Cash-out refinances

[David Ackerman]

Hi all,

I own 4 mortgaged properties and 3 properties for cash. I am interested in doing a cash-out refinance for 1 or 2 of the properties I own for cash. Unfortunately, I am having a terribly difficult time finding a lender who will do a cash-out refinance. I keep hearing that a cash-out refinance on an investment property is the riskiest type of loan for the bank. So, even lenders that allow 10 mortgaged properties through normal financing (meaning financing at time of purchase) arent allowed to do a cash-out refinance if one already has 4 mortgaged properties.

Does anyone have any suggestions on ways to try to get these properties financed? Someone suggested I get a commercial loan on 2 of the properties and then do a normal refinance after 6 months. Has anyone ever done that?

Thnx,

Dave

[Chris Clothier]

David -

You could try a private mortgage to establish a lien against the properties and then do a rate/term refinance. Essentially the same thing as you stated just not
Going the route if commercial financing on residential properties, which I would think may be tough.

[Tim Delp]

I think you can find a conforming lender that will allow the cash out transaction, it might only be 10% of the lenders out there but I'm pretty sure you can find one. Some of the other barriers that could impede you might be the loan amount and the length of time you have owned the property? Is it a small loan amount and have you owned them less than 1 year. If either or both of these are the case you have two more strikes against and that could add to your needing to broaden your search. The private mortgage might be an option as mentioned above. If you go that route I would confirm with the lenders they will accept that and not give you issues with it not having a mortgage on it originally. I wouldn't want you to pay for appraisals and when the title work comes back and the underwriter sees you've have the private mortgage for 3 months and still calls your loan a cash out and then you are out the money for appraisals.

[Kyle J.]

There are conventional lenders out there who will do this. They are just few and far between. You just have to call a bunch until you find them.

[Kyle Meyers]

There are a lot of lenders who will do a cash out refi, though at a lower ltv than a purchase or rate/term loan. Keep calling around until you find the right lender.

[David Beard]

Fannie Mae does not allow cash-out refi's on loans 5-10, except for a narrow exception under the delayed financing rule, and that exception requires that you had purchased the property for cash within the previous 6 mths. Assuming you have owned the props longer than 6 mths, then you are out of luck, according to Fannie guidelines. If anyone has gotten a conventional cash-out refi on loans 5-10, I'd love to hear about it.

As noted, if you can secure some other cash-out financing (private lender, HML, bank portfolio lender), then you can do a limited cash-out (i.e. rate/term) refinance to a conventional loan. If these are decent properties and the loan amount at 65% LTV is decent-sized (say 40K or more), you might find a local bank or CU to do the cash-out refi for you. I just got a cash-out refi on two free & clear properties from a small savings back, while already having 4 mortgages.

I really don't know if a HML would do the loan, but that would be a pretty expensive way to get it done. However, to bridge to a 4% 30-year loan, it might still be worth it. This would seem to be a pretty safe loan for a HML, so perhaps they'd do it with less onerous terms than rehab loans. There are other lenders doing 3-5 yr bridge loans for owner/occupants and investors (such as this company that another BP poster mentioned: http://www.westmooregroup.com/criteria.html), taking up some of the slack where banks won' t go these days.

And getting a private loan from a friend, family member, or professional acquaintance, with low fees and a reasonable rate, would be the best non-bank possibility.

[David Ackerman]

Thnx for the various responses guys.

I did just do some research on the "Delayed Financing Rule" from Fannie Mae. Thnx for bringing that up David Beard. 2 of my 3 properties for cash were bought in the last 6 months (but it is getting very close to that deadline). I will quickly try to find a lender who knows that rule and can get it done for me.

If NOT, I might try the HML or private financing route.

Thnx All,

Dave

[Luis A.]

I have thought about doing the same thing and have found and talked to two lenders that "say" they will do it the problem for me was the "seasoning" period. Since the property has to be owned for at least 6 months before doing the refi.

The problem they shared with me is that Fannie/Freddie keep on changing the rules on refis and although the guidelines might say 6 months now, in 6 months it might be a year or never...

But technically speaking these lenders I talked to would do it for about 75% of appraised value.

[Craig Marone]

Look for a community bank. I work for a community bank and we do cash out all the time. Obviously we would like to do a better LTV 70% or lower and we would need a reasonable explanation for why you need cash out (Atlantic City/Vegas is not a reason) =). Also if you are fully rented, you need to be able to show a debt service coverage ratio of about 1.30x. This is calculated by net rental income divided by debt service. Usually banks will throw in a 5% vacancy factor as well. Also this is for a COMMERCIAL loan. This means the rate will reset every five years and you can probably only get a 20 year amort. You may be lucky and get a 10 year fixed rate with a 25 year amort but you will be looking at 4.75% or higher.

Good luck

[Tyson S.]

I would agree with what Luis said, I couldn't find anyone to do it until I had 12 months of seasoning though. After I hit 12 months I had no problems finding a myriad of lenders. I ended up getting a 3.625% rate with 0.25% points and 75% LTV at a local bank. It wasn't a cash purchase originally but I was at about 60% LTV after I made repairs. Cashed out to 75% and I reduced my interest rate so much that I ended up with a lower monthly payment after cashing out.

This was only my second loan though. Have no experience with 5-10 so my experience may not apply to you.

[Shane Johnson]

Thanks for the reply Tyson S. I am in a similiar situation - bought a house with conventional financing, at a deep discount (got real lucky on a HUD auction) and hope to do what you did. I am also hoping the new LTV ratio will drop the PMI. I am paying $61 per month in PMI, so if my payment increases a slight amount, losing the PMI should offset a bit of it. I just hope the rates stay where they are for the next 9 months(if i have to wait that long for 1 year seasoning) as I am at 4% now. If at the bare minimum I recoup my down payment and the improvements ive made, I will be happy, and still have plenty of equity and cash flow.