All Forum Posts by: Jerry Padilla

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.

Recent changes to CASH OUT Financing;

- Conforming limits increased across the board everywhere! 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 property that allows you to pull equity out of a property. 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 than it is now 2% of all unpaid principle balances.

If you have 5-6 financed properties than it is now 4% of all unpaid principle balances.

If you have 7-10 financed properties than it is now 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 are 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).
1. 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.

Ineligible Transactions

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.

Feel free to give me a call. I focus my business on assisting investors with financing in all 50 states. 

I am an Investor Friendly Lender Offering a Wide Range of Products for residential 1-4 unit properties,  from Beginners that are "House Hacking" to the experienced investor. We have both conventional and portfolio products for residential property.

Interested in Conventional Financing?

Conventional Investment Property Financing

Interested in starting out with "House Hacking" Here are some blogs, on comparing the difference in Home Possible, & Home Ready, as well as info on FHA Financing.

House Hacking: Home Ready vs Home Possible

House Hacking with FHA Financing

Interested in using the "BRRR method" and coming out with as little out of pocket expenses? Here is some info on Cash Out Financing & Delayed Financing.

BRRR; Cash Out Financing & Delayed Financing

BRRR - What You Need To Know When Using The BRRR Method Podcast

Interested in Rate & Term Refinancing One or Multiple Properties at a time? Here is some info on Rate & Term Refinancing

Rate & Term Refinancing Properties 1-10

Interested in Renovation Loans? These are just for the beginning investor that owns less than 4 financed properties including subject. This is NOT for fix and flip properties that you intend to sell. Here are several loan products for renovating properties.

FHA 203k vs HomeStyle vs EZ - C Renovation Loans

Interested in VA Financing?

House Hacking with a VA Mortgage

VA IRRL

VA Renovation Loans

@Connor Mckelvey

Fannie or Freddie will not allow for borrowed funds from a personal loan or credit cards towards the down payment/closing costs. The only option for borrowed funds would be a HELOC.

2% sellers concession is the max amount allowed for any investment loan.

Do you know if they are using Fannie or Freddie to decision the loan?

@Antoine Martel

Yes, a HELOC is the only option that allows you to do those with a purchase. They don't see a HELOC as borrowed funds, like they would a personal loan or credit cards. They view it as equity from the property.

@Brian S.

Are these properties financed in your personal name?

If you have 10 financed properties in your personal name, than I would suggest cash out refinancing them to purchase more property. Once you go over the 10 financed properties, you will no longer be able to take advantage of the lowest rates with conventional financing, and will have to move onto portfolio lending. It isn’t a bad thing, but rates aren’t as competitive as Fannie and Freddie. So that is why if you are right at this limit I would suggest taking the money out while you can with conventional before purchasing more. Then use portfolio or commercial lending to purchase more properties.

@James Baker

Is this for a single family or a multi-family Investment?

What is the purchase price point that you are looking at?

For conventional - a single family investment property you could go as low as 15% down, but will have to pay mortgage insurance.

*PRIMARY RESIDENCE ONLY - UNLIMITED AMOUNT OF FINANCED PROPERTIES

*MINIMUM CONFORMING LIMITS + $1 – NO EXCEPTIONS

*Maximum Financing Total Under This Program is $3,000,000 unpaid principal balance

* NO MI

30 yr fixed

5/1 ARM

7/1 ARM

Purchase/Rate & Term Criteria – LTV

• Seller may contribute up to ( 3% if >90% LTV) & (6% if < or = 90%)
• Gift Finds not allowed if >90% LTV
• No Escrow Waiver

Cash Out & Rate & Term Criteria

• 6 month seasoning requirement
• Property must not have been listed for sale for previous 6 months from application date.

*Non Traditional Credit Not Permitted

*Declining Markets noted by appraiser - LTV will be reduced by 5%

* New York and Maine not available, Most States This Program is Available!

* Massachusetts not allowed

Properties Allowed:

Single Family (Detached, Semi Detached, Attached)

1-4 units

PUD (Detached, Attached)

Warrantable Condominium(Detached, Attached)

Non-Warrantable Condominiums Attached/Detached) including Condo-tels.

(Subject to Prime Lending Approval)

** FIRST TIME HOME BUYERS - payment shock ratio is required unless living rent free or currently own home free and clear. Caluclation divides proposed monthly housing payment by current total monthly housing payment. This ratio must not exceed 250%.

1-4 Unit Primary Residential Property or 1 Unit Second Home

• 95% LTV
  • 700 Credit Score Required
  • $3,000,000 max loan amount
  • 9 months Reserve Requirement
  • No Mortgage Insurance
  • Max DTI 45%

$2,000,000 max loan amount

• 90% LTV
  • 700 Credit Score Required
  • $3,000,000 max loan amount
  • 9 months Reserve Requirement
  • No Mortgage Insurance
  • Max DTI 45%

Cash Out Refinance Criteria - Maximum Cash Back - $500,000

1-4 Unit Primary Residential Property or 1 Unit Second Home

• 85% LTV
  • 700 Credit Score Required
  • $1,500,000 max loan amount
  • 9 months Reserve Requirement
  • No Mortgage Insurance
  • Max DTI 45%

Cash Out Debt Consolidation - Maximum $100,000 to be paid off

1-4 Unit Primary Residential Property or 1 Unit Second Home

• 95% LTV
  • 740 Credit Score Required
  • $750,000 max loan amount
  • 9 months Reserve Requirement
  • NO Mortgage Insurance
  • Max DTI 35%
• 90% LTV
  • 700 Credit Score Required
  • $750,000 max loan amount
  • 9 months Reserve Requirement
  • No Mortgage Insurance
  • Max DTI 35%

Texas Re - Financing Only

1 Unit Primary Residential Property Only!

• Rate & Term Refinance:
  • 80% LTV
  • 700 Credit Score Required
  • $3,000,000 max loan amount
  • 9 months Reserve Requirement
  • NO Mortgage Insurance
  • Max DTI 45%
• Cash Out Refinance:
  • 80% LTV
  • 700 Credit Score Required
  • $1,500,000 max loan amount
  • 9 months Reserve Requirement
  • No Mortgage Insurance
  • Max DTI 45%

@Connor Mckelvey

The money would be acceptable funds if it was transferred from a joint account that you are both on. 

This is a Fannie and Freddie requirement where the money must be seasoned for 60 days, as well as no gift funds being allowed for investment properties. 

Do you have any stocks, bonds, retirement funds, cash value insurance policies? These additional assets could be used as well. This money can only be used for either reserves or down payment. 

It is common for both parties to put down money when both are going on the loan, but for investment properties, the money can only come from the parties on the loan. 

@Michael Tighe I would suggest making sure that you have a good team in place before making any purchase. The team would consist of a real estate agent, home inspector, contractor, property manager, insurance agent and loan officer. It is important to discuss your scenario with your loan officer first to ensure you have the ideal exit strategy. Not structuring the deal properly, can create unnecessary delays in recouping your investment, or cost you more money out of your pocket.

@Thuy Pham-Satrappe

I have clients that use this method all the time. I myself have done this as well. This method is best used when you buy property that is undervalued, and you force appreciation by doing some renovations to the property that are supported by your local market. 

This method doesn’t work when you buy property at retail value. You are better off getting financing initially, if you are buying turnkey properties at market value. 

For example, purchasing a property valued at $100k for $100k if you obtain financing initially you can get a mortgage for 15-20% down. But to do a cash out afterwards you will be required to have an LTV of 75% LTV, plus rates are slightly higher for a cash out.

@Nick Wilson

@Antoine Martel

The HELOC is treated as cash and there is no need to season for 2 months.

If you are purchasing the properties at wholesale and planning to Increase the value (using the BRRR method) than I would do the andric of purchasing cash and refinancing later.

If your are planning to purchase the properties at retail value than I would obtain financing from the start. You are going to pay more in fee's, by doing a cash out refinance versus obtaining financing initially. The required LTV for a cash out refinance versus purchase is also lower.