Cash-out refinance limit on loan size?

Question

We're looking to purchase a second short-term rental property (beach vacation area), but this time around we're considering going bigger and intending to add significantly to the property. The purchase price is around $1.2M with 25% down (as an investment property) and we'd be putting in around $300K in reno/remodeling. Realtor evaluation puts the ARV around $1.8M.

So the plan is to use loans to cover the remodeling costs then doing a cash-out refinance after the work is done (6-12 months later since we couldn't start work until after summer rental season), *but* our current lender (loan originator) says the max loan for either purchase or refi of an investment property would be $1M. That would limit our cashout at refi to under $200K.

The lender's investor is Chase, who he says is enforcing that $1M limit and as a big player their limit is likely a standard. So my question is if that's true and we're going to be against a hard limit if we want to refi and get cashout with any attempts at getting the loan above $1M.

Does anyone have experience/knowledge of loans/refi's over the $1M mark? Or is this really a standard limitation? Seems hard to believe there aren't loans out there greater than $1M when we see monster homes in the area over $3M-$4M, but I want to know our limits before going down any roads.

Thanks.

Kerry Boyle · Answer

As a HML, I can confirm that 1M cap doesn't exist (at least not for all lenders).

We funded two deals that were 2.5M this month.

Matthew Boyer · Answer

Thank you @Travis Lemley and @Kerry Boyle.

Travis Lemley · Answer

You may want to look at hard money financing for the acquisition and rehab. Most hard money lenders will lend on the after repair value. Once the rehab is complete you can do a rate and term refinance out of the hard money loan.

Stephanie P. · Answer

@Matthew Boyer

To answer your question directly, no, it's not. When you're playing in that realm, the lenders are going to make separate secondary market deals with wherever they can get rid of the loans.

Mike D'Andelet in our market does those loans. PM me and I'll get you his number. Good guy. He's known my husband for years.

Stephanie

Shaun Weekes · Answer

What is the city and zip code and is this an SFR or Unit property?

Matthew Boyer · Answer

@Stephanie Potter

Great to know. Thanks Stephanie! Will do.

Matthew Boyer · Answer

@Stephanie Potter

Thanks Stephanie. This wouldn't be our first rental in the area as we've been in that market for years and we've done our due diligence. In the area it's more often the smaller SFHs that have the harder time hitting profitability, but that's getting off topic of my original question.

You noted the cap was "around 1M" so it's not a standard fixed stop for all lenders at 1M? Our lender has said we could even do the cash out refi up to the same 1M limit after the renovations. But there was no discussion of profitability influencing the decision, so I didn't think that was a factor here.

I suppose we might have to dig around more for lenders if the 1M+ loans are out there, but that's what I'm trying to figure out.

Stephanie P. · Answer

@Matthew Boyer

You're going to have a hard time getting a single family residential to hit solid profitability numbers at that loan size. That's why the cap, for many, is around 1M and in this instance, you're not just talking about a refinance, you're talking about cash out which is more stringent. Sorry for the run on sentence.

Chase is a good super jumbo lender, but even there you'll have problems I think.

Good luck

Keep us posted.

Stephanie

Cash-out refinance limit on loan size?

Cash-out refinance limit on loan size?

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