Looking for Cash Out ReFi Advice

[Greg Satter]

Hi BiggerPockets Forum! In August I pulled the trigger on my first deal using a HELOC. I am looking to refinance prior to the six-month mark so I can pull my cash out and do another deal. Are there ways to do that? I am new to real estate. I live and plan to invest in the Kansas City area. Thanks in advance!!

[Pete M.]

@Greg Satter Welcome to BP. If using conventional loans, then you're stuck with waiting the six months until you can cash-out refi. There are inventive ways of getting around this, but you have to plan those out from the start (including putting your rehab costs on the HUD-1 at closing, or using private/HML to put a mortgage against the property). I should say that you can cash-out sooner, but you're restricted to using the value you purchased the property at, not a new ARV.

You could also explore finding a local bank for a portfolio loan; since these are non-conforming loans they keep on their own books, they make the rules entirely... including how long you have to wait for seasoning.  Rates and fees will tend to be higher than with a conventional conforming loan, though.

[Pete M.]

@Greg Satter Welcome to BP. If using conventional loans, then you're stuck with waiting the six months until you can cash-out refi. There are inventive ways of getting around this, but you have to plan those out from the start (including putting your rehab costs on the HUD-1 at closing, or using private/HML to put a mortgage against the property). I should say that you can cash-out sooner, but you're restricted to using the value you purchased the property at, not a new ARV.

You could also explore finding a local bank for a portfolio loan; since these are non-conforming loans they keep on their own books, they make the rules entirely... including how long you have to wait for seasoning.  Rates and fees will tend to be higher than with a conventional conforming loan, though.

[Greg Satter]

@Pete M. thank you for providing me the above information.  It points me in the right direction.  I am hoping to get my money out quick so I can go another deal.  Thanks again!

[Mike D'Arrigo]

@Greg Satter I'm fairly certain you will be able to refinance. @Pete M.. Is correct if you had financed the property when you first bought it, however, in your case, if you used a HELOC on another property, you have technically bought it with cash. That being the case, you should be able to refinance within the 6 month period but check with a lender.

[Steven Goldman]

You will not have a seasoning issue with a property you purchased with a HELOC. The issue will be how much you can pull out of the property, not when. If you made valuable improvements than you will be able to cash out refi up to 70 percent of the ARV. If you did not then the cash out will be based on your purchase price unless a higher figure can be justified by some event. Post Covid, banks and funding companies have significantly tightened their guidelines lowered their LTVs and increased the D.S.C. ratios. Good luck!

[Pete M.]

Originally posted by @Mike D'Arrigo:

@Greg Satter I'm fairly certain you will be able to refinance. @Pete M.. Is correct if you had financed the property when you first bought it, however, in your case, if you used a HELOC on another property, you have technically bought it with cash. That being the case, you should be able to refinance within the 6 month period but check with a lender.

I'm not a lender, but my understanding is that even when bought with cash, he's still subject to the six month waiting period for cash-out. Delayed financing exception means he can cash-out sooner, but still limited to 75% LTV, based on "no 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 on the new mortgage loan" (from Fannie)--which, in this case, would be 75% of what he bought it for, not including rehab costs.

Either way, definitely check with a lender for your options and restrictions. 

[Mike D'Arrigo]

@Pete M. It's been a while since I've dealt with Fannie Mae delayed refinancing. I think you're probably right that he can't pull out more than his original investment, but that still gives him the opportunity to pull his money out and do so before 6 months. 

[Greg Satter]

Thank you @Pete M., Steve Goldman, and Mike D'Arrigo for your input.  I am reaching out to various lenders to explore my options.  I am very eager to do my next deal and build my portfolio.