How soon can you Refinance a Purchase?

[bizaro86]

Hello,

Some of my purchases have been priced low due to condition, and then I`ve repaired them and rented them out.

My question is regarding accessing some of this sweat equity. How long after a purchase until it would be possible to get a refi based on a new (higher) assessment?

Does it matter if the property is initially unencumbered, ie purchased with cash?

I`ve been considering using LOC funds to buy cash for a property I know I can add value to, repairing it, and then putting a mortgage on it to pay back the LOC money. Are there any lenders out there who would do a 80% LTV rental loan based on appraised value instead of price paid say 2-3 months after purchase?

Michael

 

[PeterKinchMortgageTeam]

QUOTE (bizaro86 @ Mar 2 2010, 05:25 PM) Hello,

Some of my purchases have been priced low due to condition, and then I`ve repaired them and rented them out.

My question is regarding accessing some of this sweat equity. How long after a purchase until it would be possible to get a refi based on a new (higher) assessment?

Does it matter if the property is initially unencumbered, ie purchased with cash?

I`ve been considering using LOC funds to buy cash for a property I know I can add value to, repairing it, and then putting a mortgage on it to pay back the LOC money. Are there any lenders out there who would do a 80% LTV rental loan based on appraised value instead of price paid say 2-3 months after purchase?

Michael

Hi Michael
Yes, there are lenders out there that would do 80% LTV based on the appraised value. For the most part, lenders aren`t concerned about how much you purchased the property for or when. If you have an appraisal to support the value, you should be good to go(OAC of course). My only concern with purchasing a property with your LOC and then put a mortgage on it after the fact is if a lender will not lend on this property for what ever reason, you have already purchased this property so the owing balance on your LOC cannot be cleared as there`s no new mortgage to pay it out. So I guess if worst case scenerio, you`re okay with leaving it on your LOC, it`s not a bad financing option.

Bonnie Deck
Peter Kinch Mortgage Team
866-988-8326 Ext.27

 

[RobMacdonald]

Hi Michael,

It`s really important to know your options before you purchase the property. Some lenders will require you own the property for a minimum of 12 months before you can refinance. Other lenders may be 6.

So it really depends on what banks you can qualify with to know your final options. In the past I`ve been able to qualify clients for the initial purchase using a LOC, and then when the mortgage is increased, it was done without having to register the mortgage again, thus saving on the legal costs.

 

[JimWhitelaw]

Hi Michael, I have experience doing this once with a property that we bought for well below the appraised value. In that case we were able to refinance a week after closing and pull most of our down payment back out. Our lender in that case was RBC. We looking into doing something similar on a property with a Scotia mortgage on it and they wanted a complete new loan application as well as a new appraisal.

My advice is to call your lender and ask them.

 

[bizaro86]

Thanks to all for replying.

Now I know it`s possible, I just have to make it happen!

Regards,

Michael

 

[RodBellamy]

On one of my better deals, I managed to purchase for cash hence no financing required. After reno and sweat equity I then had an bank appraisal and financed at the new value. The last one I had increased over 50K which was the amount of the downpayment required, hence I effectively financed the property with 0 down. If you are to continue with your strategy, see if you can access some cash to bypass the initial financing.

 

[GarthChapman]

Michael, I built a good mid-sized Alberta portfolio of rentals using a 2-stage financing model that fits into what you describe. The rules have changed over time but it is still possible if handled properly. Normally I purchased with private money or a LOC, completed renovations and then arranged for a mortgage based on the new ARV of the property. This allowed me to own 45 doors in 30 properties with under $300,000 of my own money, as I was capturing the equity I created by buying below market and then improving value further via the renovations.

I explain this process in detail at Barry McGuire`s Deal-Ready Documents Workshops currently (I think Barry is planning for another one in Calgary in April) and so have prepared some handout materials for this - which I can share with you. Just email me at [email protected]

Hope that helps,

 

[nkurjata]

I was recently looking at property in Dawson Creek, BC and RBC told us we could put 20% down, and they would in turn, after the purchase was complete, turn around and offer us a 90% LOC on the house. So long as there is equity there right away for whatever reason, I can`t see why there would be any problem refinancing it right away.

 

[fumbrunner]

As mentioned in the posts above, it depends on the financial institution.  I had a property with Concentra and they would not refinance within the first year.  I moved the mortgage and took the penalty.  I just finished a two-stage project with one of the big banks where I bought with 80% LTV, made repairs and refinanced 2 months later.

 

[Thomas Beyer]

QUOTE (bizaro86 @ Mar 2 2010, 05:25 PM) My question is regarding accessing some of this sweat equity. How long after a purchase until it would be possible to get a refi based on a new (higher) assessment?
6 months is usually the required "cooling off period" ... possibly a year with apartment buildings .. and this is how I started 10 years ago by buying older buildings .. upgrade them, increase rent .. re-appraise and re-finance, repeat ..

This still works today albeit to a lesser degree to higher prices of older assets although I just met a gentleman yesterday that bought a smaller asset in Edmonton for 45/door and sold for 65/door 2 months later ..

 

[RobMacdonald]

I`ve just recently completed 2 deals for a client that bought the property less than 30 days prior to refinance. The circumstances made sense. They had pressure from the seller to close due to the price they were getting. They had the home equity available, and used the proceeds to pay out.

The value did not increase alot, but it came in about $20K higher than the purchase price.

So it is possible, but most banks will look for 6 to 12 months.