Am I supposed to contact refinancing lenders before purchasing?

[Roi C.]

Hi,

I guess this is a newbie question, I'm sure this has been covered before but I couldn't find the exact answer for my question.

I'm looking to purchase a few properties and rehab them with my own cash. Once the properties are fixed up they will be rented.

At that point I would like to refinance these properties and pull out as much cash as I possible can from each property.

I've contacted a few lenders to ask about a cash-out refinance and they don't really want to talk with me right now. I'm getting a feeling like they want me to contact them only once I buy and fix these properties and have all my numbers straight. However, refinancing is a crucial step in my strategy and I would like to know what I'm getting into beforehand. Also, its important for me to know what the closing costs and the LTV cash-out is going to look like.

Some lenders mentioned that I will need to wait a 6 month seasoning period for them to offer me an X percentage of the value, and If I want to refinance sooner they'll give me less. I don't know if these are the state laws or if these are lender specific policies.

Important to mention, the properties that I want to buy are in TX and I do not own these properties yet.

I though it would be pretty simple for a lender to tell me what my refinance options (and costs) are if I tell them the value of the property, how much equity I currently have in it (100%) and my credit score.

Am I approaching this the wrong way? Is there something that I'm missing here, or did I just contact really unprofessional lenders?

I understand that these people don't want to waste their time over "hypothetical" questions like "if I were to buy at X and do Y, how much can you finance for Z..." but I do feel it's important for me to understand the full process and get a clear picture of what to expect a few months from now when I try to refinance one of these properties.

Any suggestions/advice would be greatly appreciated. Thank you!

[Kevin Romines]

@Roi C. No, its not unreasonable for you to have a conversation with a lender and for them to give you some general quotes based on your projected numbers. If they don't help you, they are not worth your time. 

As far as cash out. If you own the properties free and clear and you want to ull cash out within the 1st 6 months of being on title, then you limited to the Delayed Financing rules with Fannie Mae. That loan program will allow you to refinance up to 75% of the appraised value up to a maximum of the original purchase price that you paid for the home, plus roll refinance closing costs into the deal. You wont be able to get any of the rehab money back out of the deal with that type of loan.

If you wait until your on title for 6 months or more, then you can just do a standard Fannie Mae cash out refinance up to 75% of the new appraised value. You the benefit of creating a new higher value because you rehabbed the property. With that type of loan, you should be able to or come close to getting all your cash out the property including the rehab costs, depending on the new appraised value. If you get a high enough value, you can get more cash then what you had into the property, it just depends on the appraised value. 

Why a lender wouldn't take the time to spell out for you what I just did and also give you a loan cost estimate to give you an idea of costs and interest rates at the current moment, is beyond bad service. Don't give them your business unless they earn it!!!

[Kevin Romines]

@Roi C. No, its not unreasonable for you to have a conversation with a lender and for them to give you some general quotes based on your projected numbers. If they don't help you, they are not worth your time. 

As far as cash out. If you own the properties free and clear and you want to ull cash out within the 1st 6 months of being on title, then you limited to the Delayed Financing rules with Fannie Mae. That loan program will allow you to refinance up to 75% of the appraised value up to a maximum of the original purchase price that you paid for the home, plus roll refinance closing costs into the deal. You wont be able to get any of the rehab money back out of the deal with that type of loan.

If you wait until your on title for 6 months or more, then you can just do a standard Fannie Mae cash out refinance up to 75% of the new appraised value. You the benefit of creating a new higher value because you rehabbed the property. With that type of loan, you should be able to or come close to getting all your cash out the property including the rehab costs, depending on the new appraised value. If you get a high enough value, you can get more cash then what you had into the property, it just depends on the appraised value. 

Why a lender wouldn't take the time to spell out for you what I just did and also give you a loan cost estimate to give you an idea of costs and interest rates at the current moment, is beyond bad service. Don't give them your business unless they earn it!!!

[Stephanie Medellin]

Originally posted by @Roi C.:

Some lenders mentioned that I will need to wait a 6 month seasoning period for them to offer me an X percentage of the value, and If I want to refinance sooner they'll give me less. I don't know if these are the state laws or if these are lender specific policies.

The 6 month seasoning period to get cash out based on a new appraised value is a conventional lending guideline.  It's not lender specific for any lender that's selling to Fannie Mae - they all have the same guidelines.  Requiring more than 6 months is a lender specific overlay if you come across someone that tells you longer than 6 months.  

Mortgage guidelines like seasoning periods and how much cash you can take out are not typically governed by state laws, although Texas has some rules on cash out refinances.  I believe they may only apply to owner occupied properties, but you should probably ask a local lender about those rules as I am not licensed in Texas.

[Roi C.]

@Kevin Romines @Stephanie Medellin

Thank you both for your replies. 

I'll call more lenders until I find one that is actually willing to take a few minutes and talk. I guess I just spoke with some reps that were having a bad day. 

Thank you also for pointing out that I cannot pull the rehab money within the first 6 months when refinancing. That is extremely important to me unless the rehab only covers small cosmetic upgrades. I'll include this as a question to the lenders I speak with to see if they know what they're talking about.

[Stephanie Medellin]

@Roi C.  If you do find someone helpful, don't be afraid to send them your paperwork to review and allow them to review your credit.  You'll get more accurate advice and answers, and they will probably be more willing to work with you and guide you in the right direction if they have documentation to look at (tax returns, W2s, amounts you paid for each property, taxes, insurance costs, estimated rents and completed values, etc).