When should I refinance out of an owner financing deal?

[Hoa Nguyen]

Hey everyone, have a question regarding my current owner financing deal. I was able to secure a single-family rental from an FSBO who was willing to finance with me. Got all the title work done and had a legal mortgage note written up alongside the purchase contract. This was all last month. My question is that now that I have legal ownership via the mortgage note, how soon can I (should I) refinance? Is there a certain time I have to own the property before refinancing? The current deal is on a 5-year balloon loan, and I would love to refinance asap but wasn't sure of the possibility with the deal being so fresh.

[Nathan Grabau]

This probably comes down to the terms of your current owner financing. Generally speaking refinancing makes sense when: a balloon is close to coming due, you can get a lower rate, you can reduce your monthly payment, or you can get cash out. 

I carry all of my investment properties on 7 year balloons, and I do not have any intention of refi'ing out of them to cover me against the balloon payment until I am 12-18 months from the end of the term of the loan. 

With regards to how fast can you, you can whenever you want, since it was owner financed, you do not have the window where the note has a "curing" period. If your 5 year balloon amortizes on a 10-15 year schedule then it could make sense to refi sooner, but if it amortizes on a 30 year schedule, then it will make less sense to. 

The owner financing of the deal will also help for future deals for 2 reasons. The first is that it does not effect your debt to income ratio, which helps you get access to future financing. The second is if you chose to owner finance more deals, you could use the people you are currently owner financing through as a reference for people who are weary. If you do this, and it is legal in your state, I would encourage you to pay or give a referral gift to the owners. A prospectus seller being able to call them, and they say "Hoa has made the payments on time every month for the last 36 months and was very easy to work with" could be very beneficial to you.