Unseasoned Cash Out on Your New Property
Seasoning Matters to More Than Your Steak Probably the most popular request I got here at Lassiter Mortgage Group in October 2006 was from investors looking to pull cash out of an investment property that they have owned less than 12 months. This is typically what we refer to as an "unseasoned cash out refi".On unseasoned cash out refis there are two ways we can approach the loan: 1) we can ask for a loan up to a certain percentage, say 80%, of the current (i.e. new) value of the property or 2) we can ask for a loan in the amount of the original purchase price plus documented improvements. The most popular request is always for 80% of the new appraised value. Most of my clients buy properties that need work and the as-is appraisal is always much lower than the as-repaired value. Once the work is done, voila, you have a new appraised value. From the lender's perspective, there are many issues associated with unseasoned cash out refis against the new appraised value but the main one is that it is the riskiest loan available. Even more risky than 100% acquisition financing. There are lenders out there that do these loans but they are usually niche lenders that are really subprime lenders. They are willing to do some of the risky stuff because they charge you higher rates and fees to mitigate the risk. In September, I had two lenders call to say they had a great new program for unseasoned cash out refis against new appraised value for investors. I got very excited and immediately sent them three loans. We closed two of them and the third was finally denied because the borrower had employment gaps that the lender was uncomfortable with. Almost as soon as we closed the last one, I got calls from both the lenders. One said that they were discontinuing the program (that was quick!) and the other said that they are now requiring a minimum of three month's seasoning to do the cash out for investors. He said there were too many instances of "flipping". Well, duh, is my response. What did they expect? That's the bad news. The good news is that I have a few more lenders that have announced unseasoned cash out refinance programs this month so we still have an outlet for them. If you have a property that you'd like to get cash out on, give us a call or email me the details and I'll get you a rate quote. In the meantime, here are some things to consider with regard to cash out refinances on your investment properties: 1. DO NOT list your property on the MLS and then try to do a cash out refi. There are very few lenders that will do the deal and even fewer who will allow cash out on a recently listed MLS property. Plus you will have a prepay penalty about 100% of the time. 2. Don't expect an inflated appraisal to fly. Lenders will order a 2nd appraisal on every unseasoned cash out deal. They will either cut the value or reject the deal altogether if they smell anything fishy appraisal-wise. 3. Make sure your property is occupied. Vacant properties are difficult to refinance period. 4. If the new loan amount with the cash out is going to cause negative rents then make sure your income can absorb the hit so your debt-to-income ratio stays below 50%. I hope this has shed some light on the issue of unseasoned cash out refinances! If you feel like this has been informative then consider signing up to learn more about my soon to be released book, "Mortgage Secrets for Real Estate Investors - How to Beat Lenders at Their Own Game and Increase Your Profit On Every Deal". Visit MortgageSecretsBook.com to learn more!
© 2006 Susan Lassiter-Lyons
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