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Updated almost 2 years ago, 01/18/2023
Cash Out Refi of Investment Propeties
Hello everyone
I have a property that was purchased with cash and I'm looking to pull cash out of the property to keep growing the business. I was looking for some recommendations on who you have used to do this. If anyone has any advice it would be greatly appreciated. Thanks in advance and have a great day.
Quote from @Brice Perry:
Hello everyone
I have a property that was purchased with cash and I'm looking to pull cash out of the property to keep growing the business. I was looking for some recommendations on who you have used to do this. If anyone has any advice it would be greatly appreciated. Thanks in advance and have a great day.
- Devin Peterson
- [email protected]
- 860-538-3672
Quote from @Brice Perry:
Hello everyone
I have a property that was purchased with cash and I'm looking to pull cash out of the property to keep growing the business. I was looking for some recommendations on who you have used to do this. If anyone has any advice it would be greatly appreciated. Thanks in advance and have a great day.
Call your bank, OR if its out of state call the local bank, KEEP IT SIMPLE :)
Quote from @Brice Perry:
Hello everyone
I have a property that was purchased with cash and I'm looking to pull cash out of the property to keep growing the business. I was looking for some recommendations on who you have used to do this. If anyone has any advice it would be greatly appreciated. Thanks in advance and have a great day.
You can do this through any mortgage broker. Also, you can check with the commercial lending division of your local banks. We have found that smaller community banks are easier to deal with.
Your challenge will be that rates are horrible right now to begin with. Each element of your proposition will be perceived as additional risk by the lender: Refi’s are at a higher rate than traditional loans, and income properties add on to that, and cash out add on to it too… so your rate will be horrible at the moment!
We got cash out refi rates of 3.5% a year or so ago on our investment properties. My bet would be you will be in the 7% range right now - which is really ugly on how much interest that will be. But it may be a few years before rates settle back down so you will have to make a decision on whether the increased cost of the money is justified by the income you can generate from it.
Randy
Cashouts today are in the 7 percent range on DSCR.
Depending on a few factors (when you bought, credit score, experience) will determine your best option for pulling out the equity.
These loans all ultimately end up going to the same place on wall street - where you need to be wary is fees. Rate is largely going to be competitive across the board.
Quote from @Brice Perry:
Hello everyone
I have a property that was purchased with cash and I'm looking to pull cash out of the property to keep growing the business. I was looking for some recommendations on who you have used to do this. If anyone has any advice it would be greatly appreciated. Thanks in advance and have a great day.
Hi Brice,
I'd recommend working with a mortgage broker and going over your current situation and what you are trying to accomplish. Mortgage brokers have access to several different types of lenders who have many different loan products themselves. There are a wide array of different loan programs out there and depending on your specific scenario, some programs would make more sense for you than others. This will also save you the trouble/time of having to contact multiple banks/financial institutions. Best of luck to you!
Quote from @Brice Perry:
Hello everyone
I have a property that was purchased with cash and I'm looking to pull cash out of the property to keep growing the business. I was looking for some recommendations on who you have used to do this. If anyone has any advice it would be greatly appreciated. Thanks in advance and have a great day.
Hey Brice,
How long ago did you purchase this property? Also did you do any improvements?
DSCR could would if you held the property for 3-6 months. Delayed financing could work if it is less than 3 months. Depending on what you put in rehab you could cash out based on the ARV.
- Erik Estrada
- [email protected]
- 818-269-7983
What banks offer DSCR? I'm new to this term and idea. I'm going to do some research on this and see what I can find out about it? Thanks for all the help
I also have been in contact with a mortgage broker and I just want to make sure I look into all my options before signing any papers
Quote from @Brice Perry:
What banks offer DSCR? I'm new to this term and idea. I'm going to do some research on this and see what I can find out about it? Thanks for all the help
DSCR is pretty much a commercial lending term where they look at the property's ability to earn income as a way to help justify the soundness of the loan. Ie. A property that makes more than it costs to own will be seen as a less risky / more favorable loan for the bank to make. They still look at you as well, but rely more heavily on the property's income potential.
The commercial lending side of banks is where you usually find us, as well as mortgage brokers.
Randy
I'm a lender. We're doing cash-outs between 3-6 months of ownership at new appraised value. Qualified on property income! This is a new change for us.. We can cash-out at <3 months of seasoning. Max proceeds would be purchase price + verified rehab costs invested. Floor rates are around 8.125%
Brice, if you paid all cash for your property and can document it with a closing statement, there is no waiting period for a conventional loan. You will be maxed out at 65-70% most likely as it is an investment property. Also, how many units? 4 or less? You could also look at a home equity term loan, as a mortgage will always have closing costs, etc. Home equity loan will have minimal closing costs but not like a mortgage. DSCR loan will probably have easier qualifying terms but you never know.
Quote from @Brice Perry:
What banks offer DSCR? I'm new to this term and idea. I'm going to do some research on this and see what I can find out about it? Thanks for all the help
One thing to watch for on a DSCR is prepay penalties. I had a quote for a 5 year 5-4-3-2-1% penalty. Doesn't mean it's a bad loan, it just means if you borrow money with the idea that maybe rates will go back down in the next couple of years so you can refi, you'll need to take that into consideration or go a different direction.
The quote I had was through Visio.
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Quote from @Brice Perry:
Hello everyone
I have a property that was purchased with cash and I'm looking to pull cash out of the property to keep growing the business. I was looking for some recommendations on who you have used to do this. If anyone has any advice it would be greatly appreciated. Thanks in advance and have a great day.
Brice
Full disclosure, I'm a DSCR and hard money broker.
Wait the required 6 months and get a conventional loan. Always exhaust your conventional options BEFORE you get a DSCR loan. In the long run, you'll be glad you did. The rates are generally lower and the fees are definitely lower.
Stephanie
Quote from @Ken Maddis:
Quote from @Brice Perry:
What banks offer DSCR? I'm new to this term and idea. I'm going to do some research on this and see what I can find out about it? Thanks for all the help
One thing to watch for on a DSCR is prepay penalties. I had a quote for a 5 year 5-4-3-2-1% penalty. Doesn't mean it's a bad loan, it just means if you borrow money with the idea that maybe rates will go back down in the next couple of years so you can refi, you'll need to take that into consideration or go a different direction.
The quote I had was through Visio.
There are DSCR Loans that have no prepayment penalty. Some only offer a 3 year penalty. A mortgage broker will help you tremendously in this space. Happy to connect.
- Erik Estrada
- [email protected]
- 818-269-7983
property that was purchased with cash -- so there is no loan now .....which means FNMA will view it as if you never had a loan --so they will price the "new refi" as a "purchase" = huge savings on "Delayed Financing" and no hits on "cash out"
That is your first choice -- and by far the cheapest
Delayed financing is a method for getting a mortgage after you've purchased a piece of real estate using cash. Put simply, delayed financing offers a way to purchase a home in which you pay cash upfront, then quickly obtain a cash-out refinance to mortgage the property.
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FNMA and FHLMC Loan level price adjustments = Those fees went into effect December 1st, but the increased cash-out fees don't go live until February 1st, 2023. Fannie Mae and Freddie Mac are also raising loan-level price adjustments (LLPAs) for both types of cash-out transactions come April 1st. So the loans offered by Banks - credit unions are not so cheap for rentals and cash-outs.
All of a sudden DSCR loans do NOT look bad at all since FNMA really raised their risk pricing -- - There are many DSCR lenders - LIMA - RCN - CIVIC - VISIO - OAKTREE - ATHAS who are not the best but you get the idea.
5-year Prepayment penalties are not a must -- the better lenders are 3-2-1 so it may help if you plan to sell/refi earlier. Anyhow the fun part of brokering is putting 11 lenders on a spreadsheet and tracking them as they get more aggressive -- then pull back...
Hope that helps.
I did a cash out refi of a California rental property around Thanksgiving, conventional 30 year fixed, 6.5% (0.27% points). It was initially 6.75% but the lender had to adjust it so the monthly payment was a little lower, since my DTI ratio was getting up there, at 50% and they had to get it under 50%. I cashed out about 25% of the equity. They let me count the rental income even though the lease only started a few weeks before I applied for the loan. I worked with a mortgage broker. I talked to 5 lenders and received loan estimates from all of them - some of them were really terrible, one tried to charge me $23,000 worth of points to get the rate down to 5.625% on an investment property. I'm taking some of the money to finish renovations (landscaping) and the rest to put down on a future rental.
Quote from @Dylan M. Davis:
I'm a lender. We're doing cash-outs between 3-6 months of ownership at new appraised value. Qualified on property income! This is a new change for us.. We can cash-out at <3 months of seasoning. Max proceeds would be purchase price + verified rehab costs invested. Floor rates are around 8.125%
That is good to know. Everywhere I've look has a 1 year seasoning period. That interest rate though. Times are rough!
Quote from @Marc Dube:
Brice, if you paid all cash for your property and can document it with a closing statement, there is no waiting period for a conventional loan. You will be maxed out at 65-70% most likely as it is an investment property. Also, how many units? 4 or less? You could also look at a home equity term loan, as a mortgage will always have closing costs, etc. Home equity loan will have minimal closing costs but not like a mortgage. DSCR loan will probably have easier qualifying terms but you never know.
This is similar to the information I received from the mortgage broker that I'm working with currently. In April I will own the house for a year so I think that I'm leaning towards waiting until then to pull the trigger. Then I can pull the cash out based on the ARV which I think will be more beneficial in the long run.
Thanks everyone for the help. Good information
@Brice Perry- when did you buy the property ? if within the past 6 months - you might be able to complete a cash out refinance but you will need to provide docuemantation for where the funds originated from .....if these funds were simply your bank account funds - you are likely OK ...if the funds were borrowed or from some other source - you will liekly need to wait until after 6 months is up to get the new loan