Less Cash if Refinance BRRRR Before 6 months with HML or CU?

Question

Will you get less cash if you refinance a BRRRR before 6 months with hard money or a credit union?

On BP podcast episode 567, David Greene said that you can do a cash out refinance on a BRRRR before 6 months by using hard money or a credit union instead of doing a cash out refinance with a non-credit union bank. But, will this give you less cash compared to doing a cash out refinance after 6 months?

Tristan Gardner · Answer

I've found some of my local small banks here in Ohio don't even have a seasoning period and let me refi once the project is complete. I've not had this luck with the large banks

Andrew Postell · Answer

@Mike Schorah there are some very important things to understand about what you are asking.  Let me provide some quick examples here of what I mean:

• If your initial BUY lender provides you with 80% of the ARV, and you came out of pocket an additional 5%...you are getting ZERO cash out on your refinance step.
• If you are using a conventional loan in your REFINANCE step, and you used any type of financing when you purchased the property...you cannot get ANY cash out for 6 months.
• If your initial BUY lender provided you with 75% of the ARV....and you are using just about ANY loan in existance...you are not getting any cash out when you REFINANCE.

I have heard a lot of people talk about the REFINANCE step as a step that allows you to get back all of your money when you BUY...and that's just not true.  When you REFINANCE, you will have closing costs.  So if you borrowed 70%-75% of the ARV when you BUY...then by the time you wrap your REFINANCE closing costs into the loan, there's just no room to get any cash back anyway.

I've also seen people say something like "My initial lender gave me the option to take 75% LTV...but I only took 50%".  Well, the most you will likely be able to get back is 75%...so it's no difference if you took the whole 75% amount initially...but it will make your REFINANCE step very frustrating. This will make your REFINANCE step very challenging because of all of the items mentioned above. You see all the different information people have already posted on it, right?  Taking a cash out loan gets complicated.  It also gets confusing.  It's often limited no matter what loan type you get.  If you are getting a "cash out" loan it's usually a lower amount and at a higher rate.  So we really try to completely avoid even needing to take a cash out loan.

Many beginning investors are very surprised at what amount they can get back when they refinance.  Don't get caught off guard here.  Get prequalified and then use the amounts you have been prequalified for (on both your BUY step and your REFINANCE step) to get to what your true out of pocket costs will be.  Lean on other investors in your area (maybe go to some local meetings?) and get with someone who can explain this math easily.  Sometimes it takes doing a deal to truly understand it.

I hope all of this makes sense how I am describing it but feel free to post anything else if you need.  Thanks!

Timothy Hero · Answer

I know non-qm/private mortgage lending companies that'll do 75% LTV after 90 days seasoning.

Nick Belsky · Answer

@Mike Schorah

Generally speaking, yes.  Most lender/banks/CU will require 6 months of title seasoning before allowing you to refi with a LTV loan.  When under 6 months (sometimes longer - varies by lender), you will normally get an LTC loan.  Value versus Cost.  LTC rarely make sense to investors, or anyone else for that matter, but it is a guideline that many use.  Think of it this way, you can get a short seasoned loan for 75% of the current appraised value (LTV) versus 75% of the amount of money you spent (including rehab costs - but are a pain to qualify) on the property (LTC).

With that said, there are lenders who will do LTV loans in as little as 3 months.  Far more appealing to Flippers or Rehab projects.  The rates are usually a little higher but not too bad.  The short seasoned refis with LTV normally require financing at purchase... otherwise, if you do a cash purchase, you are looking at a whole other set of rules - delayed financing.

Cheers!

Brenden Mitchum · Answer

Hey @Mike Schorah

Yes, you will pull less cash out and terms will be worse (at least for the HML). I don't see why a credit union would be any different than a bank or mortgage lender. They do sometimes offer portfolio loans or other products but I can't really imagine them refinancing on ARV for a single residential property before the 6 months.

Any lender will refinance before 6 months but it will be based on original purchase price, not ARV. So, if you really just need to pull some cash out before 6 months, you have plenty of options. The terms just won't be nearly as favorable.

Hope this helps a bit! Please, feel free to reach out anytime if you have other questions or just want to chat!

Less Cash if Refinance BRRRR Before 6 months with HML or CU?

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