Question on my first refinance

[Ryan Deasy]

Thank you in advance for your help here.

I currently own two rentals in CT and a primary residence in TX. I obtained all three using conventional financing. I am going to be picking up additional rentals in CT soon via seller financing and will be looking to refinance into a conventional loan ASAP.

Do banks view a refinance the same way they do a purchase? Specifically, are they going to be firm on 45% DTI ratio like they have been for my other purchases? It was a bit of a stretch to get this last purchase pushed through and I am worried about qualifying for a refinance if they are going to just look at it in the same light as a normal purchase.

I fully understand they are only willing to lend about 80% LTV and that is fine. I am just looking for guidance on how to qualify for refinancing as I have never refinanced anything before.

Also, any advice on which bank to use would be great also.

Thank you,

Ryan Deasy

[Andrew Postell]

@Ryan Deasy the trick to buying investment properties is being able to use the rental income to qualify. I say "trick" but it's no trick if you know the rules. What I mean is that you only buy properties that cash flow, right? So in theory, your DTI will get better with each and every property that you buy. But what Jason eluded to is these pesky overlays that banks have so here's the skinny on what you should know about REFINANCING investment properties with conventional money (purchasing is a little different):

• You can use rental income from day 1 to qualify.  With a refinance all you need is an executed contract.  And what Fannie/Freddie state is an executed contract is a lease that has been signed with the security deposit already in your bank account.  So the renter does not even have to move in for you to be able to use rental income.  Just the executed lease.
• Your "Loan-to-Value" will need to be 75%. Again, purchasing is different but to refinance a Single Family Home you will need to have 25% equity in the home to refinance. Ever wonder why those hard money lenders only lend 70%? This is the main reason why. You need 25% equity to refinance. Also, if you are buying properties other than SFR please let me know and I will update.
• You can start the refinance from day 1 of owning.  No seasoning.  Nothing like that.  So start the refinance the day after you close on your properties so you aren't in that owner financed loan more than you have to be.

Now, I just gave you the conventional rules. Let's say you HAVE to use 80% LTV...then you need to do a portfolio or commercial loan type. But now you are paying a higher rate, it might be variable, it might be a shorter term...or maybe even all three! Make sure you interview banks and find ones that have no overlays (if their rules are different than what I stated above that means they have overlays). Feel free to ask any additional questions and if you like my post please vote for it. Thanks!