Glossary
Refi (refinance)
A refi (refinance) replaces your current loan with a new one. Investors refi to pull cash out, move from a short-term loan to a long-term one, or lower the payment.
In a BRRRR, the refi is the step that gets your cash back. You buy and rehab with cash or a hard money loan, rent the house, then refinance into a long-term rental loan based on the new value.
Types of refi
- [Cash-out refi](/glossary/cash-out-refi): the new loan is bigger than the old one and you take the difference.
- [Rate and term refi](/glossary/rate-term): pays off the old loan and costs, with little or no cash to you.
- [Delayed financing](/glossary/delayed-financing): a refi soon after an all-cash purchase.
How it works
The lender caps the new loan at a share of the value (LTV), and DSCR lenders also check that rent covers the payment. The new loan pays off the old loan and closing costs. Whatever is left goes to you.
- Appraised value after rehab
- $200,000
- Max LTV (illustrative)
- 75%
- New loan
- $150,000
- Pay off hard money loan
- $120,000
- Refi closing costs
- $5,000
LTV limits, costs and terms vary by lender.
What to watch
- [Seasoning](/glossary/seasoning). Some lenders will not use the new value until you have owned the house for a while.
- Appraisal risk. A low appraisal shrinks the loan and leaves more cash in the deal.
- Rent coverage. A DSCR loan can be smaller than the LTV limit if rent does not cover the payment.
The BRRRR calculator compares refi options by month, and the seasoning rules guide explains the timing.
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