Most lenders will restrict the number of properties an investor can finance to a total of four properties. This restriction was recently loosened to allow for up to ten financed properties. There are unique restrictions regarding credit score, Loan to Value (or LTV)and reserve requirements that make getting them funded very difficult. Here are a couple of bullet point guidelines you’ll need to be aware of:
- No foreclosures in the preceding 7 years
- No late mortgage payments within the last 12 months
- 6 months of mortgage payments in need to be in reserves for each other second home or investment property (cash out from a proposed refinance doesn’t count)
If you can make it past these hurdles, the next round of problems lie in the LTV and credit score restrictions outlined here:
If you have purchased the property within the past six months (measured from the date on which the property was purchased to the application date of the new mortgage loan) are eligible for a cash-out refinance if all of the following requirements are met:
- The original purchase transaction was an arms-length transaction.
- The original purchase transaction is documented by a HUD-1 Settlement Statement, which confirms that no mortgage financing was used to obtain the subject property. (A recorded trustee's deed [or similar alternative] confirming the amount paid by the grantee to trustee may be substituted for a HUD-1 if a HUD-1 was not provided to the purchaser at time of sale.)
- The preliminary title search or report must confirm that there are no existing liens on the subject property.
- The sources of funds for the purchase transaction are documented (such as bank statements, personal loan documents, or a HELOC on another property).
- If the source of funds used to acquire the property was an unsecured loan or a loan secured by an asset other than the subject property (such as a HELOC secured by another property), the HUD-1 for the refinance transaction must reflect that all cash-out proceeds be used to pay down, if applicable, the loan (unsecured or secured by an asset other than the subject property) used to purchase the property. Any payments on the balance remaining from the original loan must be included in the debt-to-income ratio calculation for the refinance transaction.
- Funds received as gifts and used to purchase the property may not be reimbursed with proceeds of the new mortgage loan.
- The new loan amount can be no more than the actual documented amount of the borrower's initial investment in purchasing the property plus the financing of closing costs, prepaid fees, and points on the new mortgage loan (subject to the maximum LTV/CLTV/HCLTV ratios for the transaction).
- All other cash-out refinance eligibility requirements are met and cash-out pricing is applied.
Lastly, expect everything about the loan file to be fully inspected and documented in underwriting (a.k.a. chewed up and spit out). Because these are rare loans, often times they are treated with suspicion and thoroughly worked over before given the all clear.
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