No-Seasoning Cashout-refi .... Confused

Rehabbing & House Flipping
11yFollow

No-Seasoning Cashout-refi .... Confused

Michael Dunn
Olive Branch, MS · Member since 2013 · 452 posts · 10 votes

There is something that I am confused about , and that is the following ......  " The New Loan amount must NOT be more than the borrower's initial investment in purchasing the home + you can finance the Closing Costs . Initial Investment is defined as the Sales Price, NOT the Sales Price + the Cost of Improvements done to the property "

So from the above statement, this seems to mean that the New " Cash Out " loan can NOT equal more than the Initial Purchase price for the property + the Closing Costs ?

Also, if the Property is an Owner Occupied , what is the max LTV that I can expect ..... 85% ? 100% ?

What I am not understanding is ..... How do you get Actual Cash out of your property, if they will only Loan/base the amount of the Cash-Out refi on the Purchase Price , nd Not on what the properties ARV is ?

Example .... If you purchase a property for $60,000 ( includes Closing Costs ) ,

and they will do a LTV for the Cash-Out of 85% , this would be $51,000

So where does the Cash you can get come from ? You are in the " Negative " by $9,000

If the 85% LTV was based on the ARV ( say $80,000 ARV ) , then I can see where there is Instant $ to get from the house , as a Cash-Out ..... $8,000

Just a bit confused as to how this process works. Thank you for the help

0Reply
49 views

Most Popular Reply

Upen PatelPro Member
Lender · Nationwide Lender · Member since 2015 · 1k+ posts · 814 votes
11y
@Michael Dunn Where you are getting confused is with regards to seasoning. With no-seasoning you can ONLY do a rate-term refi. To do a cash-out refi, you have to season for 6 months. After that a new appraisal can be ordered and the loan be based on the appraised value.

Upen Patel, Mortgage Banker
Federal NMLS# 1374243
[email protected]571-200-6180
2Reply
See this reply in the discussion

12 Replies

Jump to latestLatest
  • Christopher Brainard
    Rental Property Investor · Rockwall, TX · Member since 2015 · 891 posts · 701 votes
    11y

    @Michael Dunn

    Different lenders have different rules, however, what you've said applies to many lenders. You can't pay market value for a house and expect to pull cash out. If you can buy at a significant discount, complete the repairs, you should be able to find a lender to re-appraise the house and allow you to pull cash out.

    -Christopher

    0Reply
  • Upen PatelPro Member
    Lender · Nationwide Lender · Member since 2015 · 1k+ posts · 814 votes
    11y
    @Michael Dunn Where you are getting confused is with regards to seasoning. With no-seasoning you can ONLY do a rate-term refi. To do a cash-out refi, you have to season for 6 months. After that a new appraisal can be ordered and the loan be based on the appraised value.

    Upen Patel, Mortgage Banker
    Federal NMLS# 1374243
    [email protected]571-200-6180
    2Reply
  • Michael Dunn
    OP
    Olive Branch, MS · Member since 2013 · 452 posts · 10 votes
    11y

    Christopher Brainard and Upen Patel,

    Thank you both for your replies

    I have a Scenario question , relating to Instant Equity/Seasoning Period/Cash-Out refi.

    Example:

    Let's say you purchased a property for $65,000 ( including repairs ), and if you were to get an immediate Appraisal after the repairs, it came in at an ARV of $90,000

    So if you got a LTV of 80% , that would be $72,000

    Purchase price of $65,000 , 80% LTV on $90,000 ( ARV ) is $72,000 ...... So there's " Instant " Equity of $7,000

    My question then is .... Could you immediately do a Cash-Out refi. for the $7,000 , without having to wait on any Seasoning Period ?

    Thanks again for the help

    0Reply
  • Andreas W.
    Durham, NC · Member since 2013 · 502 posts · 215 votes
    11y

    @Michael Dunn

    Could it be that your are talking about delayed financing? That has no seasoning but the actual loan amount cannot be higher than your purchase plus closing cost for the property acquired with cash. If you paid $ 60000 incl. cc, this is how much you can get as max loan amount. Even if your lender appraises it at $ 90000 at an LTV of 70%, your loan amount will be $ 60000, not $ 63000.

    0Reply
  • Christopher Brainard
    Rental Property Investor · Rockwall, TX · Member since 2015 · 891 posts · 701 votes
    11y

    @Michael Dunn

    Yes, you could, if your financial institution offers that product - Most do not. Your best bet for this type of financing is going to be a local bank or private financing. On an amount this small, I think you would be better off structuring this deal to get cash at closing of the original loan or using hard money during your rehab period and conventional financing after. Refinancing for a small amount of money is not cost effective and you'll pay far too much in fees. 

    -Christopher

    0Reply
  • Michael Dunn
    OP
    Olive Branch, MS · Member since 2013 · 452 posts · 10 votes
    11y
    Andreas W. ,

    This property will be purchased using an FHA loan , so I am assuming that there will " Have to be " some sort of Seasoning period ?

    Christopher Brainard ,

    I am going to go with a Local lender, and I never thought about it , but getting Cash out at Closing would be great.

    What would be the most Cash that I could get out at Closing, and how is the amount that you can get determined ?

    Thank you both again

    0Reply
  • Andreas W.
    Durham, NC · Member since 2013 · 502 posts · 215 votes
    11y

    @Michael Dunn

    Sounds like delayed financing won't work for you. You need a lender that can give you a different product than a conforming mortgage. Community banks or credit unions could be your friend.

    0Reply
  • Michael Dunn
    OP
    Olive Branch, MS · Member since 2013 · 452 posts · 10 votes
    11y

    Andreas W.

    I'm going to ask the Lender and try to do what Christopher mentioned ..... " structuring this deal to get cash at closing of the original loan "

    With the Property having a good amount of Instant equity ( even using a LTV of 80% ) , maybe I can get that $7,000 . You think ?

    0Reply
  • Andreas W.
    Durham, NC · Member since 2013 · 502 posts · 215 votes
    11y

    @Michael Dunn

    Do you have the house under contract? If yes, the lender wants to see it. Its the basis for the loan generation. If I understand you correctly, you hope to increase the purchase price accordingly so that you can ask $7000 as closing costs concession back from the seller. That is a lot of closing costs for a low cost property. I cannot imagine how any lender would go with that, especially when they know the contract price. It is also possible that I completely misunderstand your endeavor.

    0Reply
  • Aaron Chapman
    Lender · Gilbert, AZ · Member since 2014 · 26 posts · 15 votes
    11y

    @Michael Dunn it appears that you are experiencing the same thing that happens to many who work in the lending industry. The guidelines for Conventional, Govt, Non-Agency and Portfolio loan products blending together. There are so many guidelines for so many programs that a lenders office can look like a law library if they chose to print and bind each program independently.

    The initial statement referencing the loan amount being restriction to not exceed the initial purchase price is as indicated above based on the "Delayed Financing" program. When one pays cash for a property they are restricted to the maximum loan not to exceed the price of the home. In those scenarios one would be hard pressed to get any improvement costs back on the property unless they were able to work that into the price of the property with the seller.

    As far as being able to pull the cash out of a primary residence at the time of purchase, you are being directed correctly to talk to a local bank to see what they can convince their board to approve as most lenders are not wanting to take on that much risk up front. For those that follow the standard lending guidelines they will provide you the following. Conventional guidelines restrict cash out to 80%. FHA has restricted it to 95% (based upon FNMA and FHA program matrix). This Loan to value is based on the appraised value after the specified seasoning period or period of time one must have had ownership.

    Having said all this, there are many other factors that must come into play for any loan to be approved. In an effort to keep this post from going too long, the best plan of action is to speak to a very experienced lender and allow them to review your entire financial package as none of us lenders can give complete accurate advice without receiving full voluntary participation of a borrowers financial information.

    1Reply
  • Christopher Brainard
    Rental Property Investor · Rockwall, TX · Member since 2015 · 891 posts · 701 votes
    11y

    The cash out depends on the loan type, the lender, and the appraised value of the house. If you need a government insured loan, the best you are going to get is 6%, which will basically cover closing costs. If you get a conventional, private, or hard money loan, this will all be up to the lender and how they structure the deal and how much the house appraises for.

    I highly recommend that you interview a few local lenders, tell them what you want to do, and see who can assist you and how. I wouldn't focus on how much cash you can get, but focus on what your business plan is and how you're going to succeed. 

    -Christopher

    0Reply
  • Michael Dunn
    OP
    Olive Branch, MS · Member since 2013 · 452 posts · 10 votes
    11y

    Thank you for all of the responses

    I did have something else to ask, and see if this is even a possibility of happening....

    Come Closing, and assuming that there's $25,000 in Equity on the property ( $90,000 appraised value ( ARV ) MINUS the purchase price + closing costs = $65,000 = $25,000 )

    So the $90,000 ARV is from the Lender's Appraiser and is giving them a Here and Now Value on the property

    So given that the Lender knows that there is  " Guaranteed "  $25,000

    Would the Lender not be willing to give me $7,200 in cash at closing ( based from them ding a LTV of 80% on the ARV of $90,000 ) ?

    The Lender will be covered as there not over Loaning " Leveraging " themselves, since it;d be a LTV of 80% and not 100% .

    I'm just wondering if this type of deal can be done, and if there's anything I may need to know or ask ?

    Thanks again for all of the help

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free