Is the 75 percent on a BRRRR refinance based on cost or on the appraisal?

Question

Reading the refinance step correctly matters before any of this goes further, and two different numbers get mixed up constantly. The common version of the rule says buy at 70 percent of ARV minus rehab, and then the refinance gives all the cash back. Fine. But the same page will say the cash-out is 75 percent LTV, and it never says what the V is. Is it 75 percent of the appraised value after the work, or 75 percent of what was actually put into the house? Those are very different loans on a house that appraises well above cost. Seasoning is the second piece that rarely gets explained. One lender's sheet says six months from acquisition, another says twelve, and a third mentions 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 the fees are better known before anyone is inside a transaction, what does the refinance leg cost by itself? Appraisal, title, origination, whatever else gets added. The 2 to 3 percent figure gets thrown around with no breakdown behind it.

renee_dubois · Answer

The V is the appraised value after the rehab. ARV stands for after repair value, which is what an appraiser concludes 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 130k or 170k went into getting there. That gap between cost and appraisal is the entire engine. The cost-basis version you saw is a different product. Some lenders will refinance early using the documented purchase price plus rehab receipts instead of a new appraised value, which helps when speed matters and hurts when the house appraised well above cost. Seasoning periods genuinely differ by lender, so get each one's answer in writing. On fees, for a 150k loan 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

One addition to cairn's answer that catches people in lower priced markets: minimum loan amounts. Plenty of DSCR lenders will not write under 100k, and some will not go under 75k. On a 120k ARV house, 75 percent is 90k and you are already scraping the floor, and a 600 dollar appraisal is a much bigger share of a small loan. The percentages work the same at every price point, the fixed costs do not.

Is the 75 percent on a BRRRR refinance based on cost or on the appraisal?

2 replies