Conventional - I'll define these as loans that come from Fannie Mae and Freddie Mac (if you recognize those names). These loans are all 30 year fixed rate loans. They have the lowest rates we can find and since they are 30 year fixed...they allow us to cash flow better...which helps us qualify for other loans later. The draw back to these loans is that they are more paperwork heavy than the other "portfolio" types of loans....but if you have ever received a loan on your primary home, it's likely that you will go through the same type of paperwork here with conventional lending. Fannie/Freddie money = Fannie/Freddie rules. NOT the bank's own money.

Portfolio - I'll define these loans as loans that come from the bank's own "portfolio" of money. Sometimes referred to as "commercial" loans. These loans are a lot more flexible than "conventional" loans. Bank's money = Bank's rules. If they like you, then maybe they will lend to you. But since there is a limit to how much money the bank has access to....their rate will be higher...and usually a shorter term. The most common portfolio style loan in Texas is a 20 year adjustable rate loan. These loans are easier to get but the terms are different.

Fannie/Freddie types of loans will be available everywhere and those rules might change SLIGHTLY between lenders.  Those are the ones that require 2 years of tax returns if you are self-employed.  Portfolio loans can run the gambit. Since each lender controls it’s own money you will have to call around to ALL the banks to learn about all the programs. A mortgage broker will help with this some…but even the best mortgage brokers don’t have access to ALL portfolio loans out there.

So how do you FIND a good lender for you?  This I would certainly recommend on getting a local investor to refer someone to you.

1. Post in the Bigger Pockets STATE forum that you are looking in. There are usually some good, local investors that monitor those forums. Maybe they already have a suggestion or recommendation for you? Certainly try there.
2. Visit your local REI groups. There are many groups that meet across the country. Some post here on Bigger Pockets. Many post on meetup.com. Networking is always a great practice and you never know who you might meet there and what good information they have to share. Would certainly recommend visiting if one is close to you.

Once you get the referal, then what do you do to ensure they are "investor friendly"?  How about a list of questions to ask your potential lender?

Questions for Lenders

1. When do you start using rental income to help me qualify? (the answer needs to be immediately)
2. When do you start using “After Repair Value” on my property?
3. How long do you need me to be on title to refinance? (this is important if you do need a short term loan to purchase then refinance out - and the answer should be 1 day...very important that it is 1 day on title is all that is needed to refinance)
4. What is my minimum down payment required? (if they only require 15% down on a single family home that is usually a good sign that you are working with a flexible lender)
5. How many loans can I have with you?
6. Can I change title to my LLC?
7. Do you sell your mortgages?
8. What is your loan minimum?
9. Can you explain to me what your reserve requirements are?

*WHEW*  Probably didn't think you would get this much information, huh?  But, I hope this helps you in what you need to know.  If you know the right information, then you can certainly make a better, informed decision on what to do.  Feel free to ask anything additional if you need.  Thanks!