Refinancing Tips for “Cash” Investors in Phoenix

We are all aware that the Phoenix area real estate market has been inundated with distressed sale listings including both REO and short sale properties.  The decline in housing prices has brought back eager investors into the Valley.  With many properties either being sold at trustee auction or receiving multiple bids, it is advantageous for investors to present the most attractive offer.  And as we all know…..CASH IS KING!  Many Phoenix investors are purchasing properties with either cash or hard money loans to initially secure these properties.

But what happens next?  Investors that have secured a hard money loan are now typically saddled with a short-term loan holding an extremely high interest rate.  Alternatively, purchasers that facilitated these transactions utilizing their own funds, while initially giving them the upper hand, may not want all of their funds wrapped up in the property.  The most logical option for many of these investors is to refinance.  Please note that a mortgage placed on a property that is currently held free and clear is always considered a cash-out refinance. 

Given the ever changing requirements within the mortgage industry today, the following is an overview of some of the current guidelines to help these individuals:

Seasoning Requirements –

• Rate/Term – There are NO seasoning requirements for the borrower to be listed as the owner of record.
• Cash-Out – The borrower must be listed as the owner of record for a minimum of 6 months prior to the loan application date.  No title transfers are allowed during this period.

Qualifying Ratios –

• Loan-to Value – The LTV on the subject property must be less than or equal to 75 percent
• Debt-to-Income – The maximum DTI for investment properties is 50 percent

History of Rental Management –

• Borrower must have a 2 year history of managing rental properties evidenced by the most recent 2 years tax returns in order to use rental income for qualification factors.
• EXCEPTION: 
  • The 2 year history can be waived if the borrower qualifies for the mortgage with the full payment (PITI) of the subject property, excluding rental income. 
  • OR……
  • Rate/Term refinance has an LTV greater than or equal to 75 percent
  • Cash-Out refinance has an LTV greater than or equal to 70 percent           

We have closed an increasing number of these types of transactions over the last year.  The absence of seasoning requirements for rate/term refinances has saved borrowers a tremendous amount of money in high interest payments by allowing them to take advantage of current market rates.  Cash-out refinances has also allowed borrowers to liquidate the majority of their initial investment.  Either way, having the knowledge surrounding the current regulations will assist borrowers in making educated decisions on what is their best option moving forward.

We also have a resource if you’re an investor looking to sell your property and have concerns about seasoning, click here.