Cash-out refi lender insists I pay cash for new properties!?

[Kevin Grove]

Doing a cash-out refi on my primary residence. My plan was to use the proceeds to fund the downpayments on turnkey rentals. I stated this upfront when first talking with the lender. But now that we're almost to closing (4 days til Fri, 8/2), underwriting insists that I provide a letter stating that I will be purchasing this new real estate solely with the cash from the refinance and with no additional mortgage.

Is this normal? It seems like they should leave that to the next bank that has to qualify me for the subsequent loans.

In fact, the CEO of the lending firm responded with the following:

"He will be getting a conventional mortgage(s) for the new properties. But these new properties are tenant occupied with existing leases, so there should be nominal affect on DTI. Further, to qualify, he will still be subject to the same Agency guidelines as for this refinance. So his credit profile after purchase would still meet Agency guidelines."

But in spite of that, underwriting isn't buying it and insists I send them the letter by end of the day, today.

I'm hesitant to walk away, as the terms seem pretty decent (3.5% 30-yr fixed, 1.533 pts).

What would you do?

[Kevin Grove]

Jim,

We successfully closed on the loan!

I think what must have happened is the underwriter thought I was in the midst of a real estate transaction. So they wanted to underwrite that too, to be sure it didn't negatively affect my DTI ratio.

I simply re-worded the letter to make it clear that I did not have any real estate under contract and did not have any property currently in negotiation but I would put the proceeds into an interest-bearing account. They responded saying just leave off the part about the real estate.

So, for the third time, I wrote another letter saying the proceeds of the cash-out refinance would be placed in an interest-bearing account, and they accepted it!

Thanks for the help!