Is the 75 percent off what I spent or off the appraisal?

Question

Trying to read a refinance step correctly before I go further with any of this, and I think I've been mixing up two different numbers.

What I read was a version of the rule where you buy at 70 percent of ARV minus rehab, and then the refinance gives you all your cash back. Fine. But then the same page said the cash-out is 75 percent LTV, and I can't tell what the V is. Is it 75 percent of the appraised value after the work, or 75 percent of what I actually put into the house? Those are very different loans on a house that appraises well above cost.

Second thing I don't have a handle on: seasoning. One lender's sheet says six months from acquisition, another says twelve, and a third mentions something about using cost basis if you refinance quickly instead of appraised value. Are those three different products or three ways of describing the same one?

And since I'd rather know the fees before I'm inside a transaction, what does the refinance leg cost by itself? Appraisal, title, origination, whatever else gets added. I've seen 2 to 3 percent thrown around with no breakdown behind it.

renee_dubois · Answer

The V is the appraised value after the rehab. ARV just means after repair value, which is what an appraiser thinks the finished house is worth. So on a house that appraises at 200k, a 75 percent cash-out is a 150k loan regardless of whether you spent 130k or 170k getting there. That gap between cost and appraisal is the entire engine.

The cost-basis one you saw is a different product. Some lenders will refinance early using your documented purchase plus rehab receipts instead of a new appraised value, which helps if you're in a hurry and hurts if the house appraised way up. Seasoning periods genuinely differ by lender, so ask each one in writing.

On fees, on a 150k loan I'd budget an appraisal around 600 to 800, title and settlement 1,200 to 2,000 depending on your state, one point of origination at 1,500, plus prepaids. Four to five thousand is a normal number.

laurenkim53 · Answer

Add one thing to cairn's answer that bit me in the markets I look at: minimum loan amounts. Plenty of DSCR lenders won't write under 100k, some won't go under 75k. On a 120k ARV house, 75 percent is 90k and you're already scraping the floor, and the 600 dollar appraisal is a much bigger share of a small loan. The percentages work the same at every price point, the fixed costs don't.

Is the 75 percent off what I spent or off the appraisal?

2 replies