Signature Loan for the Down, 30 yr fixed, then Refi?

Question

Hello BP,

Regarding the use of a signature loan for a 20% down (acquired 3 months prior to mortgage application).  How long do you need to wait to refi to get the money out to pay off the signature loan?

This is assuming you find a deal in which the numbers work to have substantial equity at purchase.  Without experience, would it be wise to make the offer contingent on a appraisers report, to ensure a little safety?

Or is it smarter to keep it simple and save for the 20% down?  Then refi buy and hold properties later to get your cash out as soon as possible rather than waiting 2 or 3 years for the property to pay out in cash flow.

Thank you for any insight you may share.

Michael Spindler · Answer

Hi Bill,

This strategy would be safer and reasonable to ask for?  Where can I find more information about how investors use this, in detail?  Or is it better to get with a "mentor" to walk through a deal like this?

I love alternatives, thank you for bringing this up.  : )

Michael

Bill Gulley · Answer

Depends on the type of lender. Pawn dealers must have collateral, credit unions don't. Not sure what the cut-off is for banks, small loans are not profitable, not that the feds said no to my knowledge, states may have different issues. You can still get signature loans based on your credit and ability to pay without collateral, today much harder and smaller amounts but can be had.

In the above, a signature loan is not secured and is debt acquired for the down payment, unsecured leverage is not acceptable.

Good example of the secondary allowing borrowed funds is a seller that carries back 15% with a 10% down payment from buyer's funds. :)

Jon Holdman · Answer

Have a reference for that, Tom Goans?  A credit union I've done business with for over 30 years still offers signature loans.

Tom Goans · Answer

Bill Gulley,

I am a little out of touch with the new lending regulations. I thought in order to qualify for a "signature" loan, would you not have to be in a liquid enough position to cover the loan.

I also thought the Federal regulations no longer allowed signature loans. I thought the regulations now require the borrower to have some type of collateral, such as a Certificate of Deposit.

Michael Spindler · Answer

Matt Devincenzo, Jon Holdman, Bill Gulley,

Thank you Gentleman.  You make some great points.  And agreed, there is safety in KISS.

I think I need to reread the definition for "patience".  : )

Bill Gulley · Answer

Save for it, you can't borrow all of the down for secondary market loans, you can borrow if you qualify but you need 10% of your money. A portfolio loan can be different, depends on you. :)

Edited....we have some fast typists here! Yes, the question is on the 1003 application. Secondary, saying a 30 year fixed, means skin in the game is required from cash assets.

Signature loans won't cut it.

Borrow from CDs or your retirement, that's okay, it's your money.

Different rules, but they want to see your money in the deal.

Refis might be at 6 months, need to check with your lender. After one year it's a no cash out refi, goes off the appraisal up to 90% if liens are seasoned for a year. :)

Matt Devincenzo · Answer

You will have to wait a min of 6 months to do a cash out refi but it may be as long as 12 months depending on your lender.

Your offer will likely already have that since you are financing the purchase and you have a "financing contingency" that says you can back out if you can't obtain financing. Part of the financing is the appraisal so you're covered there.

Honestly though if you are buying with financing the numbers won't work to cash out 20% within the next 6-12 months likely you can't get that much out for 2-3 years because you have to be buying property in a good enough condition to finance and you are competing against other financed buyers, so you won't be able to get the discounts like a cash buyer to have that kind of equity.

KISS principal. If you are buying with financing make sure to buy right. Let your properties pay for themselves and don't go monkeying with the numbers and get over leveraged that's how people go under during an unforseen market swing. I have pulled cash out of one property for another but the property it came from could still support the debt service on its own, so the next property was just a bonus.

Jon Holdman · Answer

A year, typically.  Maybe six months with the right lender.  And, realize that the new appraisal will need to be 20-30% higher than your purchase price if you want enough month to pay off the signature loan for the down payment.  Also be aware lenders may ask "is any portion of the down payment borrowed?"