Is it possible to cash out refinance free and clear investment properties?

Question

Hi!

I used a HELOC to purchase two SFH around ~250k each as cash deals about 2 years ago. Are there any options for me to get a fixed rate loan on each SFH so I can pay back my HELOC. The interest rate on the HELOC is 8.5%.

Robin Simon · Answer

I mean you start still listing documents - sure, vacant means no lease but plenty of DSCR Loans require leases / STR history.  Property Insurance?  Appraisal? CDA? Credit Report? Renovation docs on short-seasoned cash-outs?

Plenty of Docs required on a DSCR Loan

https://www.biggerpockets.com/blog/what-documents-do-you-nee...

Joseph Bui · Answer

I’ve done it multiple times as that’s how I normally structure my BRRRR deals. Pay cash for the property and the rehab, then do cash out refi.

Robin Simon · Answer

Really think we should stop using "no doc" to describe DSCR Loans - really isn't accurate and adds unneeded stigma around the loan product

River Sava · Answer

Hi Eric - As you can see from the comments, it is up to individual discretion to call DSCRs "no doc" loans or not.

Investors are drawn to DSCR loans due to their simplified documentation process, which offers less paperwork and hassle compared to traditional lending options like conventional and bank loans.

However, it's important to note that DSCR loans are not truly "no doc" loans—they still require a thorough underwriting process and meaningful documentation. There's a misconception that these loans are loosely originated, similar to 'NINJA' loans, which contributed to the previous real estate crash.

I have included a Bigger Pockets article that goes over the documents and nuances for a DSCR loan, which sounds like a great option for your scenario. I am happy to discuss this in further detail as well!

https://www.biggerpockets.com/blog/what-documents-do-you-nee...

Jacob Sherman · Answer

yes absolutely ! can utilize the no income no doc DSCR loan which works beautifully and can take upto 80%

Jacob Sherman · Answer

Robin Simon is paving the way ! As lenders we should start using NON INTRUSIVE and LIMITED DOCUMENTATION . I guess what folks have been using in the mortgage industry that doesn't require all the usual docs of a mortgage process is no income no doc . Kudos

From the Easy Street Website for all lenders below :

For our Short Term Rental Loans (STR Loans), We combine the traditional 30-year fixed rate residential mortgage product with flexible and hassle-free underwriting, delivering quick and efficient 30-day closes and non-intrusive documentation requirements (no tax returns, no income verification).

Light Documentation

Our process allows investors to avoid the mountains of endless paperwork and intrusive document-gathering common with our competitors. We do not require tax returns or income verification, ask for years of bank statements, or many of the other typical requests from other lenders. We have a quick and straightforward needs list that can be knocked out fast – allowing investors to focus on their properties rather than the hassle of tracking down and providing infinite documents and files.

Charlie Gonzalez · Answer

Hi Eric,

That is totally possible. From an underwriting perspective, owning properties free and clear means you are less of a risk.

Stacy Raskin · Answer

DSCR is a good option if it's a rental property. There are 30 year fixed rate options.

More on DSCR loans- they won't use your income to underwrite the loan.

DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth. Here's a bit more in detail about how rates are calculated for DSCR loans:1. Credit score- the higher the best. 760+ generally gets best pricing for investment property loans with most lenders

780+ generally gets best pricing for investment property loans with most lenders. From there every 20 point increment affect pricing differently. So for example, a 761 credit score will be in the 760-779 credit category, then going down to 740-759 and so on.

2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. This criteria is for 1-4 and 5-8 unit programs. I've included an example below to help illustrate this.So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.See example below:DSCR < 1Principal + Interest = $1,700Taxes = $350, Insurance = $100, Association Dues = $50Total PITIA = $2200Rent = $2000DSCR = Rent/PITIA = 2000/2200 = 0.91Since the DSCR is 0.91, we know the expenses are greater than the income of the property.DSCR >1Principal + Interest = $1,500Taxes = $250, Insurance = $100, Association Dues = $25Total PITIA = $1875 Rent = $2300DSCR = Rent/PITIA = 2300/1875 = 1.23DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.

Happy to connect to discuss further.

Jacob Sherman · Answer

Yeaaaa I don't know if Id consider those "docs" when it comes to the mortgage process . DSCR loans only require STR history if you're looking to use something other than the 1007 or 1025 . A majority of DSCR are long term rentals . A lease isn't a doc if not vacant , its standard . Property insurance is standard , and appraisal is standard , CDA only required if SSR over 2.5 and not a doc . Credit report isn't a doc . renovation loan docs not required past 3 months a majority of the time which is your standard turnaround for a major renovation . DOCS would be requesting information on other properties that aren't the subject property and income docs etc . You're the fix and flip lender that covers 80% of budget needing 6 months reserves and 20% liquidity of a budget . I get it . We're just different and have different definitions of what no doc means in the mortgage process . I guess there's no such thing as a no doc when it comes to lending the way you explained it . You forgot about title though :) THATS A DOC TOO ! lol . I guess can't use no income either because technically you're going off of the income of the property . We'll just call them DSCR Loans if that makes you feel better . Are you going to be at the booth at leveragecon next week ? You're going to have to explain this to every lender in the room and change the game

Jacob Sherman · Answer

What types of "docs" do you require for a DSCR loan at easy street ? For DSCR we only require LLC docs if in an LLC , drivers license, SS Card if available if not ss89 can be signed, we don't ask for any info on any other properties owned by the borrower, we dont source or require seasoning on funds. Its a no income no  doc. No lease agreement if vacant. We concentrate on the subject property and the subject property only

Is it possible to cash out refinance free and clear investment properties?

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