Refinancing out a private lender

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I've got a potential deal in the works. I could be purchasing for $30k with $20k in rehab. I've got a private lender (family member) who is willing to lend me an interest only loan on the entire amount.

This will be my primary residence for a few years and the plan is to refinance him out after the rehab is complete.

Does there need to be any formal lending paperwork/leins filed against the property for the refi to go through without them treating it as a cash-out refi?

How difficult would it be to get the refi done? Good credit and plenty of equity in the deal, but I'd like to refinance him out of it with as little out of pocket on my end as possible.

Thoughts?

[Bill Gulley]

To avoid the cashout issue you need to have a lien filed, the loan made, the refi will payoff existing liens and without cash going to you personally, that is a no cash out refi. You'll have a better chance of getting more out if you wait for a year, IMO.

You will need to show cancelled checks as proof of payment since the lender is not a reporting institution (bank). Pay on time and have them depoisted immediately as that will be the date paid, not when the check is written. Otherwise, it's not a big deal.

After being in title for one year your refi will be based on the appraised value for the LTV, prior to that it would, again, be the lesser of the appraised value or the purchase/rehab costs. It will be hard to get all the money back in less than one year, you might consider some additional arrangements with your family lender.

Most lenders really don't care how you structure the deal, so long as it is legal, at arms length and complies with loan requirements, so a good talk with your lender up front is in order....:)