refi and credit scores

[Account Closed]

Greetings All,

My business partner and I are planning to buy a homepath property. We want to refi this property as soon as possible. My question to the forum is about the credit score requirements. Are credit score requirements the same for getting a re-fi on a property that you own vs. trying to get a mortgage on a 2nd property as an investor? I would imagine since you own the property and have equity that the credit score requirements would be less restrictive.

[Eric Black]

Hi Johnny,

The credit score requirements will be no different however there are a number of other questions. Where is this equity coming from that you are planning on having right away? Are you going to rehab the property and then refi? Are you looking to refi and take cash out? If so you will have to wait at least 6 months to do a cash-out refi. Are you only concerned about credit score? Remember, on an investment property there will be different income requirements, you'll have to put down a larger down payment, etc than on an owner-occupied property.

[Account Closed]

Hello Eric

We are paying cash for the home, then we are you looking to refi and take cash out. So we would have to wait 6 months to do this?

Thanks for the reply.

[David Beard]

The answer below pertains only to conventional financing (Fannie/Freddie 30-yr fixed). You say you have a partner. To get conventional financing, one or both of you will have to take out the loan in your personal name. You can later flip it into your LLC if you choose.

If you pay cash for the property and its rehab, you can potentially get a cash out refinance immediately after the completion of the rehab under Fannie's "Delayed Financing Exception", which is basically a specialized cash-out refi program. In short, you can get a refinance for the lesser of: (a) 70-75% of the new appraised value, and (b) the original purchase price plus all of your closing costs and prepaids/escrow setup for the new loan.

This works pretty well for light to moderate rehabs, but will not get 100% of your cash back (perhaps up to 85% depending on ARV and amount of rehab). If you're trying to get more cash than that, and your ARV will support it, you will have to wait the 6 mths for a standard cash-out loan.

Whichever way you go, make sure you can qualify for the end loan up front. If you don't have a couple of years of landlording experience showing up on Sch. E's (or the equivalent partnership form), then you will have to carry the new property's PITI in your debt ratio without credit for any rental income. If you have the experience, just make sure that you get the property leased up in order to get credit for the rental income.

However, if you want to get a local bank portfolio loan, you might find the requirements a little more relaxed, as far as the seasoning, you'd just have to call around to your loca banks or credit unions.

[Eric Black]

Hi Johnny,

It's a little confusing but here are the guidelines. If the cash you are using to buy the property is coming from an account that is tied to you, your partner or both (meaning the account is in one or both of your names) then you don't have to wait the 6 months, you can do what is called Delayed Financing. However, you will have to show that you had all of that cash in the account for a minimum of 60 days prior to the purchase. So if you're using hard money to pay for the house then yes you'll have to wait 6 months, unless you got the hard money and it has been sitting in your account for at least 60 days.

Does that make sense?

[Eric Black]

@David Beard Well put.

They just need to show having the cash for 60 days as well to show they are not a straw buyer.

[Account Closed]

Thanks guys this has been extremely helpful!