All Forum Posts by: Jerry Padilla

@Benjamin Carter

I would recommend a cash out refinance after the 6 month mark. It will go on current appraised value without the limitations of delayed financing - that have s ceiling amount of what you paid for the property - $8k and you won’t find a lender willing to do a mortgage for that low. 

You can start the process prior to 6 months and close the day after 6 months. Make sure you keep records of all the improvements you made to show the appraiser how much you forced appreciation on the property. 

@Ruth Lyons

You are absolutely right on all aspects - that it is very important to work with a loan officer that knows and has the mindset of an investor.

For conventional the loan must be in your personal name, and LLC properties won't count against you as long as they are titled and mortgaged in the LLC.

@Josiah Collins 

As mentioned, depreciation expense should not be counted against you when calculating your income. Investor income can be complicated for a loan officer not familiar working with investors. A DTI of 37% shouldn't be an issue.

@Alan M. 

I am glad to answer any financing questions that you have on structuring the deal. 

@Billy Au-Yeung

I am glad to answer any financing questions that you have as well.

FHA Standard Loan Amounts

- Maximum loan amount as determined by FHA (Conforming Loan Limits depending on location and number of units - below)

- Each county has its own individual area ceiling limit, and can be found here;

FHA Loan Limits

House Hacking With An FHA Mortgage - FHA Financing;

No Maximum Financed Properties

This is an Owner Occupied Mortgage Product.

Inducements to Purchase

• Contributions up to 6% of the sales price from seller towards closing costs.

Down Payment Requirements

• Minimum down payment into the transaction of at least 3.5%. Gift funds are considered part of borrower’s own funds.
• 60 day history is required to verify the source of the down payment.
• Gifts may be funded by an immediate family member....... But must be verified by 60 day history, and must be a gift with no requirement to pay back.

Reserve Requirements

• 3-4 Unit owner occupied properties must have 3 months PITI
• Reserves must be borrowers own funds and verified by a 60 day history.

Three (3)- and Four (4)-Unit Property - Must meet the Self Sufficiency Rule Below!

The maximum mortgage amount for 3-4 unit properties is limited, so that the ratio of the monthly mortgage payment, divided by the monthly net rental income does not exceed 100%, regardless of the occupancy status. This is also taking into consideration, a 25% vacancy factor.

Fee's associated with FHA Financing;

Upfront mortgage insurance premium (UFMIP), and

Annual insurance premium which is collected in monthly installments

Upfront Mortgage Insurance Premium - For 15 year and greater than 15 years.

• 1.75% of purchase price

Annual Insurance Premium

• Greater than 15 years & greater than or = 95% LTV - 0.85%
• Greater than 15 years & less than 95% LTV - 0.80%
• Less than or = 15 years & Greater than 90% LTV - 0.7%
• Less than or = 15 years & less than 90% LTV - 0.45%

Annual Insurance Premium For Higher Balance Loan Amounts - Greater than $625k

• Greater than 15 years & greater than 95% LTV - 0.105%
• Greater than 15 years & less than or = to 95% LTV - 0.1%
• Less than or = to 15 years & greater than 90% LTV - 0.95%
• Less than or = 15 years & less than or = to 90% LTV - 0.7%
• Less than or = 15 years & less than or = to 78% LTV - 0.45%

INCOME—RENTAL

• Any net rental income from the subject property must be added to the borrower’s qualifying gross monthly income by applying 75% of the lesser of;
• Fair Market Rent reported by the appraiser; or The rent reflected on the existing or proposed lease agreement.

History of Rental Income.

When a borrower has a history of receiving rental income from the subject property since the previous tax year, the borrower must provide most recent Federal Tax Returns, including IRS Schedule E, covering the previous two (2) years

FHA Rate and Term Refinance -

Maximum LTV is 97.75%

FHA Cash Out Refinance -

Maximum LTV is 85% of appraised value if property has been owned 12 months or greater, and if less than 12 months from purchase than the lesser of purchase price or appraised value is used.

For an FHA 203k loan refer to this link;

FHA 203k Financing

Questions? Interested in discussing your situation? Feel free to give me a call or email to discuss!

@Matt Hummel

Have you made any improvements to the property to force appreciation? 

The insurance quote is irrelevent. An appraiser will look at comparable 3 units in the area. If you have owned the property for less than a year, the appraiser may very well want to see that you made improvements to the property to increase the value. If you made no improvements you may not get the value that you are hoping for. 

For conventional financing you will be able to take cash out up to an LTV of 70% after 6 months of owning the property, based on the new appraised value.

THINKING OF USING THE BRRR METHOD?

This method of financing works best when you find under valued or wholesale property that you can force appreciation by doing some renovations or updates to the property.

This method isn't best used on property that you purchase at retail value. You are better off using conventional purchase financing for this transaction. 

FEEL FREE TO REACH OUT AND DISCUSS YOUR SCENERIO TO FIGURE OUT THE BEST ROUTE OF FINANCING.

Recent changes to CASH OUT Financing;

- Conforming limits increased in 2019 across in all states! Here is a link to see the max for your area!

Look Up Conforming Limits For Your Area!

BRRR / BRRRR....... Buy Rent Rehab Refinance..........& Repeat

CASH OUT FINANCING

A cash out refinance is a refinance of your primary or investment property that allows you to pull equity up to the required LTV limits. The mortgage can either be paid off free and clear or can have a low enough balance on the current mortgage versus the value, to make it worth pulling out the equity in the property. Cash out refinances are available on primary, second homes and investment properties.

• The typical cash out financing is done after 6 months of owning the property, based on ARV and available for mortgaged properties #1-10. Please see delayed financing for less than 6 months after closing.
• On a primary residence you can pull out up to 80% LTV on a SFR and up to 75% LTV on 2-4 unit multi-families.
• On an investment property; A SFR if you have #1-10 mortgaged properties, you can pull out up to 75% of the equity and on 2-4 units is up to 70% equity.
• On an investment property; If you have #7-10 mortgaged properties, including subject you are required to have a credit score of 720, and are subject to a minimum loan amount of $50k!
• PROPERTIES LISTED FOR SALE - Must be taken off of the market prior to disbursement date of the new mortgage.

Cash Reserves Required For Other Properties Owned by Investor, if doing a cash out on investment property;

Cash Reserve Requirements;

6 months PITI is required on subject property.

If you have 1-4 financed properties, you are required to have 2% of all unpaid principle balances.

If you have 5-6 financed properties, you are required to have 4% of all unpaid principle balances.

If you have 7-10 financed properties, you are required to have 6% of all unpaid principle balances.

Money must be in account for 60 days or sourced. A HELOC can be used as down payment, but not as cash reserves.

DELAYED FINANCING EXCEPTION

Delayed Financing Exception

A cash-out refinance within 6 months of a purchase transaction when no financing was obtained for the purchase transaction. Delayed financing is allowed under the following parameters:

• The new loan amount is not more than the actual documented amount of the borrower’s initial investment in purchasing the property, plus the financing of closing costs, prepaid fees, and points (subject to the maximum LTV).
• CASH OUT FINANCING AND DELAYED FINANCING HAVE THE SAME LTV REQUIREMENTS - BUT DELAYED FINANCING IS SUBJECT TO A MAX OF PURCHASE PRICE PLUS CLOSING COSTS.
• The purchase transaction was an arm’s length transaction
• The purchase transaction is documented by the HUD-1, which confirms that no mortgage financing was used to obtain the subject property. The preliminary title search or report must also confirm no liens on the subject property.
• The source of funds for the purchase transaction can be documented (bank statements, personal loan documents, HELOC on another property). Any loans used as the source for the purchase transaction will be required to be repaid on the new HUD-1
• Funds received as gifts and used to purchase the property may not be reimbursed with proceeds of the new mortgage loan. Funds of gifts are not allowed with investment purchases.
• All other cash-out refinance eligibility requirements are met and cash-out pricing is applied. This is allowed on primary residences, second homes and investment properties per cash-out guidelines.

Here are some links that you may find beneficial as well!

Freddie Mac's Guide to Refinancing, including Cash Out.

Fannie Mae's Guideline to Cash Out Financing.

Fannie Mae Guideline for Cash Out, Mortgaged Property 5-10.

Thinking of Purchasing with Conventional Financing? Here is some info on financing this route: 

• Gift funds are not allowed on Investment property transactions.
• Escrows for taxes and insurance are required unless otherwise approved by the underwriter.
• Loans for investment properties are not eligible if the transaction includes non-arm’s length and/or at-interest characteristics
• Investment property transactions cannot close in trust.
• Maximum 2% sellers concessions is allowed!!

You can borrow for up to 10 conventional mortgages! You have the option of a 15, 20 or 30 year term.

For A Fixed Rate Purchase, Investment properties, Mortgages 1-6;

• A SFR requires a LTV of 85%
• A MFR requires a LTV of 75%

For A Fixed Rate Purchase, Investment properties, Mortgages 7-10;

• A SFR requires a LTV of 80 - 85%
• A MFR requires a LTV of 75%
• Minimum credit score of 720

 Look Up Conforming Limits For Your Area!

Fannie Mae's Requirement for 1-4 Mortgaged Properties.

Fannie Mae's Requirements for 5-10 Mortgaged Investment Properties

Freddie Mac Requirements for 1-6 Mortgaged Properties.

STILL HAVE QUESTIONS? WANT TO DISCUSS YOUR OPTIONS FURTHER AND FIGURE OUT THE BEST WAY TO FINANCE YOUR PROPERTIES! FEEL FREE TO CONTACT ME TO DISCUSS YOUR SCENERIO!

@Jimmy Samai

You can also try bleaching the subfloor underneath and priming it as well. If it is really bad though, you may need to rip out the subflooring as well.

@Brandon Bartley 

I am not sure a cash out refinance would be worth it. The value of $125k at 70% LTV - which is down to $87.5k and then there are closing costs....... You owe $74k not leaving a ton of value. Rate of 6.5% does sound high.

@Aaron Hale

The house would have to be in livable condition. You would have to qualify for the mortgage with your business income as well.