BRRRR: Can a freelancer get a refinance on a paid-off property?

Question

I have been reading about the BRRRR method of investing, and I am very interested in trying this in the future. However, there is one step that I need some clarification on, refinancing.

Currently, I have a W2 job, decent credit, and a low DTI ratio, so it is not too difficult to qualify for traditional bank financing. However, I do not enjoy the W2 "rat race" and I would prefer to be a freelancer instead. (Freelance website development, same as my current W2 industry)

I have read that people who do not have W2 jobs have a much more difficult time applying for mortgages, since there is less of a reliable "secure" source of income for the lender to look at.

My question is this: Do freelancers have the same troubles when trying to get refinances from banks, even if their property is 100% paid off?

I would imagine that the difference of having a paid off property would look like good collateral to the lender, right? or at least it would make the buyer look more secure?

Does anybody have experience in this topic? This will help me determine if I should remain as a W2 employee, or if I could transition to freelancing, and still use the BRRRR method.

Thank you all,

Wayne Brooks · Answer

Self employment income is okay as long as.....you have at least 2 years history and Actuall show enough Net income to qualify.  As for the house being free and clear for a cash out financing....it makes no difference since if the property had a mtg, it would be paid off with the refi...the lender will have first mtg either way.

Jerry Padilla · Answer

Account Closed

You are going to want to be in the freelancer job for 2 years to qualify. You also will need to show enough income to support the payments on the mortgage. This is for conventional. There are portfolio products that go strictly based on the cash flow of the properties, but your rate is going to be higher than conventional.

Account Closed · Answer

Ok thank you for clarifying, I did not realize that a conventional lender would treat a refinance basically the same as a regular mortgage, but that does make sense now that I think about it. So I would need to basically have the same qualifications to apply for a refinance as I would for a regular mortgage.

Account Closed · Answer

Thank you for the information @Jerry Padilla

It sounds like Portfolio lenders are a much more flexible option for a self employed freelancer.

If I understand correctly, Portfolio lenders would be mostly interested in the cash flow details of a specific property, rather than the financial situation of the borrower? This means our interests would be more closely aligned, since I am also mostly interested in the cash flow details of a property as well... As long as the deal still makes sense with those higher interest rates that Portfolio lenders charge.

I will try to find some portfolio lenders in my area.