All Forum Posts by: Tony Severance

@Luis A. Machuca When you use funds from a HELOC or a Cash-Out refinance on a property you already own, think of it as borrowing from yourself. Similar to how borrowing from a 401k is seen, with the only difference being you are paying interest to the bank on a HELOC/Cash-out vs. paying yourself interest when borrowing from your 401k. I have a deal happening right now where the cash-out refinance will close first, then the funds from that will be used for the down payment and closing costs on a new purchase. This is a very common way to fund new purchases.

@Brad Seidel  I assume your Brother In Law wants to buy a home in Taylor to ride the value wave associated with the massive Samsung plant being built there.  I am a Texas lender and lived in Austin for 26 years, so I am very well aware of the development in that area.  There are plenty of options out there for 1099 employees.  Since he is a 1099 contractor, his adjusted Gross income of $40K may be adjusted to get to a higher number based on the type of deductions he took.  He may also choose to go with a bank statement loan.  This type of loan will have a slightly higher interest rate, but at least he will be able to buy a home assuming he qualifies on the other related components of the deal.  Let me know if I can help in any way.

@Daniel Swan I am a lender who has many STR's, including AirBNB/VRBO properties and condotels, under my belt. Let me know if you have any questions.

If your or your friend have drawings for what the final product will look like and what that final product will generate in pro-forma income, a commercial lender may be able to step in and help with financing.

@Patrick Hancock It sounds like what you are describing is more of a short term bridge loan that leverages the equity in your properties rather than a traditional HELOC. These products are both relatively common, but as you are experiencing, operate differently. When we put clients into the equity leveraged bridge loan with a 6 month term, we make certain that they have an exit plan in place that is as iron clad as possible.

@Mercedes Williams  There are Non-QM options out there that may work for you.  Those options are VERY credit score dependent.

@Erika Calderon  Based on the quote you received, it appears you are buying a single family home.  Is this assumption correct?  Both @Jay Hurst and @Dave Skow  have brought up very good items to consider as part of this equation.

 This property is a prime candidate for a cash out refinance to help you acquire new properties.  As Scott mentioned above, you may want to limit the cash out and resulting monthly payment due to the relatively low rent vs. the value of the house for cash flow purposes.  Or...Max it out and buy more than 2 properties that have positive cash flow. 

@Syreeta McDonald
My opinion is yes, since you currently do not have a mortgage on your first investment property, leveraging that property to help you acquire two more investment properties is a great idea.  There are a few factors to look at when considering a cash-out refinance.

1. - How long have you owned the property?  If less than 6 months, you will be held to Delayed Financing rules.
2. - If this is a recent all-cash purchase, and you did some rehab work before renting it out, how much did you spend on the rehab?
3. - Debt-To-Income is a major factor in determining how much you will be able to take out of the property.
4. - What is the monthly rent on the property?
5. - What is your FICO credit score?

After taking the cash out of your first property, you may be able to use DSCR mortgages to acquire the two additional properties. Here are some factors to consider:

1. - What are your price points for these purchases?
2. - Plan on 20% down payments on the new properties assuming they are SFRs?
3. - Will the cash out refinance generate enough cash for down payment plus closing costs to acquire two properties in your price points?
4. - Know that interest rates on DSCR mortgages are very sensitive to Loan to Value. An 80% LTV will cost you significantly more in rate/points than 75% LTV.
5. - The guidelines are more strict for short term rentals and typically require higher down payments and interest rates. 
6. -  Do some upfront homework to determine if the gross rent you expect to receive for each property will be greater than the monthly PITIA for each.

@Caroline Kennedy We have access to investor HELOCs with 5, 10, 15, and 30 year terms with up to 75% LTV.