Cash out Refi

[Raj Vardhan]

Hello,

I am new to the entire refi process and looking for some direction here:

I purchased a foreclosed property 2 months ago using hard money and close to finishing the renovation. Since i put 20% down, i am hoping i can do a cash out refi (will have enough equity) so I can take out my initial investment. Upon calling a few banks, i am told that there is a minimum of 6 month holding period before I can do a cash out refi. Is this accurate? Can someone walk me through how some of the investors go about BRRR process? Any advise and also any lenders you recommend.

Thanks!

[Evan Polaski]

@Raj Vardhan, in my limited experiences, 6 or 12 month seasoning is common if you want to borrow based on new appraised value.  That being said, I would use the "Lenders" link on BiggerPockets to try to reach out to more lenders about any programs they have that may fit your needs.

Granted, my personal experience is somewhat dated, but when I was primarily doing BRRRs, I had a local lender that required 12 month seasoning on my first two deals.  On my third deal, because I was in their commercial side, I refi'd as soon as the rehab was done (about 3 months into owning).  When you are on the commercial side of the bank, and borrowing on the bank's balance sheet, they have a lot more flexibility to how they handle loans.  But this also typically requires existing relationship before they will start bending their "standard" underwriting rules.

[Raj Vardhan]

Makes sense. Thank you for the information - will call more lenders!

[Jaycee Greene]

Hey @Raj Vardhan, welcome to the BP Forum! How soon will you have a signed lease after you're finished with reno? I've worked with bank lenders in my market that forgo the holding period if there's a lease in place. What's the ARV and rent you expect?

[Erik Estrada]

Quote from @Raj Vardhan:

Hello,

I am new to the entire refi process and looking for some direction here:

I purchased a foreclosed property 2 months ago using hard money and close to finishing the renovation. Since i put 20% down, i am hoping i can do a cash out refi (will have enough equity) so I can take out my initial investment. Upon calling a few banks, i am told that there is a minimum of 6 month holding period before I can do a cash out refi. Is this accurate? Can someone walk me through how some of the investors go about BRRR process? Any advise and also any lenders you recommend.

Thanks!

 Hey Raj, 

There are several lenders that have a 90 days seasoning requirement on a Cash Out Refinance as long as you can demonstrate there was rehab work completed. A handful do not have a seasoning requirement at all. 

[Brandon Croucier]

Hey Raj,

Theres a few ways to get around these requirements, just need to be in contact with the right people.

[Tanarat Bunchom]

Quote from @Raj Vardhan:

Hello,

I am new to the entire refi process and looking for some direction here:

I purchased a foreclosed property 2 months ago using hard money and close to finishing the renovation. Since i put 20% down, i am hoping i can do a cash out refi (will have enough equity) so I can take out my initial investment. Upon calling a few banks, i am told that there is a minimum of 6 month holding period before I can do a cash out refi. Is this accurate? Can someone walk me through how some of the investors go about BRRR process? Any advise and also any lenders you recommend.

Thanks!

Congrats on your project! Yes, most lenders require a 6-month seasoning period before allowing a cash-out refinance, but it can vary. Some investors use portfolio or private lenders who might have more flexible terms. For BRRRR, the key is ensuring your post-reno appraisal justifies the value for refinancing to pull your equity out. Also, keep an eye on rates and terms to make sure the cash flow still works after refinancing. Good luck with your deal!

[Raj Vardhan]

Thank you all! Justa. quick follow up - is there anyway to refinance with traditional bank within 3 months?

[Jaycee Greene]

Hey @Raj Vardhan. Yes, it's possible, but you'd probably need to get approved in the next 30 days as I'd estimate a 60 day close (at least) for an investment property in the name of an LLC. Do you need help finding banks that would do these loans?

[Brittany Minocchi]

Fannie/Freddie now require 12 months of seasoning for a conventional cash out refi in order to use the appraised value. For anything less than that with a traditional bank or credit union, you'd likely be looking at a portfolio product (the bank/CU will hold your loan and not sell it on the secondary market). However, many investors get around this with a debt service loan. There are lenders with no seasoning requirement as long as rehab has been done to support the new appraised value, up to 80% LTV (although 75% is much more common). You can also close these types of loans in an LLC if that's a concern. Hopefully that helps, feel free to reach out!

[Jake Baker]

@Raj Vardhan

I agree with @Evan Polaski regarding the 6-Month Seasoning Rule: Most traditional lenders require a 6-month holding period before you can do a cash-out refinance. This is standard practice, but there are exceptions. Some portfolio or private lenders may waive this rule, so it’s worth exploring.

While waiting for the 6 months, finalize renovations, stabilize the property with tenants, and ensure all paperwork (leases, receipts) is organized.

[Stacy Raskin]

There are DSCR lenders who have a three month seasoning period to use the new appraised value for the cash out refinance. Seasoning period is an industry term for the waiting period between your last transaction closing or funding and your next one closing or funding. You don't have to have the property rented to begin the refinance. The appraiser will provide a rent survey and a rental amount that will be used to structure the loan- more on that below.

Conventional loans underwritten by debt to income/DTI will require 12 months due to Fannie Mae / Freddie Mac guidelines. Fannie and Freddie are the government sponsored enterprises- conventional loans are underwritten to their guidelines.

More on DSCR loans: DSCR loans won't use your income to underwrite the loan. DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.

Here's a bit more in detail about how rates are calculated for DSCR loans:

1. Credit score- the higher the best. 760-780+ generally gets best pricing for investment property loans with most lenders. From there every 20 point increment affect pricing differently. So for example, a 761 credit score will be in the 760-779 credit category, then going down to 740-759 and so on.

2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.

3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.

4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. This criteria is for 1-4 and 5-8 unit programs.

I've included an example below to help illustrate this.

So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.

See example below:

DSCR < 1

Principal + Interest = $1,700

Taxes = $350, Insurance = $100, Association Dues = $50

Total PITIA = $2200

Rent = $2000

DSCR = Rent/PITIA = 2000/2200 = 0.91

Since the DSCR is 0.91, we know the expenses are greater than the income of the property.

DSCR >1

Principal + Interest = $1,500

Taxes = $250, Insurance = $100, Association Dues = $25

Total PITIA = $1875 Rent = $2300

DSCR = Rent/PITIA = 2300/1875 = 1.23

If a purchase, you also generally need reserves / savings to show you have 3-6 month payments of PITIA (principal / interest (mortgage payment), property taxes and insurance and HOA (if applicable). If a cash out refinance, many lenders will allow the cash out to satisfy the reserves requirement.

DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.

Happy to connect to discuss further. 

[Caitlin Davis]

Most lenders require 6 months seasoning to use the new, higher appraised value. I can get this done at 3 months. Message me if you'd like more information. 

[Simmy Ahluwalia]

@Raj Vardhan - we can Refinance your equity out as soon as the property is deemed "tenant ready".  Reach out and we can put some numbers together for you.

[Scott Wolf]

Quote from @Raj Vardhan:

Hello,

I am new to the entire refi process and looking for some direction here:

I purchased a foreclosed property 2 months ago using hard money and close to finishing the renovation. Since i put 20% down, i am hoping i can do a cash out refi (will have enough equity) so I can take out my initial investment. Upon calling a few banks, i am told that there is a minimum of 6 month holding period before I can do a cash out refi. Is this accurate? Can someone walk me through how some of the investors go about BRRR process? Any advise and also any lenders you recommend.

Thanks!

 My firm has a 3 month seasoning period that will get you up to 140% of your purchase price and rehab costs.  Feel free to reach out to see what we can offer.

[River Sava]

Hey Raj – Some lenders may offer options for seasoning periods under six months. However, it's important to keep in mind that shorter seasoning periods often come with different terms compared to a a cash out refi with 6 months + of seasoning. Happy to connect with you.