All Forum Posts by: Alyssa Teepen

If you are using a conventional lender your DTI will be in play. If you use a commercial loan, your DTI won't affect your ability to refinance. Your biggest hurdle with this refinance is going to be the negative cashflow. If the property is worth 230k and you take 75% LTV the loan amount would be $172,500. This is great in terms of paying off your HELOC but not great for actually securing the refinance loan. This is because the larger loan amount will create even more negative cashflow. It is difficult to refinance a property with a rental loan that doesn't cashflow.

172.5k loan amount - 30Y fixed

4k in annual taxes & Insurance

8% Rate (higher LTV = higher rate)

Monthly PITI Payment = $1,599.07

Overall, this deal is not a winner. Typically you want your all in costs to be no more than 70% of your ARV. In this case with a 230k estimated ARV you wouldn't want to spend more than 161k between the acquisition, rehab, and holding costs. (even this is considered tight numbers) If you came to me for a rehab loan when you initially bought this property, we would have told you there is not enough profit in the project for us to lend on it. IF this was my property, I would sell the house and chalk it up as a learning experience.

Thank you for all of your advice! I really appreciate it!

0 Votes

Cincinnati, Ohio

Quote from @Matthew Crivelli:

@Alyssa Teepen

The title company would write you a check or wire the cash out (less the closing costs) into a bank account of your choosing. The loan amount would be 154k if the property is worth 220k and you refi 70% LTV, you are correct. Please note, based on the numbers provided you will not be cash flowing.

154k loan amount - 30Y fixed

4k in annual taxes & Insurance

7.75% Rate

Monthly PITI Payment = $1,436.60

Your estimated rental income is only 1k-1.4k per month. Just by looking at these numbers & the fact that you have a ton of money you owe to pay down a HELOC. I would sell this property and NOT keep it as a rental.

Thank you so much for your guidance. So the question becomes, because these are very low end estimations (I like to do worst case scenario numbers to ensure I don't over leverage) if the house would appraise for 230 and we could get 75% LTV would that make a big enough difference to make it work? The reason we are hesitant to sell is with closing costs, realtor fees, and capital gains tax we will be about net 0 after all is said and done, whereas if we can hold onto it and sell in the future we could avoid the hefty tax while also paying down the loan using the renter.

Also, does debt to income come into play with the HELOC, meaning will a lender look at that loan and say no way even though I have great credit and the Heloc will be paid down once the deal goes through.

1 Vote

Cincinnati, Ohio

I recently took out a HELOC on my primary mortgage and have used this to purchase a home for 32,000 with rehab cost of 150,000 and ARV of 220k. The goal, initially, was to sell this property, however we would really like to keep it to rent at this point. We are about 1 month away from completion and I need to finalize our next steps.

The problem is... I cannot wrap my head around the cash out refinance portion of this situation despite my tireless efforts. I have gone through scenario after scenario and feel like I am not getting accurate numbers to go off of.

Please help me, in simple terms, understand the process. I know we will need a renter prior to doing a cash out refinance and we will have to determine the seasoning period of our lender, but going off of 6 months at this point for simplicity. Rents for single family home, 3 bed 1.5 bath in this area run around 1,00-1,400/month. Property tax around 200/month and Insurance 130/month.

Based on a Heloc at 182,000 when all is done my plan would be to do a cash out refi to pay this down/off and use remaining cash flow + W2 income to pay the rest off. Working off of the scenario that we would get 70% of our appraised value of 220K, our cash out would be 154,000. Correct? Would that just be a check or deposit in the bank that we can then use to pay down our Heloc? Then what would the loan amount on the home be at that point? 154,000 I take it? The remaining 66,000 remains as equity in the home. When then can this be accessed in the future?

Thank you for any help!

1 Vote

Cincinnati, Ohio

All Forum Posts by: Alyssa Teepen

Alyssa Teepen has started 1 posts and replied 3 times.

Post: Cash out refinance clarification

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