Our client, a real estate investor and entrepreneur, owned at least a dozen rental properties throughout South Florida. Throughout the years, we helped her secure mortgage financing for her various properties to help grow her rental portfolio.
She also came to us for help with her own primary residence in Miami. In order to make improvements to her home, she had taken out a $665,000 bridge loan. With the renovations complete, she wanted to exit the expensive bridge loan through a cashout refinance.
The good news was that her home greatly appreciated in value due to the renovations.
However, she did not qualify for traditional refinancing. Her income came from her rental properties and was structured across multiple entities for tax optimization. In other words, her tax returns showed low income by design.
Her short-term bridge loan was about to mature. She did not want to refinance into another bridge loan with a high interest rate.
Because our client’s tax returns did not show adequate income, we helped her apply to a non-QM lender for a no-ratio cashout refinance.
A no-ratio loan does not take into consideration the applicant’s debt-to-income ratio (DTI) (hence why it’s called “no-ratio”). The lender does not require any employment or income documentation, and DTI is not a factor at all.
Instead, the lender looks at 3 other requirements, which our client met.
First, for cashout refinances, in order to ensure the borrower has enough “skin in the game,” no-ratio mortgage lenders typically allow no more than 60% to 75% LTV. Our client was willing to accept 60% LTV to demonstrate her commitment and financial capability.
Second, no-ratio lenders require a minimum credit score of 660 or 680. Our client’s credit score cleared that hurdle and she had a clean history of mortgage payments on her rental properties.
Third, as a tradeoff for not having to document income, no-ratio lenders require enough post-closing reserves to make at least 6 to 12 months of mortgage payments. Our client satisfied this metric, as the lender allowed the cashout proceeds to be used as reserves.
As a seasoned real estate investor, her renovation efforts for her own home paid off. Her home appraised nicely at $1.84 million, which provided her a new loan amount at 60% LTV of $1,104,000.
After paying off her bridge lender and paying closing costs, she netted approximately $350,000 in cashout proceeds.
She also achieved her goal of reducing her monthly mortgage payments. Her no-ratio interest rate is lower than her bridge loan rate, and the term is more favorable at 30 years with no prepayment penalty.
For real estate investors who structure income across multiple entities and strategically optimize tax returns, no-ratio financing offers a path to maximum cash-out that traditional banks cannot provide.
DAK Mortgage is a licensed mortgage broker that can navigate you through the process of finding the right loan for your needs.
