Refinancing 4 unit Primary into Invesment

[Jared Schweiss]

Hello All,

I recently bought and moved into a quadplex 4 months ago. After renovating and renting three of the units (while living in the 4th unit), I am wanting to refinance to pull out some equity and lower the interest rate. 

I initially put down 20% on a primary residence loan. I am now looking to refinance into an investment loan so I can move out and buy a new primary residence to move into (utilizing some of the pulled-out cash as well). 

Can I refinance and pull out 85% and keep down only 15%? Or is 20% or 25% the lowest possible down payment on an investment loan? I understand I could do primary residence and do a 5% or even 3.5% down, but I do not want to be stuck living in the unit another year. 

Can someone recommend a lender they have worked with who would refinance for 15% if possible? 

I'd greatly appreciate any recommendations or suggestions on how i could go about this process differently. 
If more details are necessary let me know!

Thanks, 

Jared

[Tim Swierczek]

@Jared Schweiss

I'm disappointed in the lender's replies to this message. I see you are from Minneapolis so I wish I had seen your post earlier. You received a lot of factually incorrect information. I don't think one lender gave you a correct answer.  Alas, here is the correct answers in bold below with proof:

I recently bought and moved into a quadplex 4 months ago. After renovating and renting three of the units (while living in the 4th unit), I am wanting to refinance to pull out some equity and lower the interest rate. 

- When refinancing there are guidelines about how long you must own the home after purchase before you can refinance and take cash out. Those guidelines are referred to as seasoning. If you want to refinance to take cash out on an investment property you would need to do a conventional loan, conventional loans require 12 months of seasoning. This means you must be the title owner of the property for 12 months until you can use the appraised value of the property.  Based on your post it looks like you have owned it less than 12 months but seasoning is an important point.  There are other loan types that have different seasoning timelines. I will mention them below. 

Here is the proof, it is Fannie Mae's guideline but Freddie Mac's guideline mirrors Fannies on this issue. The requirement was a forced change by the FHFA which oversees both Fannie & Freddie. https://selling-guide.fanniemae.com/sel/b2-1.3-03/cash-out-r...

I initially put down 20% on a primary residence loan. I am now looking to refinance into an investment loan so I can move out and buy a new primary residence to move into (utilizing some of the pulled-out cash as well).

- No, you can't -See the answer above and further explanation on LTV below

Can I refinance and pull out 85% and keep down only 15%? Or is 20% or 25% the lowest possible down payment on an investment loan? I understand I could do primary residence and do a 5% or even 3.5% down, but I do not want to be stuck living in the unit for another year.

-You cannot do 3.5% because that is an FHA loan, FHA has always (my whole career of 22 years) had a 12-month seasoning requirement to use the appraised value. In addition, FHA's Max LTV on Cash out Refinances is 80%, not the 96.5% it requires for purchase and rate/term refinances. FHA's site couldn't be less consumer-friendly but here is the proof you must scroll to Section V.(B).1.a Here's the link but for your sanity, I have copied and pasted the relevant info below the link.

https://www.allregs.com/tpl/Search#q=cash%20out%20refinance

v. Cash-Out Refinances

(B) Maximum Mortgage Amounts

(1) Standard

(a) Maximum Loan-to-Value

The maximum LTV is 80 percent of the Adjusted Value.

-It's most frustrating to me that every licensed loan officer who answered the question got the LTV wrong.  How can professionals get such a basic answer incorrect?  First, they all missed that the MAX Cash Out LTV on any refinance of a 4-plex is 75% and that's if its owner occupied. If it's an investment you must subtract another 5% (some got that part of the answer correct but not the starting point of 75%). This means your Max LTV if you refinance as an investment property is 70% and you can't use the appraised value before 12 months. I usually reference Fannie Guidelines when they mirror Freddie because they are generally more consumer-friendly but Freddie's LTVs are laid out better, Proof below:

Fannie Max LTV https://singlefamily.fanniemae.com/media/20786/display
Freddie Max LTV https://singlefamily.fanniemae.com/media/20786/display

Can someone recommend a lender they have worked with who would refinance for 15% if possible? -Self-promotion is not allowed in the BP forums, but any good investment lender who can answer these questions can help you.

I'd greatly appreciate any recommendations or suggestions on how I could go about this process differently.- Your options are to either wait out the 12-month waiting period and refinance into an investment property loan using a conventional loan or look for a non-conventional loan. Or as @Erik Estrada mentioned above you can get a HELOC. I know a lender that will do a 95% HELOC on a primary residence 1-4 unit provided your DTI is 43% or lower.  That lender will only use the purchase price for the first year. There may be others that don't have 12-month seasoning but I'm not aware of them at this time. PM me if you haven't found a solution and we can chat.

Lastly, as far as non-conventional loans go there are options although most do require 12 months of seasoning. I know that https://www.creativelending.biz/ offers investment property loans on stabilized properties with no-seasoning if the DSCR is 1.3 or better. You would not be allowed to be living in the property to get this loan. You must be moved out prior to approval. Again,reach out if you want to chat.