Fannie Mae: New Cash-Out Cutbacks - What BRRRR Method Investors Need to Know! (2024)

On February 1^st, 2023, Fannie Mae released Announcement SEL-2023-01 – an update to rules for “conventional financing” of real estate. The most notable change for investors is the new eligibility requirements put in place for cash-out refinances. BRRRR Method investors are greatly impacted by this change. Bottom line, cashing out quickly with conventional financing just became a lot harder. But don’t panic – private lender options remain as reliable as ever for quick and easy finances to keep your BRRRR strategy projects right on track.

New Cash-Out Refinance Eligibility

Effective April 1^st, 2023, any first-position mortgage being paid off by way of a cash-out refinance must be at least 12 months seasoned for conventional financing. This means that you have to wait at least a whole year to refinance and recoup your investment. As BRRRR method experts know, speed is the name of the game in the BRRRR strategy. The key to success with the BRRRR method is the speed at which you are able to execute. Being able to rehab, rent and refinance as quick as possible so that you can Repeat and buy your next investment property allows you to keep building wealth and achieving financial freedom. What is the seasoning requirement for a cash-out refinance is the question on top of mind for many BRRRR investors. 12-month seasoning requirements effectively make the BRRRR method unworkable with conventional financing.

DSCR Loans – The Best Refi Option for the BRRRR Method

DSCR Loans are a great option for BRRRR investors because they are offered by private lenders – and are not at the mercy of cookie-cutter restrictions prescribed by agencies such Fannie Mae. A lender offering DSCR loans has far more flexibility to tailor loan programs to investor strategies – such as BRRRR investors.

Many DSCR lenders offer refinances within six months of purchase. Typically, they allow cash-out refinances of up to 100% of the purchase price and rehab costs and up to a 75% LTV or After-Repair Value. Even better, while conventional financing has a lot of hoops to jump through – include income verification, tax returns and strict DTI requirements – DSCR lenders require none of that! While rates might be a little bit higher, the returns of doing two BRRRRs in 12 months vs. only one with conventional financings are likely much much higher using DSCR loans to refinance.

The Easy Street Difference – Best DSCR Loans for the BRRRR Method!

Easy Street Capital’s DSCR lending program, EasyRent, is one of the best DSCR lending programs available to real estate investors, known for low rates, quick and reliable service and flexibility. But for BRRRR method investors, EasyRent goes above and beyond. Our industry-leading options are specifically designed to maximize success with the BRRRR Strategy.

Seasoning Period:

BRRRR investors often want to know – are there refinance options with no seasoning requirements? As described in the prior section, most DSCR lenders will offer cash-out refinances at six months seasoning. Easy Street Capital, however, takes it a step further and allows cash-out refinances in as little as three months! And yes, that includes 100% of your investment returned and up to 70% loan-to-value (this bumps to 75% at six months or more!).

Why is this so important for BRRRR method investors? Being able to recoup 100% of your investment in three months mean you can use the same money to buy four properties per year (versus two properties a year with a typical DSCR lender and one a year with a conventional lender under the new rules).

Over a long-time frame, this can be the difference between achieving true wealth and financial freedom through real estate and…not. The math for BRRRR investors over 10 years?

• Conventional Lenders (1 Property per year * 10 = 10 rental properties in ten years)
• Typical DSCR Lenders (2 Properties per year * 10 = 20 rental properties in ten years)
• Easy Street Capital’s EasyRent (4 Properties per year * 10 = 40 rental properties in ten years!)

Minimum Loan Amount:

A lot of real estate investors can be left frustrated with declines from DSCR lenders unwilling to lend to them because of high minimum loan amounts such as $100,000 or more! These lenders often don’t want to make these loans because they make less money and don’t want to deal with the hassle. Easy Street Capital puts BRRRR borrowers first – and will do loans down to $75,000 – valuing long-term relationships and newer investors just getting started on their journey.

No Lease Required – “AirBnBRRRR Friendly!”:

Pretty much all DSCR lenders will require a long-term 12-month lease to do a refinance – the “rent” R in BRRRR. However, Easy Street also specializes in lending on short term rentals – and understands the data that says investors often make twice as much renting out their property as a short-term rental or medium-term rental instead of a traditional lease. Instead of forcing BRRRR investors to sacrifice cash flow by renting to long-term tenants, Easy Street Capital will do a DSCR refinance loan with no lease required. Renting as an STR or MTR is A-OK!

Start Investing Today!

Do you have a BRRRR method refinance on the horizon? Has Fannie Mae’s recent announcement thrown a wrench in your current project plan? No need to worry, Easy Street Capital is here to be your BRRRR lending partner for an easy refinance process! Fill out our easy five-minute form now and a BRRRR lending specialist from Easy Street will be in touch soon to answer any questions and get you started!

5-MINUTE LOAN APPLICATION

Bonus: If you currently have a bridge loan with Easy Street Capital under our EasyFix program and are considering a BRRRR refinance upon rehab completion, check out our February 2023 promotion offering $500 (50%) off processing fees for the DSCR refinance loan!

Looking to Learn More about the BRRRR strategy? Check out these other articles on the BRRRR method by Easy Street Capital’s expert team!

New to The BRRRR Method? – 7 Critical Tips Before You Start

BRRRR Spotlight: A Lending Partner All the Way Through

5 Misconceptions About the BRRRR Method of Real Estate Investing

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