Glossary
Cash-out refinance
A cash-out refinance replaces your current loan with a larger one and pays you the difference in cash, after closing costs. Investors use it to pull their money back out of a rehabbed property.
In a BRRRR, the cash-out refi is the step that turns a rehab into a repeatable system. The new loan pays off the short-term lender and returns some or all of your cash.
How the loan is sized
- Value. The lender caps the loan at a percent of the appraised value, its LTV limit. 75% is common for a 1-unit investment property, but it varies by lender.
- Rent. A DSCR lender also caps the loan so rent covers the full payment by its minimum DSCR.
- Seasoning. Early in ownership, some programs use the lower of the appraisal or your cost.
The new loan is the smallest of those limits.
- Appraised value
- $280,000
- New loan at 75% LTV
- $210,000
- Pay off hard money
- -$180,000
- Refi closing costs
- -$6,000
Cash to you at closing$24,000
Illustrative terms. Rates, LTV limits and eligibility vary by lender.
What to watch
- Seasoning. Fannie Mae cash-out rules generally require 6 months on title, and the first lien being paid off must be 12 months old. DSCR lenders vary. See BRRRR refinance seasoning rules.
- Cash-out vs rate and term. If you only need to pay off the old loan, a rate and term refi may allow a higher LTV.
- Bought with cash? Delayed financing can return cash soon after purchase, usually capped at what you paid plus documented costs.
- Payment. A bigger loan means a bigger payment. Check cash flow at the new number.
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