Cash Out Refinance

[Ahmad Moore]

I’m experiencing a slight problem that I didn’t know existed until now and it may just be regional. (Mobile, Al) The two banks I tried to see what the numbers would be regarding a cash-out refinance, they only do 75% of the purchase price + construction cost and not 75% of appraised value that I’m used to.

I did try a DSCR refi, and after several paperwork being submitted, credit score ran, appraisal bought, only to have my numbers change before signing the docs for closing-so that was a dud.

My question, who do you know that’s a reputable Union or bank that’s doing at least 75% of appraised value?

[River Sava]

Hi Ahmad - What is the seasoning period? That is going to play a part in leverage. If it is over 6 months you should not have a problem getting 75% LTV.

[Ahmad Moore]

July 2023

[River Sava]

Quote from @Ahmad Moore:

July 2023

 I'd be curious to hear more about the property. Sending you dm. 

[Ahmad Moore]

Ok

[Devin Peterson]

Quote from @Ahmad Moore:

I’m experiencing a slight problem that I didn’t know existed until now and it may just be regional. (Mobile, Al) The two banks I tried to see what the numbers would be regarding a cash-out refinance, they only do 75% of the purchase price + construction cost and not 75% of appraised value that I’m used to.

I did try a DSCR refi, and after several paperwork being submitted, credit score ran, appraisal bought, only to have my numbers change before signing the docs for closing-so that was a dud.

My question, who do you know that’s a reputable Union or bank that’s doing at least 75% of appraised value?

What was the reason behind the term change? Sounds like you have sufficient seasoning. What is your credit score?

[AJ Exner]

Quote from @Ahmad Moore:

I’m experiencing a slight problem that I didn’t know existed until now and it may just be regional. (Mobile, Al) The two banks I tried to see what the numbers would be regarding a cash-out refinance, they only do 75% of the purchase price + construction cost and not 75% of appraised value that I’m used to.

I did try a DSCR refi, and after several paperwork being submitted, credit score ran, appraisal bought, only to have my numbers change before signing the docs for closing-so that was a dud.

My question, who do you know that’s a reputable Union or bank that’s doing at least 75% of appraised value?

Hey Ahmad,

Sorry to hear about the issues you're having. The two things that came to mind when I saw this were seasoning (as previously mentioned) and potentially property value? 

Most conventional lenders run with a required 12 month seasoning, so having purchased in 7/23, likely won't be able to use them until 7/24 or later. 

As for the DSCR lender, if the numbers moved a bit on you, my guess is either the appraisal came in a bit lower which hindered either a DSCR minimum or a minimum loan amount? Shot you a DM as well, would be happy to take a look as well.

Good luck!

[Ahmad Moore]

Credit score around 780

[Ahmad Moore]

Hey!

Thanks for responding. Neither was the issue. I terminated the process. Appraised at 255,500 and my credit score is around 780-when pulled I think it came around 760, but a reverse late payment that was reported (now resolve bc it was incorrect) my score went back to the original score. Seasoning was not a factor.

[Ahmad Moore]

They stated that the “market rent” came lower than expected and tried to tell me that market rents in the area justify $1300, which that’s just what I “accepted” on paper from the tenant. There’s no way, it’s at least $1900 which I’m going up on rent to that amount next year and the tenant knows. For the record, I get $1600/month for the property.

[Nate Herndon]

Quote from @Ahmad Moore:

They stated that the “market rent” came lower than expected and tried to tell me that market rents in the area justify $1300, which that’s just what I “accepted” on paper from the tenant. There’s no way, it’s at least $1900 which I’m going up on rent to that amount next year and the tenant knows. For the record, I get $1600/month for the property.

If your market rents are lower than the actual rents, underwriting will use 110% of the market rent values to give you some "extra credit" for your DSCR. $1430 isn't $1600, but it's better than $1300.

[AJ Exner]

Quote from @Ahmad Moore:

They stated that the “market rent” came lower than expected and tried to tell me that market rents in the area justify $1300, which that’s just what I “accepted” on paper from the tenant. There’s no way, it’s at least $1900 which I’m going up on rent to that amount next year and the tenant knows. For the record, I get $1600/month for the property.

What @Nate Herndon said ☝🏼

[Jay Hurst]

Quote from @Ahmad Moore:

I’m experiencing a slight problem that I didn’t know existed until now and it may just be regional. (Mobile, Al) The two banks I tried to see what the numbers would be regarding a cash-out refinance, they only do 75% of the purchase price + construction cost and not 75% of appraised value that I’m used to.

I did try a DSCR refi, and after several paperwork being submitted, credit score ran, appraisal bought, only to have my numbers change before signing the docs for closing-so that was a dud.

My question, who do you know that’s a reputable Union or bank that’s doing at least 75% of appraised value?

 @Ahmad Moore    Do you have current financing on the property or own the property free and clear? 

[Alex Bekeza]

@Ahmad Moore 

Did the lender try to help you dispute the market rent? Rent comp data is not as easy for the appraisers to capture as sales comp data is so they often make errors on this.

When I run into this issue with my clients I ask them to send me 3-4 rent comps in the area to dispute.  This can be a combo of zillow listings, craigslist, etc but the best thing would be a rent roll from a property manager confirming a higher market rent.  I've found that appraisers are much more likely to revise their market rent number than they are the value itself.  

Was this appraisal ordered through a big AMC like appraisal nation who most DSCR lenders would accept a transfer from?

[Ahmad Moore]

No, market rents are higher than what I’m currently charging unless I’m getting confused as to what you’re considering as ‘market rents.’ What I’m assuming market rent to be is what available comps (rental wise) within the area that’s comparable vs what I’m getting rent for currently.

[Ahmad Moore]

Financed.

[Ahmad Moore]

Yes, eventually he did, although the terms was not favorable and I would’ve just been settling. There isn’t a need but a want, so the numbers has to make sense for me! They ordered their own appraisal.

Just to be honest, I was never keen on prepayment penalties but I almost was willing-but if you (DSCR) loans are ran like I experienced I rather not… I'm almost certain they may though..unfortunately.

[Jay Hurst]

Quote from @Ahmad Moore:

Financed.

 The reason you cannot get a conventional loan with cash out up to 75% using the new value is if you currently have financing you have to wait 12 months. This used to be 6 months but changed last April. see link:   https://capitalmarkets.fanniemae.com/mortgage-backed-securit...

So, you would just need to wait to CLOSE 12 months and 1 day from the recording date on your current mortgage. You CAN start the process and even lock your rate and have everything ready to close on day 12 months +1.  We have a 2-step process that gets your around this waiting period for a conventional loan, but not worth doing when you only have to wait a month+ at this point for you. 

[Ahmad Moore]

Thanks for responding. Maybe I need to update it to say @ Seasoning is not an issue “ 🙂 The problem is me getting a loan 75% of appraised value, and it’s really not a problem it’s just that my go-to banks are doing 75% from PP + cost. I haven’t searched another bank-yet.

[Alex Bekeza]

Most lenders are going to be limited to using the lower of appraiser's opinion of market rent or the actual in place lease (or in some cases 110% of market if lease is greater) so it sounds like you just need to roll the dice on a new appraisal but I'd recommend having some rent comps on hand for the appraiser up front just to avoid the same issue. 75% cash out pending positive DSCR is widely available at most DSCR lenders.

[Dave Skow]

@Ahmad Moore- thanks - if ypu  purchased in July 2023 - you can  apply and get loan approved now - you may need to wait until July  to close ....seasoing  varies  from state to state and program to program

[Nate Herndon]

Quote from @Ahmad Moore:

Thanks for responding. Maybe I need to update it to say @ Seasoning is not an issue “ 🙂 The problem is me getting a loan 75% of appraised value, and it’s really not a problem it’s just that my go-to banks are doing 75% from PP + cost. I haven’t searched another bank-yet.

Ahmad, a DSCR loan will only require 90-day seasoning - which you hit in October 2023. Anytime after 90 days you are eligible to close a cash-out refinance at 75% loan-to-value (or 80%, in Alabama).

As long as the DSCR breaks even at 1.00 or greater, you're all set. Lots of good input from folks here. Sounds like your current lender is just behind the times as far as giving a BRRRR investor what they need.

[Jay Hurst]

Quote from @Ahmad Moore:

Thanks for responding. Maybe I need to update it to say @ Seasoning is not an issue “ 🙂 The problem is me getting a loan 75% of appraised value, and it’s really not a problem it’s just that my go-to banks are doing 75% from PP + cost. I haven’t searched another bank-yet.

 Seasoning IS 100% for sure an issue for a full doc loan until 12 months. Your LO does not understand that is the issue but it is in black and white on the link I posted. Your bank is simply offering you a conventional loan.  SEASONING is the reason you can not borrow 75%. 

You can do a DSCR with less then 12 months seasoning but you have seen the negatives with those loans which include higher costs/rates and pre-payment penalties.

[Jay Hurst]

Quote from @Dave Skow:

@Ahmad Moore- thanks - if ypu  purchased in July 2023 - you can  apply and get loan approved now - you may need to wait until July  to close ....seasoing  varies  from state to state and program to program

 Conventional loan is a conventional loan no matter what state therefore the rules are the same on ALL conventional loans. 

[Ahmad Moore]

Yes, that’s why I’m saying seasoning is not an issue.. all my loans are conventional. We haven’t gotten to paperwork stage because it’s not what I’m looking for but they’re definitely aware how long I’ve had the property 

[Ahmad Moore]

Why roll the dice on a new appraisal, not understanding that part since it’s been about 2-3 weeks of getting one?