cash out refi when BRRRR-ing

[Justin A.]

Hi BP!

I had some questions regarding cash out refi portion of the BRRRR strategy. What are the main criterias that lenders look for when you go to apply for the cash out refi? 2 year tax returns, seasoning period, certain amount of income to get full value, etc...

Also, what can get you denied?

I feel like this portion isnt talked about much. Id

highly appreciate any feedback on the matter from a lender or someone that actively brrrrrs. Thank You

[Andrew Postell]

@Justin A. I think it might be good to explain a couple of differences in loan. Because in theory you should be able to qualify off your personal profile....or the LLC income. Meaning, one loan will qualify you one way and a different loan will do it the other.

Generally speaking there are 2 main types of loans for investors: “Conventional” and “Portfolio”

Conventional - I'll define these as loans that come from Fannie Mae and Freddie Mac (if you recognize those names). These loans are all 30 year fixed rate loans. They have the lowest rates we can find and since they are 30 year fixed...they allow us to cash flow better...which helps us qualify for other loans later. The draw back to these loans is that they are more paperwork heavy than the other "portfolio" types of loans....but if you have ever received a loan on your primary home, it's likely that you will go through the same type of paperwork here with conventional lending. These loans use your personal information to qualify. Fannie/Freddie money = Fannie/Freddie rules. NOT the bank's own money.

Portfolio - I'll define these loans as loans that come from the bank's own "portfolio" of money. Sometimes referred to as "commercial" loans. These loans are a lot more flexible than "conventional" loans. Bank's money = Bank's rules. If they like you, then maybe they will lend to you. But since there is a limit to how much money the bank has access to....their rate will be higher...and usually a shorter term. The most common portfolio style loan in Texas is a 20 year adjustable rate loan. These loans are easier to get but the terms are different.

Fannie/Freddie types of loans will be available everywhere and those rules might change SLIGHTLY between lenders. Portfolio loans can run the gambit. Since each lender controls it’s own money you will have to call around to ALL the banks to learn about all the programs. A mortgage broker will help with this some…but even the best mortgage brokers don’t have access to ALL portfolio loans out there.

*WHEW*  I know that was a lot but if you can find a lender that can offer, or at least speak to, both loan types that will tell you which loan is better for you.   Hope all this helps!