All Forum Posts by: Frank Thomas

Hey @Frank Thomas

Congrats on your first BRRRR!!

You are about to learn the hard way (if you had not posted in here), that you are making a mistake with your strategy!

The REFINANCE part of the BRRRR strategy is broken with changes that Fannie/Freddie made to their cash out refi policies end of last year. To do a cash out refinance now with conventional financing, you have to wait until the loan being paid off is 12 months old!  You may not want your heloc tapped that long as the rate is generally higher on a heloc than it is on fixed mortgage rates. 

At this loan balance, good news is you do have options with DSCR loans. For loan balances under $200k, you are better off going DSCR with a 5 year prepayment penalty and paying 2 total points on the loan (1 point is 1% of the loan size). With middle 700 credit scores you can push your rate into the mid 6s today. When your rehab is done, hopefully those rates are lower!

As someone else stated, once you own a property in SC your property taxes will be about triple that of an owner occupied person! Double check so you are budgeting correctly.

Last, I would generally NOT recommend you use your Heloc for your repairs. This means you have to do a "Cash Out" refinance once your rehab is done vs a "Rate & Term Refinance".  As stated above, this limits your conventional loan options, and means your rate will be higher with either a Conventional Loan or DSCR loan once you do the refi!  (We do not know if conventional rates or DSCR rates will be better for you once your rehab is completed, so best to protect both options). 

Cash out refinances have a longer seasoning period for most lenders as well!  I do work with some lenders that have no seasoning, or 3 month seasoning options in the DSCR space. There is no best lender, only the best lender for your situation!

I would do your purchase & rehab costs in a hard money loan unless you totally plan to repay your heloc from your income and do not plan on doing a refinance later. If planning a refi, be strategic and do a Hard Money Fix and Flip loan and finance in your repairs. Also, see if you can pad your estimate with some "contingency reserves" as this way you can come do your refi only as rate/term and do not need money in your pocket at all with the rehab! Just draw out any unused funds from your hard money loan before ordering the payoff. 

Benefits of Rate/Term refi:  No seasoning with any lenders to use the full new appraised value, no seasoning of the underlying first mortgage that is getting paid off, better rates vs a cash out refinance!

Let me know if you have any questions!   Also, when picking a lender, make sure you pick one that is very familiar with BRRRR strategies, has access to hundreds of lenders to shop the best Hard Money and Refinance partners for you, and that can give you advise on the front end.  

I know a guy and can connect you to them! :)

Plan to put down at least 20%. You'll see rate improvements at 25% and 30% down for most loan products. After 30% down, the improvements become marginal. Also, you'll want to run a few different scenarios on this given the relatively small loan size.