Qualifying for a Cash Out Refi ?

Question

Hey folks! Big time fan of the community, first time posting here.

I'm hoping to purchase my first investment property by the end of the year and hope to implement the BRRRR strategy. I am looking for insight/advice about qualifying for a cash out refinance loan. I have a pretty nice nest egg of cash available that I plan to buy and rehab a property with (approx. $100k), however I'm curious/concerned I won't qualify for the refi loan. As it stands, I only make $50k/yr. but am also considering leaving my current w-2 job and going back to being self employed in the trades as I've done in the past.

Does anyone have insight around what I'll need to qualify for the refi loan in general, and if a recent career change will be hurt my approval odds? Or any general tips given the situation Ive laid out in? I just purchased my first home 2 years ago, so I'm pretty novice to the whole loan process in general. I'm doing my best to do my due diligence before I start making big moves.

Thanks in advance!

Stephanie P. · Answer

You're on it. I was thinking you were going for an owner occupied property. Yes, just do a DSCR loan for the new property and you're good to go. Let us know if you need a broker.

Ben V. · Answer

Hey Josh,so to answer your question about the refi...changing your career does hurt your chances of getting approved for a refinance. Going self employed generally means you need 2 years of tax returns showing company growth, not a loss. You could do a bank statement loan which typically yields a higher interest rate. Nearly all loans that do not require income carry a higher interest rate. You may find yourself paying through the nose on that one. However the DSCR loan is very attractive to investors like yourself. Most lenders offer up to to 70% LTV but I do offer 80%LTV with good credit. It's a tricky scenario when trying to make sure you're doing the best thing for your business. Feel free to reach out should you need more help! Always willing to chat :)Cheers!

Joshua Carter · Answer

Awesome, thank you for sharing your insight and advice! Glad to know where to find a generous and knowledgable broker when the time comes.

Jeff Copeland · Answer

To qualify you for a conventional refinance (which will get you the best rate and terms), the lender will look mainly at four things:1. Credit2. Income3. DTI4. Employment - As a general rule, conventional lenders don't like self-employment. A $50k W-2 job is probably better than a $100k self-employed gig, as least in the short term (because conventional lenders will require two years of tax returns showing stable self-employment income before they will consider it). So you'll want to be very strategic about how and when you quit your W-2. In fact, sitting down with a mortgage broker and discussing all of this in advance (like now) is certainly a best practice - they can help you develop a strategy and timeline that will keep you "financeable" when it matter most to you.

Stephanie P. · Answer

Use your nest egg to buy a smallish property for cash. Then move in. Then do a DSCR loan to refinance the current property (up to 75% loan to value). Your personal income or employment doesn't come into play and the market rents set by the appraisal's comparable rent schedule will be the income for the property. Even if it's vacant, you'll be able to get 70% loan to value. The key is that you don't live there anymore because they are for non-owner occupied only. You won't qualify for owner occupied if you leave your W2 job unless you get a bank statement loan and most of those are for self-employed borrowers.

Joshua Carter · Answer

That seems to be what I'm hearing in regards to DSCR as well.Thanks for the additional tips too Khari!

Khari F. · Answer

Ok I think the confusion is that you mentioned your salary. my understanding is that it wont come into play for dscr. I would assume if they are only looking at rental income they would also factor in your experience managing rental property (mismanaged = higher expenses, vacancies). delayed financing offers shorter seasoning period if buying w cash.

Joshua Carter · Answer

Joshua Carter · Answer

Thanks for your reply Stephanie,I'm unclear as to why I would need to move into the newly purchased property from my current home? I've been looking towards a DSCR loan as a potential answer to my dilemma, why could't I do a DSCR to refinance the new property? It would be a non-owner occupied investment property. What am I missing?Thanks again!

Joshua Carter · Answer

Hi Khari,No, not trying to refinance my current home.I plan to buy the investment property with cash, then refi after rehabing it. I'm wondering about qualifying for the refi loan on the new property so I can get my equity back out of it. I appreciate the reply!