The rent never changed. My refinance example still came up $22,614 short.
I ran a worked example this week on current Texas numbers and the result is worth putting in front of anyone buying a rental on short-term money right now.
The file: a single-family house bought on a hard money loan, renovated, rented at $2,412 a month (the August Houston average per HAR). Taxes $550 a month. Value $300,000. Hard money payoff $225,000. Takeout planned as a 30-year DSCR loan at 75% of value with a 1.10 coverage requirement, so the full payment tops out at $2,192.73.
How it was penciled: insurance at $1,987 a year, taken off the seller's old declarations page, which happens to be exactly the Texas average premium in 2020 per TDI. Rate at 6.30%, where Freddie Mac's survey sat a year ago. That leaves $1,477 a month for principal and interest, which supports $238,644. The 75% cap binds first at $225,000, a clean payoff.
What the refinance saw: bound premium $3,506 (TDI's 2025 average) and a 7.03% rate (Freddie Mac, 24 Sep). That leaves $1,351 for principal and interest, which supports $202,386. $22,614 to closing, on a house renting exactly as planned.
The split surprised me. At 7.03% a dollar of monthly payment supports about $150 of loan. The rate move alone took the supported loan from $238,644 to $221,355. The insurance difference, $126.58 a month, took another $18,969.
TDI now shows filed rate requests of -0.8% for August and -1.8% for June through August, the first negative prints in five years. On a $3,506 premium, -1.8% is $63 a year, about $790 of loan. It changes the forecast for a hold model, not this file.
The mistake was the order. With a bound quote and today's rate in front of the purchase contract, the investor could have offered about $22,600 less, planned to leave that cash in, or passed. Finding out at the refinance is not a choice.
I wrote up the full report on my website, which you can find through my profile, and investors can sign up there to get new reports by email.
My question for the landlords here: are you getting a bound insurance quote before you go under contract on a rental, or are you still underwriting off the seller's policy and fixing it at the takeout?
