Refinancing House Paid for in Cash

Is it hard to refinance a house bought with cash to pull cash out using new after repaired value? Say 80% LTV. I may have the option in the near future to purchase cash or continue to use my HML. Any advice?

Cash out with no seasoning is still available for full doc up to 80%. Doesn’t matter if its cash out to get back your full purchase/rehab or to pay back a HML + additional cash out.

I went to one of my local REIA subgroup meetings the other night and the presenter was a mortgage broker. He told us that if you pay cash to purchase and rehab and then try to pull money out it is very hard to find lenders doing it. According to him you can still refinance if you used HML, however it is hard to get money in your pocket. One of the attendees mentioned that he was trying to do a cash out refi in a property that he purchased with a HELOC from another property. He was having a very hard time documenting that he was not trying to put money on his own pocket, he was only trying to pay back the HELOC.

This is what I heard in the session. I hope this helps.

What he should have said was “its difficult to find someone who knows HOW to do it”. Loans of this type are not difficult to do. Depending on the lender your LTV might be capped but other than that there should not be any issues.

Exactly! Well said.

Thank you, Christopher and Ben.

Tonight I went to a networking meeting of the local Real Estate Investment Club and I was talking with a private lender about that. He told me that he is also having difficulties pulling money out of some properties that were purchased with cash. According to him, lenders tend to feel more confortable to refinance deals where they are paying off another lender, not giving you cash.

But this is besides the point as you both stated that this is still possible. What I want to share is an idea that he gave me… If you are planning to use your own money to purchase and rehab and then try to get a cash out refi, he suggested I could have my wife open an LLC and then have that LLC lend me the money. He said this is legit as long as the note is recorded and that the terms are market terms and that I actually pay the mortgage on the note. He said that this could be a way around the difficulties in getting cash out refi. What do you guys think about this? It sounded fishy…

Coach my clients on this all the time. Its no different than using private or hard money; or even seller financing. But for family or business partners you’ll probably want to disclose the affiliation so the lender can factor that into their decision making. I’d recommend using someone with no family or business affiliation.

I still say use a broker to just get your cash back after using your own resources. There’s nothing to it. Maybe I should come to your local rei club meeting for a presentation.

Hey Ben,

If you pay cash for a property, there are usually seasoning issues to cash out though, isn’t that correct? Is this different if you purchase a property with HML? Any seasoning issues to refi the hard money loans?

Also, if you do a refi to cash out, is the 80% LTV figured from the ARV or the purchase price? Big difference!

Scott :cool

As of right now there is no difference for cash out that is for paying off HML or for cashing out on a property paid for in cash.

Fannie Mae, who buys loans off of lenders in the secondary market, has no seasoning restrictions. This means that the value (ARV) can be used rather than the sales price.

Just because Fannie does not restrict this does not mean that a lender can’t put a guideline in place themselves. This is what we’ve seen with the majority do. Right now I can count on 1 hand how many offer no seasoning cash out refinancing.

I’m a little confused about something. Lets say you have a property worth $100k with no mortgage ( regardless of how you did it). Why is it so difficult to pull out $70k? How is this any different than getting a mortgage & HELOC totaling a LTV of 70%??? If the equity is in the property, what’s the big deal?

It’s not difficult to pull the cash out if you can qualify for a full doc conforming refinancing.

Not sure I understand the 2nd part of your question.

I was using an example. It was basically just one question. What does a full doc loan require? Can you use both rental & emplyment income on a full doc?

Full doc requires 2 year history of employment with disclosure of pay stubs and W2s. Tax returns if self employed. For properties owned less than 12 months you can use 75% of the lease for rental income. Schedule E of the most recent tax return is used for properties owned over 12 months.

Full doc also requires verification of asset; a minimum of 6 months principle/interest/taxes/insurance seasoned 60 day.

Score required dependent upon all those other factors. Would say 660+ should work.

Great explanation. Thanx. I appreciate it.