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Updated over 5 years ago, 04/10/2019
I maxed out credit to rehab 3 properties dropped my credit score.
I used my HELOC, cash and credit cards to rehab 3 properties I bought in July. I want to refinance all 3 when they are rented out (1 unit has been rented for 2 months). Will banks give me a hard time when it comes time to refinance? I bought all 3 for a total of $116k and have about 80k in rehabbing them. The ARV for all 3 is between 250k and 300k. I want to pull all the cash out and buy more properties asap.
Perhaps with a decent appraisal you will be fine. But I had difficulty with financing based on short terms rentals. Banks usually want to see a history of rental income which I believe is a year plus. Don't quote me on that, I'm not a banker.
You might encounter some hassle with traditional lending. I would gGo to your local REIA or meet up and find a lender to cash you out. You might have a slightly higher interest rate but they are not gonna use your credit score as a bases of whether or not to refi you. Most lenders are gonna require you to have 12 month leases so I would be prepared so this isn't a hurdle.
@Rachelle Rayner
Thank you. I plan on having nothing less than a 12 month lease on all my properties. I didn't realize the effect of using that much credit would have. I have a ton of deals coming at me and I'm worried I won't be able to jump on them if I cant get money out. A few months ago I spoke with my bank manager where I have my HELOC about a refi and was told that if did all 3 properties with them I could pull out 85%. That's what I was counting on and then I did a quick look on credit karma and my credit score dropped 200 points. i don't think they will make me wait due the time they've been rented.
Find a lender that is investor friendly that will lend based on the asset value and the rental income being above a certain debt coverage ratio. They won't care about your debt to income ratio or credit score.
@Shane Ward don’t count on credit karma! Sometimes they are close, but my husband looked at his score on there and it showed 100 points less than what our lender pulled for our mortgage. Just my two cents.
@Shane Ward what is your credit score at?
If you can afford the current debt service and you can bear to part with your worst performer, you could pay off your credit cards, HELOC, and have 40K to go to the next deal with. Mortgage the two you still have once your creditors report zero balances and you are looking at having 2.5 times your previous working capital as cash instead of loans for the next round of property acquisitions and more favorable rates than you're going to see under your current circumstance. The hurt at tax time might be worth working with cash instead of "cash".
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#3 Creative Real Estate Financing Contributor
- Real Estate Investor
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@Shane Ward You should consider going to FICO.com or a site like that and paying for your true score ($10 or so). I'd be very surprised if your score dropped 200. If you had 775 before (for example), no way it would be 575 unless you have some serious late payments. Maxing out cards certainly hurts, but personally I've never been below 660 if the payments are still on time.
My 2 cents...
@Todd Rasmussen
They will all rent at $1200 per month and cash flow $500 per month. I'm looking to build a portfolio of rentals so that I can retire. I have no interest in selling properties. I looked hard at all my numbers and bought at the right price. I've had an investor realtor tell me the arv on these all together should be a little over 300k and an appraiser tell me 270k. that was before I added a full bath and laundry to two of the units and found that the two where also listed at about 400 sq ft less and without huge finished attics with heat, windows and closets. I think I will get the refinancing I need I just wanted to see what you guys thought. My credit score actually shows around 160 points lower not 200. I did have a late payment on my HELOC i thought it had been set up with auto payments.
Yeah, I'm working towards the same thing so I get your reluctance. Shaneka with Elements Credit Union www.elements.org/spedersen is who does almost all of our conforming loans. She's doing three financing actions off one credit hit for us right now. Hopefully, it's less of a deal than you think. I'd call her first and give her your numbers. She should give you a no if she can't help off the bat. Commercial lenders have shorter amortization, lower LTV, and higher interest rates. Go conforming until you run out of conforming loans has been the advice I've gotten from any non conforming lender I've talked to.
@Todd Rasmussen
There is a HML in my area that is doing refinances now and o have talked to them. They told me that they dont a credit score as much if the properties are appraised high enough. I will try whatever it takes. I just had to pass up an 8 unit with a gross rent of 67k and net rent of 45k per year asking 220k in a good town near me from a wholesaler I know. It killed me to not be able to take a shot at that.
#5 Classifieds Contributor
- Lender
- Rochester, NY
@Shane Ward It is going to depend on what your credit score is and what your DTI's are. On a positive note, you can cash out refinance and pay off some or all of this credit with the funds at closing and that debt won't be used against you.
It is past the 6 month mark, so the money you get back will be based on current appraised value. A SFR investment property is 75% LTV. A MFR investment property has an LTV of 70% for conventional financing.
- Jerry Padilla
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- 585-204-6923
Originally posted by @Shane Ward:
@Todd Rasmussen
There is a HML in my area that is doing refinances now and o have talked to them. They told me that they dont a credit score as much if the properties are appraised high enough. I will try whatever it takes. I just had to pass up an 8 unit with a gross rent of 67k and net rent of 45k per year asking 220k in a good town near me from a wholesaler I know. It killed me to not be able to take a shot at that.
And google analytics just registered a spike for searches of Albrightsville, PA. Dying with you. That one must have hurt!
The issues I see that you may run into are if you do not have experience in rentals lenders will likely require you to qualify for all the mortgages and will NOT count any of the rental income as usable income for qualifying for the loans. Most lenders want to see 2+ years experience as a landlord which they will prove via your tax returns to verify rental income and loss.
@Shane Ward do you mind sharing for educational purposes what your credit utilization was in doing all the rehab (ie did you max out all your cc and max out your Heloc)? I was under the impression that the utilization rate of a Heloc does not factor in to one’s credit score. 🤔
@Brian Gerlach
I have not maxed the HELOC yet but will be close.
I have two cc that I have almost maxed out. I just checked credit karma again and my score is 50 points higher than the last check. Idk. When my score was really low the other day the note that CK put next to it was that my available credit was to low.
@Shane Ward How bad is your credit score now? If your still over like 620/640 your probably ok.
Hi Shane,
You said you got them for $116k + $80k rehab for a total of $196k. You think the ARV will be $250-300k. Let's say they appraise at $280k. Lenders on cash out usually limit the LTV to 70%. Your refinance will essentially be a rate and term or money to pay back the $80k heloc. Just wanted to make sure you are aware of this. Many times investors think they are going to get much more cash and it doesn't happen. Then they are stuck. Banks are also much more conservative when appraising for cash outs.
@Shane Ward I would go to Lima One Capital for a refi. They provide you a long term mortgage based on the asset value.
@Shane Ward
Love the intensity and drive.
@Shane Ward
Those numbers do sound sweet.
@Frank Wong If I get the 80k out I good. I get into a few deals with 80k. My credit score will be in the mid to high 600's by the time I refi.
FYI- My bank manager where I have 4 bank accounts and my HELOC told me that with a portfolio loan they would lend 85% LTV. That was with me just asking if they would be interested in doing the refi's. I keep hearing that big banks are hard to work with but my bank (BB&T) has been great, and they are big. So we shall see. Thank you all for your interest. I cant believe a place like BP exists. Incredibly helpful and great people helping each other.
Originally posted by @Shane Ward:
@Frank Wong If I get the 80k out I good. I get into a few deals with 80k. My credit score will be in the mid to high 600's by the time I refi.
FYI- My bank manager where I have 4 bank accounts and my HELOC told me that with a portfolio loan they would lend 85% LTV. That was with me just asking if they would be interested in doing the refi's. I keep hearing that big banks are hard to work with but my bank (BB&T) has been great, and they are big. So we shall see. Thank you all for your interest. I cant believe a place like BP exists. Incredibly helpful and great people helping each other.
can't beat that. 85% on these properties is awesome. make sure your cashflow will not suffer significantly with the lower equity.