Newb - How do Banks treat HML when doing a Re-Fi?

[James Byrd]

Thanks in advance. I have zero financial background, and I’m trying to wrap my cranium around the finance part of BRRRR. Bottom Line Up Front (BLUF): if I use a personal friend to loan me money to buy my first property, can I still use the “cash out” REFI technique with a bank in my BRRRR strategy? If a family friend lends me $30,000, for example, to buy a foreclosure, where does the lien/title reside? Does my friend get the paperwork in his name or is all of that “in the background”? Would the seller (bank) even care where the money comes from? Reason I’m asking is because I’m now confused on the REFI portion to follow. I get my house, fix her up, get a tenant, and then go to REFI...how would the “cash out” portion actually work in his case? Let’s say my rehabbed rental is now appraised at $80,000...and I get a mortgage now for $80,000, what does the bank look at? Do they get info on my personal debt with a friend? Is that legal? Can I expect to get some cash after the LTV - 30k owed to some other entity? I’m sure this was very confusing...thanks, guys. Bryson

[Ryan R.]

If you are trying to use the "Delayed Financing" exception a couple of things you should keep in mind, #1 you must have paid all cash for the property (no borrowed funds for purchase) and no liens on the property #2 you can use the maximum LTV allowed for purchase of property (ie. for an owner occupied property 97/95% LTV or non-owner occupied max is usually 80-85% LTV) #3 must refi within 6 months of purchasing the property (so for the most part you are going to use the purchase price plus improvements rather than the new appraised value) #4 property will have to qualify condition wise within the lenders guidelines, so no major work should be outstanding like broken windows, holes in the roof, ect.

You should not have the 'friend' record a deed on the property, have a contract between the two of you for business purposes and purchase the property jointly and pay back based on the contract/agreement you have with them.

There are other types of loans like Hard Money & Non-QM programs that may have different guidelines that can help you as well, but, the Delayed Financing option will give you the best long term rates for a longer term hold with fast repayment of most of your capital.