Can I cah out refinance with no reserves?

Question

If I have a 4 unit worth $400k, I still owe $115k on the mortgage… can I do a cash out refinance even with no reserves in the bank? 698 credit score. I would use money from the cash out to make a reserve + buy my partner out. Any help would be amazing, thank you!!

Stephanie P. · Answer

Hey Julie

First to answer your question, yes, there a numerous lenders that either don't require reserves or will allow your cash out to act as your reserve.  Having said that, make sure you're not paying your partner out and not allowing for the reserve amount.  Also, take a month or so and do what you need to do to get your score over 700.  Your credit reporting agency should be able to help you with that.  It could be something as small as paying off a small collection or dropping the balance on a credit card and then either waiting for a new credit cycle or doing a rapid rescore.

All the best

Stephanie

Chad Davis · Answer

@Julie Mogyorosi sent PM

Alex Breshears · Answer

Hi Julie!  Great question! As others have shared, there are two main options for you - conventional and then alternative financing (including DSCR, commercial etc). Conventional financing is going to be the most preferable rates and terms, because they are going to have the most strict underwriting criteria. The rates will be lower than other options.  The second will be something in the alternative lending space - usually DSCR type loans or commercial loans (even though the property isn't a commercial property).  These loans will have a WIDE swath of underwriting criteria and program guidelines. I would stay by talking to local credit unions that may have something they want to keep on their books as an investment for the bank itself (balance sheet lending is what this is called). They are not looking to originate the loan and then sell it - so don't have to worry about what the appetite for what a buyer might want.

I don't know if the partner you need to buy out is on the title to this property, but that may be another sticking point with some lenders, as they may underwrite the property the way it currently vested. If that vesting will change, let the lender know that early and often so they don't keep underwriting the property and the loan package as a straight cash out refinance. This may matter significantly to a DSCR or commercial lender because they may be requiring a personal guarantee, which would include your individual selves - versus the LLC or business entity who is vested - and if your business partner has the assets or the credit score, losing that option as a lender for a personal guarantee could kill the deal. Right now in the lending environment you see today, lenders want very well qualified borrowers and as many of them as they can get on a loan.

Dave Skow · Answer

@Julie Mogyorosi- likely no .....I would  get a refinance  started  with a lender to  see for sure  ...some guidelines  can  vary ....ask the lender to  try using  fannie as well as  freddie  AUS  systems  .....fyi -  in many cases -  retirement  accounts  can  be used  for reserves  up to 60% of the balances

Erik Estrada · Answer

There is a few lenders that have no reserve requirements. Do you live in any of the units?

Zach Wain · Answer

@Julie Mogyorosi Do you have a 401k or IRA with a few bucks in it?  That might be all the reserves you need.  Talk to a lender and get a file going, because the pre approval will state the amount of reserves needed.  Sometimes you can time bank statements right after pay day and bolster your bank account too...

Jay Hurst · Answer

@Julie Mogyorosi   yes and no.  A conventional loan you cannot yes reserves from the cash out proceeds. But, a lot of DSCR loans, yes, you can use proceeds of cash out as reserves.

Jack Mawer · Answer

If you are looking for a DSCR loan you should be able to. However, your cash-out proceeds would need to be large enough to cover requirements for PITI reserves, as well as closing costs (origination points, title fees, broker fees, escrows, etc.).

Brandon Beardt · Answer

Hi Julie,

With full doc conventional financing, cash-out proceeds cannot be used as proof of reserves. Usually they require you to show you have 6 months of PITI payments separate from the transaction. Therefore, you must already have these funds available to show. With most alternative financing programs (alt/no doc), however, you ARE able to use the cash out funds as proof of reserves while also being able to buy your partner out. If you're very tight on cash - it may be worthwhile to explore this option. Also, to reiterate, you won't have to actually GIVE the lender the reserves for them to keep on their end - they just want to see that you have it available.