Do I need a new lender? BRRRR refinance only on purchase price?

Question

Am I missing somethiing? I just completed a "mini BRRRR" ... my SFH needed more than just cosmetic and less than a total rehab. I paid cash up front. Spoke to my lender today about refinancing and she told me the lender would only finance based on the sale price, not the ARV. She said they "might" take into account receipts from work I had done but there would not be an appraisal to find out current value. What am I missing here? My past REI investments have been cosmetic only so I have not run into this problem. I am considering doing a major rehab BRRRR next and this has me worried. Please, I look forward to hearing advice from those of you that have BRRRR experience.

Bob Okenwa · Answer

@Lesley WhitleyWhat you are missing is that if you have owned the property less than 6 months, you would be doing a delayed financing exception. With delayed financing, you purchase in cash and then get a mortgage on the property. You are allowed the lower value of purchase price + closing costs or 75% of ARV for a single family residence.To get a refi on the ARV, you'd need to own the property for at least 6 months per Fannie Mae guidelines.

David Kelly · Answer

Hi Lesley, Delayed Financing if it is within the 6 month waiting period. This will only allow for purchase price plus closing costs as the value, and the LTV would then be based off of that number. So if you paid 100k total with costs, a primary residence would allow 80k cash, investment property 1 unit would allow 75k cash, and 2-4 units would be even less. You also have to remember that in this transaction you will need to show where the money came from to pay for the home. If it was from another HELOC, or other financing, that would first need to be paid back (can all be done within the loan), and what is left is what your cash back would be. 100k Purchase price with costs - 20k was used from a heloc - primary residence 1 unit 80LTV - This scenario would leave you 60k minus closing costs on the new loan. Reach out to me with any specific questions on the process.

Aidan Wong · Answer

@Lesley Whitley exactly what Bob is saying! It's unfortunate but that's the way to refinance on the arv instead of it being considered a delayed purchase transaction. Best bet is to just keep renting it for the next four months and refinance then.

Lesley Whitley · Answer

@Bob Okenwa. Thank you for explaining that. So when I’m hearing the stories of people on here doing aBRRRR, they are holding onto the property for six months before refinancing? This is all New to me… my other rental properties were turn key and purchased with a conventional loan with 25% down

Aidan Wong · Answer

@Lesley Whitley how long have you owned the property now?

Lesley Whitley · Answer

@Paul Defngin Thank you for taking the time to answer my question and share so much knowledge. I had never heard the term "delayed financing" so that is a new one. You explained it very well and I understand now. This knowledge of a waiting period will be taken into account now when I move forward with properties that I pay cash for. Thank you so much!

Lesley Whitley · Answer

@David Kelly Thank you for this informative answer. You explained it in a very clear way which is appreciated by this newbie investor. I sent a connect request to you so I can learn as you help other investors understand this process. I appreciate your time and your assistance in what was a very confusing situation for me when I tried to start the refinance process. I have paid cash for two properties and knowing about this info, I will take this into account when considering to pay cash for a property going forward.

Paul Defngin · Answer

Delayed financing WILL allow you to refinance of the LESSOR of the “purchase price + closing costs” or 75% of the current appraisal value. Since you fixed up the property a little and the market is appreciating, chances are you should be able to get back all if not most of your money back.

Lesley Whitley · Answer

@Pablo Espin You are welcome and I am glad to hear that I am not the only one that was confused. I have since talked to a few people and I find that this is normal. Today I went though and watched a couple of You Tube Videos BRRRR videos "again" and yes, they do al say that they were going to hold onto the property for a few months, or for 6 to 7 months, then refinance. But my newbie ears didn't hear that part before. I really thought you could turn around the next week and refinance. See, we are all learning day by day. Thanks for the colleague request, by the way!!

Pablo Espin · Answer

@Lesley Whitley thank you for asking the question I'm literally going through same thing. I never heard of delayed financing but I see you can do up anywhere between 75 to 85% financing. After 6 months I guess you can refi with a normal bank. Good luck and thank you for asking the question