Know Your Cash Out Restrictions
By Paul Esajian on August 28, 2013
The most glaring change in mortgage loan origination and underwriting over the past five years has to do with the investment market. It seems like decades ago, but back in the height of the market, investors could purchase properties up to four units with no money down. Not only could they do this on a purchase, but they had access to pull cash out without any property seasoning. Those days are long over. In today’s market you need at least a 20% down payment and there are considerable cash out restrictions. However, before you plan to pull cash out, you need to know what you can and cannot do.
Investor programs are constantly changing cash out restrictions. What might have been allowed six months ago may not be today. As of today’s guidelines, if you want to pull cash out with a conventional lender, you need to let the property season at least six months. In addition, you may need to justify any increase in value by documenting repair work with receipts and pictures. You can always do a refinance before six months, but you would be subject to the purchase price and more cash out restrictions.
There may be a portfolio lender (non-Fannie Mae) that could have a program that can allow you to do this before six months, but the rates and guidelines would surely be unfavorable. If you are looking to recoup your rehab costs before one year, you may not be able to do it from your equity. Even if you are not currently looking to pull cash out, it is wise to stay on top of any changes your bank may make. You never know when this will apply to you.