What would stop a bank from giving a refinance with the BRRRR?

Question

Very new to the forums & overall real estate investing! I was curious on what type of things would prevent a bank from refinancing a rental property?

Any answers are appreciated, thanks!

Andrew Garcia · Answer

Hi @Caleb Busch, welcome to the community and REI!

There are many reasons that would prevent a lender from giving you a refinance with the BRRRR strategy.

1. The property is not in safe and livable condition. If you run out of funds while there is still no floor in the kitchen, you are not getting that loan.

2. Your credit score is too low. If you have a 450 credit score, no lender will give you financing.

3. You do not have enough personal income to support it. This only applies if you are doing a conventional refinance. If your debt-to-income ratio is too high, you would not qualify for conventional.

4. The fair market rent comes in too low. This only applies for a DSCR refinance. If the DSCR ratio is too low, the lender will not provide you with financing.

5. There are title issues. If the property's ownership is in dispute, the lender will not want to give you hundreds of thousands of dollars until they know for certain.

6. You do not have enough equity in the property. If the appraisal comes back and shows that it is worth $500,000 and you owe $450,000, the bank will only lend 70-75% of that value. You would have to make up the $75-100k in difference.

Those are just a few. There are others but those should cover 80% of cases.

Hope this helps! Let me know if I can be of any assistance.

Katherine Blazer · Answer

I agree with all of Andrew's points. Some additional reasons with Investor loans would be that the projected property value was inaccurate or the projected rental income was off, and the property does not support it.

I have personally had a few properties that cashflow when the investment loans interest rate was 4.5%, but it did not work when they hit 6%, and they are now higher.