Fannie and Freddie new Cash out Refi Rules

[Nathan Harden]

Hey BP community!

With Fannie and Freddie proposing that the new cash out refi period going from 6 months to 12 months, I am curious to hear how everyone plans to continue to BRRRR with this happening? Are Hard money/Private Lenders going to adapt to this new 12 month plan and extend their pay back periods so that it will give investors enough time to refinance? Are investors going to be moving more towards turn key properties and just buying properties with loans up front or are they still going to be buying with cash/borrowed money then just biting the bullet and accepting that the money will now be held up for 12 months as opposed to 6 months?

I figured that I would ask because I just ran into this potential problem today. One of my current BRRRR's is scheduled to be completed next week but I have only owned it for 4 months so now I am running into the possibility of having my money tied into this property for another 8 months as opposed of doing the refi now. I have thought about delayed financing but that will only be off my purchase price as opposed to the ARV.

I am curious to hear what everyone's strategy will be going forward!

[Joel Broyles]

I've had a few conversations with lenders on this in the past few weeks. Initial thoughts are pretty basic. DSCR for cash out then rate/term refi in 12 months with conventional to lower rate. More expensive obviously both in monthly and two refis, but you get your cash out. It means you have to account for additional costs on the acquisition math.

[Nathan Harden]

Quote from @Joel Broyles:

I've had a few conversations with lenders on this in the past few weeks. Initial thoughts are pretty basic. DSCR for cash out then rate/term refi in 12 months with conventional to lower rate. More expensive obviously both in monthly and two refis, but you get your cash out. It means you have to account for additional costs on the acquisition math.

 Thank you for the reply.

I have thought about the DSCR route as well, the biggest thing is just having to pay fees for both refinances. It may not be ideal but it may be something that just has to be done

[Jeremy H.]

Having money tied up for 6 months was rough enough - 12 months is entirely too long. I do not understand the reasoning behind this. I have heard cash-out refis will be more expensive in points as well (not sure on that one, have heard from a couple different lenders though). Can they not just ban foreign investors as opposed to hurting the middle class people?

I think private money will become more of a route to go - that is if the terms are good enough. If not, then it just makes sense to DSCR then go conventional. You're looking at several thousand dollars to close twice though, it's rough

I haven't come across a great delayed financing method - seems like the LTV is a lot lower, like 70% as opposed to 75% with a cash out refi.

I'm wondering if we won't see some more BRRRR/fix and flip specific type loans from private lenders. There's a few that have some interesting products right now.

[Alex Bekeza]

@Nathan Harden

@Joel Broyles

@Jeremy H.

I'm not going to lie, selfishly, I was pretty excited to see this news recently because it should really separate us from the pack. We're still doing refis off of new appraised value as early as 90 days of ownership. Today (2/15/23) there's two preferred programs which allow this depending on the scenario (location, borrower profile, etc) and if the total loan request (say 75% LTV) is less than 120% of total original purchase & rehab costs then we can get significantly better rates. If not, there's an alternative just with slightly worse pricing and available in fewer states. (complete DSCR based, LLC vesting, no tax returns, no dti, etc).

I first joined Bigger Pockets in 2018 as a newer mortgage loan officer to educate myself about real estate investing strategies and connect with potential clients. What I noticed right away is that people were constantly posting things in the forums like "My loan officer doesn't know what a BRRRR deal is", "My loan officer says I can't vest in my LLC", "I already have 10 mortgages and can't take any more", and perhaps my favorite...... "My loan officer says I need to wait 6 months before I can cash out refi using new appraised value rather than purchase cost".

That was when I positioned myself to specialize in loan products that met all of these needs and began doing my own BRRRR deals out of state in St. Louis utilizing them myself.

[Jay Hurst]

Quote from @Nathan Harden:

Hey BP community!

With Fannie and Freddie proposing that the new cash out refi period going from 6 months to 12 months, I am curious to hear how everyone plans to continue to BRRRR with this happening? Are Hard money/Private Lenders going to adapt to this new 12 month plan and extend their pay back periods so that it will give investors enough time to refinance? Are investors going to be moving more towards turn key properties and just buying properties with loans up front or are they still going to be buying with cash/borrowed money then just biting the bullet and accepting that the money will now be held up for 12 months as opposed to 6 months?

I figured that I would ask because I just ran into this potential problem today. One of my current BRRRR's is scheduled to be completed next week but I have only owned it for 4 months so now I am running into the possibility of having my money tied into this property for another 8 months as opposed of doing the refi now. I have thought about delayed financing but that will only be off my purchase price as opposed to the ARV.

I am curious to hear what everyone's strategy will be going forward!

 @Nathan Harden  

@Jeremy H.

@Joel Broyles

 Keep in mind these new Fannie/Freddie seasoning requirements ONLY apply to cash out loans. In other words, you can still use the improved value to refi what is owed with no cash back. So, what we do on we make a HML is once we get the take out appraisal to establish the value we will modify our existing HML to raise the loan amount to the max loan to value for the take out product, then proceed with the refi. This makes the take loan a rate/term refi NOT a cash out so we can use the new value. The result is you get the funds you wanted without having to wait the now 12 months, and still refi into a conventional loan.

Or, if you did not do a HML loan with us we do a double close essentially. We do a cash out loan for you on a bridge loan with no pre-payment penalty pulling out the cash, them immediately refi that new loan amount as a rate/term. Again, there is no seasoning requirement for a rate/term. We have been doing both of these for years when it was 6 months but now even better product at 12 months. 

[Nathan Harden]

Quote from @Jay Hurst:

Quote from @Nathan Harden:

Hey BP community!

With Fannie and Freddie proposing that the new cash out refi period going from 6 months to 12 months, I am curious to hear how everyone plans to continue to BRRRR with this happening? Are Hard money/Private Lenders going to adapt to this new 12 month plan and extend their pay back periods so that it will give investors enough time to refinance? Are investors going to be moving more towards turn key properties and just buying properties with loans up front or are they still going to be buying with cash/borrowed money then just biting the bullet and accepting that the money will now be held up for 12 months as opposed to 6 months?

I figured that I would ask because I just ran into this potential problem today. One of my current BRRRR's is scheduled to be completed next week but I have only owned it for 4 months so now I am running into the possibility of having my money tied into this property for another 8 months as opposed of doing the refi now. I have thought about delayed financing but that will only be off my purchase price as opposed to the ARV.

I am curious to hear what everyone's strategy will be going forward!

 @Nathan Harden  

@Jeremy H.

@Joel Broyles

 Keep in mind these new Fannie/Freddie seasoning requirements ONLY apply to cash out loans. In other words, you can still use the improved value to refi what is owed with no cash back. So, what we do on we make a HML is once we get the take out appraisal to establish the value we will modify our existing HML to raise the loan amount to the max loan to value for the take out product, then proceed with the refi. This makes the take loan a rate/term refi NOT a cash out so we can use the new value. The result is you get the funds you wanted without having to wait the now 12 months, and still refi into a conventional loan.

Or, if you did not do a HML loan with us we do a double close essentially. We do a cash out loan for you on a bridge loan with no pre-payment penalty pulling out the cash, them immediately refi that new loan amount as a rate/term. Again, there is no seasoning requirement for a rate/term. We have been doing both of these for years when it was 6 months but now even better product at 12 months. 

 Wow, no kidding, this is a huge tool in the toolbelt for you. Especially now with the refi period going to 12 months. What are your loan minimums that you do on a SF and MF property?

[Nathan Harden]

Quote from @Alex Bekeza:

@Nathan Harden

@Joel Broyles

@Jeremy H.

I'm not going to lie, selfishly, I was pretty excited to see this news recently because it should really separate us from the pack. We're still doing refis off of new appraised value as early as 90 days of ownership. Today (2/15/23) there's two preferred programs which allow this depending on the scenario (location, borrower profile, etc) and if the total loan request (say 75% LTV) is less than 120% of total original purchase & rehab costs then we can get significantly better rates. If not, there's an alternative just with slightly worse pricing and available in fewer states. (complete DSCR based, LLC vesting, no tax returns, no dti, etc).

I first joined Bigger Pockets in 2018 as a newer mortgage loan officer to educate myself about real estate investing strategies and connect with potential clients. What I noticed right away is that people were constantly posting things in the forums like "My loan officer doesn't know what a BRRRR deal is", "My loan officer says I can't vest in my LLC", "I already have 10 mortgages and can't take any more", and perhaps my favorite...... "My loan officer says I need to wait 6 months before I can cash out refi using new appraised value rather than purchase cost".

That was when I positioned myself to specialize in loan products that met all of these needs and began doing my own BRRRR deals out of state in St. Louis utilizing them myself.

 That's awesome man. Way to find a slot where little to no products are and offering something that others do not. What are your terms looking like for these loans? What are your loan minimums? 

[Jay Hurst]

Quote from @Nathan Harden:

Quote from @Jay Hurst:

Quote from @Nathan Harden:

Hey BP community!

With Fannie and Freddie proposing that the new cash out refi period going from 6 months to 12 months, I am curious to hear how everyone plans to continue to BRRRR with this happening? Are Hard money/Private Lenders going to adapt to this new 12 month plan and extend their pay back periods so that it will give investors enough time to refinance? Are investors going to be moving more towards turn key properties and just buying properties with loans up front or are they still going to be buying with cash/borrowed money then just biting the bullet and accepting that the money will now be held up for 12 months as opposed to 6 months?

I figured that I would ask because I just ran into this potential problem today. One of my current BRRRR's is scheduled to be completed next week but I have only owned it for 4 months so now I am running into the possibility of having my money tied into this property for another 8 months as opposed of doing the refi now. I have thought about delayed financing but that will only be off my purchase price as opposed to the ARV.

I am curious to hear what everyone's strategy will be going forward!

 @Nathan Harden  

@Jeremy H.

@Joel Broyles

 Keep in mind these new Fannie/Freddie seasoning requirements ONLY apply to cash out loans. In other words, you can still use the improved value to refi what is owed with no cash back. So, what we do on we make a HML is once we get the take out appraisal to establish the value we will modify our existing HML to raise the loan amount to the max loan to value for the take out product, then proceed with the refi. This makes the take loan a rate/term refi NOT a cash out so we can use the new value. The result is you get the funds you wanted without having to wait the now 12 months, and still refi into a conventional loan.

Or, if you did not do a HML loan with us we do a double close essentially. We do a cash out loan for you on a bridge loan with no pre-payment penalty pulling out the cash, them immediately refi that new loan amount as a rate/term. Again, there is no seasoning requirement for a rate/term. We have been doing both of these for years when it was 6 months but now even better product at 12 months. 

 Wow, no kidding, this is a huge tool in the toolbelt for you. Especially now with the refi period going to 12 months. What are your loan minimums that you do on a SF and MF property?

@Nathan Harden   The min for the bridge would be whatever the min is for your take out loan. 

[Alex Bekeza]

@Nathan Harden 30 year fixed ranging today in the 7s.  $75,000 min loan amount.  $100k min value.