Help with refinancing...

The lender I work with does one-year interest only rehab loans. Thats cool. The problem comes at the end of the year if I don’t sell the property. They charge a huge ballon payment and then jack up the interest rate. This hasn’t been a problem. But here’s what I am thinking. What if I use these 80% ARV loans, refinance during the 1st year and keep the properties as a rentals. Wouldn’t that be the best way to get my foot in the door with rentals? Because after all, none of my own money would be in the deal. It seems to me that with this type of loan I could just buy a ton of rental properties. I would be buying these homes, fixing them, owning them and renting them out with other peoples money. I would like to start holding on to property as opposed to rehabbing and flipping.

For example, I am in the process of buying a fire-damaged REO this week (for hopefully $20,000). It appraised at $80k and I believe I could get $85k for it. It needs roughly $40k in repairs. So my loan is for $60k. When I refinance and the new loan pays off the 1st loan, how can I work the deal so I can refi without doing a downpayment and I can keep my monthly payments low? Also, how long does the refi process take. How long should I get the ball rolling before my one year is up?

Any help would be much appreciated! Thanks guys.

A little clarification–I had a similar post titled “What loan should I use for buying rentals” and it was very helpful, but I am just looking for a more detailed explanation of the refinance thing. Thanks.


The mortgage industry does not usually require a down payment on a refi. The reason that they don’t is that usually the owner has paid their downpayment when they bought the property. Usually the mortgage will only be for 75 to 80 percent of appraised value. If you can buy and repair cheaply enough, then you can end up with the house as rental property with no money down and possibly money in your pocket. When you refi, I would suggest that you get a 30 year amortized loan. Most mortgage companies will have no problem with “seasoning” if you have repaired the property.

There are a couple of caveats with this plan:

Most mortgage companies will not allow more than 75 percent of your rental income to be included to qualify for a loan. In other words, if the rent for your property is $800 per month, then they will allow $600 towards your debt service and taxes, insurance and maintenence to keep from having a negative impact on your “earned income”. (You need to have a 25 percent cash flow after everything has been taken out.) Some mortgage companies will not allow any of the rental income. You will need to shop around to find companies to work with you.

There seems to be a limit of about 5 rental properties that mortgage companies are comfortable with. After you have this many properties, it seems harder to get loans on more. This may just be my perception. Also, the mortgage companies that I have dealt with want a track record of making payments on time for at least 2 years when you are applying for a new loan.


Howdy Chris:

Another problem I came across is that the lenders wanted me to own the property 1 year before they would use the appraised value and what I paid for the property. Be sure to add overhead and profit into your hard costs as you may have to show how much you have in the property and only get 75% of that amount.

Most programs take 30 days until closing unless you can get everything done beforehand. Even some of the early things may need to be updated before closing

I like dealing with mortgage brokers that deal with several different lenders and several different programs.

All you really have to do is get a rate and term refinance. It’s easy…but you have to have documentation of the repairs. If you have the “subject to” appraisal (the one that says “subject to” certain repairs); a final inspection from the same appraiser (AKA Form 442 or the “as is” appraisal); then you could refinance with certain lenders using the appraisal value…thus…no downpayment…refinances normally don’t have any downpayment. I do these all the time in Texas.

Whats the issue with “seasoning” Does this mean I have to own the home over a year before a mortgage company will let me refi?


If your current lender calls this an interim loan or a construction loan, then you will probably not have a problem with seasoning. The problems occur when you get a good deal on a property, finance it with a conventional mortgage, and then try to refinance for cash out during the first year. There are some lenders that will do that anyway. Find a mortgage broker, explain the situation, and see what they can find for you.