Hi all!
I have an investment property (3 bd 2 ba single family home with tenants paying $850/month) that I want to get some cash out of.
Property value $105,000
NO MORTGAGE ON THE PROPERTY
Cashout - $30,000
Credit is poor; haven’t checked it in some time.
Who is doing these loans? Any responses are greatly appreciated. Thanks.
Leonard
A house that is owned free and clear can still be refinanced. Doing so is called a cash-out refinance. In a traditional cash-out refinance, an existing mortgage is paid off with a larger mortgage, resulting in a lump sum of cash to the owner. If there is no mortgage on the property at present, the same basic loan structure and regulations would apply. One of the steps the lender has to take in this scenario, is to determine a tangible benefit in the homeowner pulling cash out of his home. The reason for refinancing – whether for home improvement, investment, tuition, or other purposes – must be documented for the loan file.
Hi Leonard,
The short answer to getting the cash as soon as possible is Hard Money Lenders. They focus more on the equity position of the property than the borrower. In your case, with a 28.5% LTV, getting the loan should be a breeze. Of course the challenge with HM loans is 3-5 points up-front and 9-12% interest, and often have balloon payments. It is designed to be short term financing.
Clearly the better route for a cash flowing rental property would be to use long term financing, such as a 30year, fixed rate mortgage. Being an investment property, you would need the be able to qualify for a Conventional Loan (Fannie or Freddie, FHA/ VA doesn’t work for investment properties).
With that being the case, Jenni is right and it would be treated as a cash-out refi and all conventional lending guidelines would apply. Not knowing your individual circumstances, I won’t attempt to go into everything, but I would like to touch on a few things…
Basically Income, Assets, Credit, and Collateral (the property) are going to be considered.
To start with, most lenders’s minimum loan amount is 50,000. So that’s actually the loan you would need to qualify for.
In your case, the biggest challenge seems to be credit. You would need a minimum 620 credit score, but depending on what exactly is making your credit “Poor”, there could be other challenges as well.
For instance, a BK, foreclosure, or short sale on your credit report could be subject to “seasoning requirements” (waiting periods), as well as, re-establishment of credit tradelines for at least 12 months preceeding application for the new loan.
Another challenge could be income. For qualification purposes, it’s not how much you make, it’s how much you report on your tax returns. Many investors are in the habit of itemizing deductions for un-reimbursed business expenses. This is a double edge sword. While it puts more cash in your pocket, it lowers your income for loan qualification purposes.
This is assuming that the way you derive your income and report it is even acceptable. For example, if you file as “self Employed”, you would need income reporting on at least 2 years worth of tax returns for it to even be considered. Same thing for commissioned employees. W2 income is the cleanest, but if it only represents a small portion of your overall income, you could run into DTI issues once all your liabilities are factored in.
There are alot of other things to consider, but I’ll stop there for now. The first step that I would recommend would be to sit down with a Conventional Mortgage Lender, licensed in your state and apply for a cash-out refi.
If you are able to qualify now, GREAT, run with it. If not, at least they can map out a game plan of action steps that you can take to get qualified and a realistic timeframe. This will give you more of a clear cut exit strategy in case you decide to go the Hard Money route.
I hope that helps. Let me know If I can assist you.
Regards,
JM
Get a friend to lend you 80% of the value of the property for about 30 days. Place a lien (mortgage or deed of trust) on the property. Then, when you refi, it’s not “cash out”, it’s paying off an existing mortgage. Offer him a few bucks for the help. You could also do this with a hard money loan, but the cost is prohibitive.