Cash-out refi Texas using BRRRR

[David Lewis]

Hey everybody! I'm using the BRRRR method in Texas, however, I am running into some challenges finding a lender who will do a cash-out refi on the properties I recently purchased. Do y'all have any pointers on finding a lender who offers this type of loan product? I really need to pull my cash out of these deals in order to keep investing. Any information is greatly appreciated.

Thank you!

[Matt Williams]

@David Lewis 
Yeah this is a tough one that a lot of people run in to on this strategy. I’m curious if you’re running in to this from a paradigm perspective, or a result of the current impact of COVID-19 on the mortgage industry.  If it’s the latter, there’s just not going to be much you can do about that until banks and mortgage companies loosen their already tightening underwriting criteria.

However, if this is because of some standard element of your business that you’re frequently going to run in to, and it has nothing to do with COVID-19, then I have a few thoughts.

First off, one of the main reasons that I have people tell me that they don't qualify for the mortgage right away after the rehab has been done, is because most banks/lenders are hitting the borrower with the full PITI payment, but not crediting the rental income to offset their debt-to-income ratios. That is because most banks/lenders require to see that you have received that income from as low as 6-months to as high as 24-months (12-months is what is most common) before they will use that rental income to offset DTI. That means, that many people need to stick with their original temporary financing until they meet the qualifications from an income standpoint. (For the record, that is never an indictment on your qualifications as a borrower. You probably have sterling credit and make great money, but even still, many people run in to this issue.)

Sometimes investors have trouble refinancing because they banks/lenders due to LTV. What I mean is, many people buy the property pretty cheap, make significant improvements to it, and now want to do their cash-out refi based on 75% LTV of the new value. The problem is that some banks/lenders will require more "seasoning of title" before they will go off the new appraised value. Again, what's the solution? Same answer.... keep your temporary financing for a longer period of time until you can qualify for the mortgage.

These are the two most common reasons I see people not getting their long-term financing in place at the LTV they desire. If your situation falls under a different set of circumstances, I'd love to hear it and offer my thoughts on it.

This really could boil down to the impact COVID-19 is having on the mortgage industry. I keep telling folks, Coronavirus is going to impact new mortgages for a while, and it’s going to sting a bit. 

Hope this helps!