How soon can I pull equity from a recently purchased house?

Question

Hello BP community. My wife and I bought two SFHs in Austin before the boom. They are built in 2021 and I don’t know the exact value of these properties since the appraisals but based on comps they have quite a bit of equity.
My question is how soon can I use these equity to purchase another rental property? We are saving a lot each month for a down payment but I’d like to know if I have more options to purchase instead of exhausting my cash reserves.

Chris Wharton · Answer

@Chan Park if you're seeking conventional terms the seasoning requirement for a cash out refinance is 6mo.  You could apply prior and get CTC so that the day you hit 6mo you can close and be liquid.

On your next property there are some crafty ways to reduce this seasoning by changing the loan parameters.

A rate and term refinance has no seasoning period. Have your LLC write you a note at 75% of the ARV, record the mortgage and abide by the terms (which should be higher than market to allow a NTB). Provided you did your DD you could now refinance anytime you like.

Jessica Tsao · Answer

@Chan Park

Have you considered Hard Money Lending?  Hard money lenders can most likely help, they do purchases and also if you need to do a cash out refi on property you have, DSCR Purchase or Cash out REFI can go Up to 80% of the purchase price or 80% of appraised value, 30 year fixed Rate are as low as 4.25% and they can close in 3 weeks. The rate is higher than conventional loans, but the benefits of hard money lending is they don't look at your DTI, they only look at the income that the property produces. It can also go into your LLC name so no need to be on your own credit report. Which frees up options when you want to purchase your primary or 2nd home.  Hope this helps

Mitch Davidson · Answer

@Chan Park HELOC's might be a great alternative approach, as you can often go higher on LTV, as you can keep your existing loans at their low rates (assuming they're low), and as you can reduce your overall monthly nut when you pay off the HELOC. The process of getting the HELOC's will likely take longer than getting conventional cashout refi's though, perhaps 60-75 days.

Aaron Gordy · Answer

@Chan Park Talk to a lender that specializes in investment properties. You may be surprised.

Account Closed · Answer

Usually a bank will lend 80% of the value of a house minus closing costs after the first 6 months of ownership. So, if the house appraises for $500,000 you might find a bank willing to lend you $400,000. Of course they pay off the existing financing out of that and you get whatever is left over.

David Kelly · Answer

What was the purchase date of these properties?

Alan Ouellette · Answer

@Chan Park My lender says six months to a year from the purchase for a cash out refinance at a minimum. That's assuming you did a lot of rehab to increase the value.

Jessica Tsao · Answer

@Chan Park

So after the hard money loans on properties you own, your new lender, US Bank, will not allow hard money loan as a down payment?  People refi and buy rentals all the time, that is ridiculous.  I say find a new lender.  Sorry...

OR, You can get a hard money purchase @80%-90% of the purchase price depending on experience,100% of the rehab budget12-24 months interest only with no prepayment penalty. Refi that hard money with a conventional lender.

hope that helps

Chan Park · Answer

@Chris Wharton

I was in the process of establishing an LLC and my lender noted most lenders will not loan to LLCs, including HELOC and cashout refi.

After speaking with a lender, they provided two options - a HELOC and a balloon loan. I have never heard of anyone doing a balloon loan on a residential loan. I thought it existed only on commercial loan side.

These are some key points he said:

Balloon loan needs to be in the first position, so I will have to refi the existing loan that I have, which is 260k at 3.5%. Adding 35k (how much I need), I will get a 295k loan at roughly 4.1-4.2% at 30 year amortization and 10 year balloon, meaning at the end of 10 years, I will either have to pay the remaining balance, or refi again at that point.

Has anyone done a balloon loan on a residential loan? Is this a savvy way for me to buy another rental or will I fall backwards?

Chan Park · Answer

@Jessica Tsao

Hi Jessica, I did look into it but when I mentioned it to my lender (from US BANK) he quickly shut me down and said that US BANK is currently not accepting an downpayment that's obtained from hard money lending.

My wife and I have very strong W-2s, and I honestly could save for about 6 months for a full downpayment and some cushion, but I'd like to use OPM.

On an LLC note, I have not put my properties in an LLC since my lender advises against it if I were to utilize financing option in the future and that most banks won't lend to an LLC.

I am actually shifting toward finding a lender who will HELOC on an investment property at a decent rate. Have you tried HELOC on one of your properties?

How soon can I pull equity from a recently purchased house?

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