Cash Out Refi based off of appraisal VS. based off income

Gerald Perez

Real Estate Agent · Los Angeles CA · Member since 2020 · 22 posts · 12 votes

Can anyone explain how much LTV can be pulled out of a property based on the potential income of the property?

I understand the Appraisal method but this one I can't really find an answer.

Here is an example below of what numbers look like.

Scenario-

SFR

PP- $300k

Rehab - $20k

Potential rent - $2500-$2600

ARV - $400k- 420k

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Matthew CrivelliBusiness Member

Lender · MA · Member since 2021 · 1k+ posts · 1k+ votes

Hi Gerald, @Gerald Perez

If you plan on using a DSCR loan to refi out of a rehab loan, I would say max LTV would be 65% or 273k because loan costs can not exceed the monthly/market rent . The ARV you project of 420k vs the $2,600 market rent, this is where the issue lies. Right now current rates on these loan products are around 7% and the main requirement is that the property can cashflow after paying for principal, interest, taxes, and insurance. Let's do some math.

As - is value - 420k

Estimated Taxes (1% of property value) - $4,200

Estimated Insurance - $2000

Loan amount - $315,000 or 75% LTV

Monthly Principal and interest at 7% = $2095.70

Monthly Taxes & Insurance Escrow - $516.67

Total Payment (PITI) - $2,612.37

Then you take the monthly payment and multiply it by 1.1 or 1.2 (if going through a bank it could be as high as 1.4)

$2,612.37 X 1.1 = $2,873.60 (this is where the actual rent/ market rent figure would need to be to support a 75% of ARV refi)

This would force the lender to lower the LTV and if you owe more than that with the original loan you would be forced to sell or come out of pocket to complete the refinance.

I hope you understand all this lol!

[email protected]413-348-8346

Freedom Capital Funding, LLC523 Reviews

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Matthew CrivelliBusiness Member
Lender · MA · Member since 2021 · 1k+ posts · 1k+ votes
4y
Hi Gerald, @Gerald Perez

If you plan on using a DSCR loan to refi out of a rehab loan, I would say max LTV would be 65% or 273k because loan costs can not exceed the monthly/market rent . The ARV you project of 420k vs the $2,600 market rent, this is where the issue lies. Right now current rates on these loan products are around 7% and the main requirement is that the property can cashflow after paying for principal, interest, taxes, and insurance. Let's do some math.

As - is value - 420k

Estimated Taxes (1% of property value) - $4,200

Estimated Insurance - $2000

Loan amount - $315,000 or 75% LTV

Monthly Principal and interest at 7% = $2095.70

Monthly Taxes & Insurance Escrow - $516.67

Total Payment (PITI) - $2,612.37

Then you take the monthly payment and multiply it by 1.1 or 1.2 (if going through a bank it could be as high as 1.4)

$2,612.37 X 1.1 = $2,873.60 (this is where the actual rent/ market rent figure would need to be to support a 75% of ARV refi)

This would force the lender to lower the LTV and if you owe more than that with the original loan you would be forced to sell or come out of pocket to complete the refinance.

I hope you understand all this lol!

[email protected]413-348-8346
Freedom Capital Funding, LLC523 Reviews
Website View Page
3 Reply
Zach Wain
Scottsdale, AZ · Member since 2019 · 435 posts · 248 votes
4y
@Gerald Perez if you are going to get a conventional mortgage, which will likely have the best interest rates/pricing, you can go to 75% loan to value out. The income approach is not used for residential loans, so the appraiser will find recent comparable sales and use the sales approach to determine value of the home. Fannie Mae/Freddie Mac allow for 75% loan to value cash out for a rental SFR home.
$420,000 value would be a loan size of $315,000. If you want some details numbers and info let me know
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Chris MasonPro Member
Moderator
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
4y
Quote from @Gerald Perez:

Can anyone explain how much LTV can be pulled out of a property based on the potential income of the property?
I understand the Appraisal method but this one I can't really find an answer.
Here is an example below of what numbers look like.
Scenario-

SFR

PP- $300k

Rehab - $20k

Potential rent - $2500-$2600

ARV - $400k- 420k

SFR cash out investment property caps out at 75% LTV.
Cheat sheet:
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Gerald Perez
OP
Real Estate Agent · Los Angeles CA · Member since 2020 · 22 posts · 12 votes
4y
@Zach Wain I read that banks only do cash-out refi based on appraisal of a property if we hold the property for at least 4 months.
Our renovation on the place would only take about a month to do.
So if we wanted to refi are we forced to still hold the property for that amount of time??
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Zach Wain
Scottsdale, AZ · Member since 2019 · 435 posts · 248 votes
4y
Cash out refinances (if a loan is already secured by a mortgage), there is a 6 month wait period. If the home is free and clear of liens, you can refi immediately.
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Ramin Lavi
Lender · Los Angeles · Member since 2022 · 16 posts · 4 votes
4y
Hi,
For an owner occupied no doc loan (no employment) max loan to value for cash-out is 70%. This is our Community Mortgage product. The rate is based on FICO/Loan amount & LTV but expect something in the 8's if you're going no doc.
For an investment property, DSCR runs at 65% with out company with a 3 year pre-pay. As all of these loans do not look at income or employment, we focus solely on equity and the property not having any major issues with it.

Good luck!
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