How strict is buy cash then refinancing??

Question

Hey I am wondering exactly how strict banks or lenders are If I was to buy a property cash then refinancing 70-80% of it? I am a server and don't make much a year on file and am wondering if the restrictions are the same for when you are applying for a conventional loan. Seems like a great way to get a great deal on a house if you have the cash. thanks

Account Closed · Answer

i started investing when i was a bartender..my tax returns were awful too...it would be worth your time to go to many very small, local banks...these banks will hear out your situation, and in many cases, they make the decision, instead of at a larger bank where they have to talk to their underwriter.  my banker didn't like my tax returns, but saw my bank statements so he knew i was making some money..good luck.

Jon Holdman · Answer

The real answer is that you need to work with lenders and brokers to find out what they can do in your particular situation.  You're wanting to do a "cash out" refi, since you getting cash rather than paying off an existing loan.  If anything, that's probably harder than getting a purchase loan.  You'll probably need to own it for a year, certainly for six months.  You will need to be able to show income to qualify for the loan. You may not be allowed to include the rental income, if its your first property.  Once its showed up on two tax returns, you will be able to use the rental income.

Mike H. · Answer

Couple of options to refi quicker.

1) Buy it with hard money. If you have enough reserves that you can pay all cash, you can probably qualify for a hard money loan.  The big advantage to buying with hard money is you have the ability to refi rate and term and end up paying no money out of your own pocket. Leave those reserves in the bank.

2) Buy it with a loan from a relative.  Have an attorney write up the mortgage/note and agree on terms (7%?).  Roll in the purchase plus rehab for the total on this one as well. Then you can refi rate and term and, again, have no money out pocket.  Be sure to record the mortgage and be sure to make payments to the relative.

Again, if you have the reserves to pay cash, you should be able to get a relative or friend to give you the loan. They'll be protected, for the most part, by their lien on the property.

Either way - hard money or private - the main advantage of this is that once you purchase, rehab and get it rented out, you can now go to a lender and refi the house rate and term. If you buy it right, you'll end up with no money out of pocket so you can do the same thing again right away. Rinse and repeat.

Qualifying for the conventional refi is the key. You'll need to check that out before you start anything.

ex: 
Pay $60,000 for the house
$10,000 rehab
$5,000 lending costs
ALL in for 75k loan (hard or private money).

Rehab in 4 weeks and rent in 4 weeks. Most banks will allow you to refi rate and term after 3 to 6 months.

After the refi, the purchase/rehab loan is paid off, you still
have a 75k mortgage and now you're out no money out of pocket. Your reserves are still in the bank to continue making you look like a much better risk.

I've got 12 houses and am closing on 13 and 14 next month. Did the 20% down on my first one and that was the end of that. All the rest - no money out of pocket (or very little).

Account Closed · Answer

what do you mean by this??   you can't 'make' any money on a refinance..you can, however, cash in and get some of your equity, but that's alraedy yours, so you're not 'making' anything--just stripping your property of its equity..

not to mention, most banks will only allow a refinance of what you have into the property...say you pay 40k, do 20k in rehab, and it appraised for 100k.  most banks will let you have 60-70% of the 60k you have into it--not the 100k appraised amount.  now, some banks will let you refinance based on a new appraisal after a year of seasoning, but even that's difficult for an investment property.

Jon Holdman · Answer

Many hard money lender won't lend on owner occupied deals.  Too much emotional entaglement.

Hard money loans are NOT cash.  If you claim "all cash" on your offer, the seller will want to see a bank statement with the cash in the account and the same name on the account as on the offer.  Especially if its a REO.  Even if they don't, you're putting your earnest money at risk.  If the HML doesn't fund your loan, for whatever reason, you have no way to back out without losing your earnest money.  And banks who are selling REOs sometimes ask for 10% earnest money if you say its a cash offer.

If you buy with a FHA loan, you'll only need 3.5% down.  In some areas, there are various down payment assistance programs.  I sold a house in December who was using an FHA loan and getting down payment assistance from the county.  FHA does require the house to be in very good condition, which REOs usually aren't.

In general, you should play on waiting a YEAR after you buy to do a refi, if you want to use a new appraisal.

HMLs typically will lend, at the most, 65-70% of the ARV.  I don't see any mention of fixing up the house, so ARV will be what you pay for the house.  Many HMLs aren't that liberal.

If you do find a HML who will lend based on ARV, you find a house you can buy and fix up for $70K and its worth $100K, and you have to hold it for a year, you're going to spend about $14K on points and interest on the hard money loan.  And you'll spend another $3000 to do the refi.

As an owner occupant, you can spend more than an investor.  For that $100K house, an investor can't spend more than about $70-75K for the purchase plus rehab if they want to make a profit.  As an OO, you could spend $85K or $90K and still have a good deal.  Because you can pay more, you'll have more luck buying a REO than an investor who needs a much better price.

Martha Maxim · Answer

I am a newbe to this... I was thinking that I could buy a home for myself with hard money and find a better deal due to buying with cash.  My question is, will I be able to refi a conventional loan.  I actually qualify for an FHA loan, but if I buy it with cash first, how much below the value of the house does my first loan have to be to have a bank accept me for refi.   And how long do I have to wait to refi.... 
Just trying to be creative..

Account Closed · Answer

yea that may be why, I just wish I knew before I had this all set up. I can always move there to beat the 60 day inspection thing but then after I move out I am running into fraud. Do you have any other options?

Des Shei · Answer

maybe she went CHFA based on the loan amount. most banks won't loan if the amount is too low as it may not be worth it for the time and effort. i ran into this a while back as well with a property.

Account Closed · Answer

yes, I will stay in state. I basically have no other option for this property now. Loan would have been approved but the loan officer put me for a CHFA loan and being inexperienced I realize they want me to live there for at least 12 months and would do an inspection 60 days after. She told me to write a letter stating I was living there, but now that they will actually do an inspection this has gotten to far and I wish I would have knew better to make sure I was applying for a conventional loan. I made it clear to her but for some reason this was never addressed properly on my part. I thought that I was going conventional because I had 25% to put down which is usually the requirement because FHA is only 3.5% Basically I am buying a rental for 45k and was appraised for 60k. I am hoping to get 60% of what I paid for it back in 6 months, to use to purchase another rental. What do you guys think, I understand they will use the same criteria now, but if I can use an investment friendly bank and show my two leases and my job income on top of that with very little debt.

Gregory Childs · Answer

Just be aware that the rules change - a bank we were using in Indy just last month changed their criteria on us mid-process for an out of state refi we were considering for a take-out investor. So the whole deal got stalled.
TTFN,
Greg

How strict is buy cash then refinancing??

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