Questions to Ask a Lender About a BRRRR Refinance
For real estate investors lining up the refinance step of a BRRRR deal with a bank, a credit union or a DSCR lender, whether you are still shopping for the house or the rehab is already done. The questions run in the order the calls do: a first screening call, then value and cash out, how you and your LLC qualify, the rent and the coverage ratio, rate and costs, and the appraisal through closing.
The questions
Each question, and why to ask it
First call
Do you make cash-out refinance loans on rental property, and do you keep those loans or sell them?
Why ask it
Open with this, because a lender that only refinances homes people live in can end the call in a minute. A bank that keeps its loans sets its own rules and has room to make an exception, while one that sells its loans has to follow the buyer's guidelines. If the answer is no, ask which local bank or credit union does this kind of loan.
How long do I have to own the property before you will lend against its new appraised value?
Why ask it
This is the seasoning period, and it sorts lenders faster than any other answer. Ask which date starts the clock (the purchase closing or the day the deed was recorded) and which date stops it (your application or the new loan's closing). If title has moved between your own name and an LLC since you bought, check whether that transfer starts the count again.
If I refinance before the seasoning period is up, do you lend on my purchase price, on purchase plus rehab costs, or not at all?
Why ask it
Some lenders will refinance early but only against what you have put into the property, which returns far less cash than a loan on the new value. If that is the offer, ask which rehab costs count and what proof they want for them. Then weigh the interest you would pay while waiting against the cash you would leave in by closing early.
What is your maximum loan to value on a cash-out refinance of a rental, and is it different for two to four units?
Why ask it
The percentage sets how much of your money comes back, so run it on a cautious value before you buy: 75 percent of a 200,000 dollar appraisal is a 150,000 dollar loan before costs. Ask whether the cap drops for a lower credit score, a small loan or a vacant unit. Five percentage points of loan to value between two lenders can matter more to this deal than a slightly better rate.
Does it matter to you whether I bought with cash, a hard money loan or private money?
Why ask it
Paying off a purchase loan and pulling cash out of a house bought with cash are often handled under different rules. Some programs have a faster route for recovering a cash purchase, usually called delayed financing, with conditions of its own. Keep the settlement statement and the bank records showing where the purchase money came from, since a lender is likely to want both.
Is there a minimum loan amount or a minimum property value you will work with?
Why ask it
Inexpensive houses are where the method looks best on paper, and they are also where many lenders have a floor. A national lender's no on a small loan is a reason to try a local bank or credit union, which may not set the floor as high.
Do you lend in the county where the property sits, and do I need to live or bank near you?
Why ask it
Community banks and credit unions often lend only inside a footprint or to members, and national rental lenders work from a list of states. A credit union may only need you to open an account, so find out what membership takes before you cross it off.
Would you also finance the purchase and the rehab, so that the refinance stays with one lender?
Why ask it
A few local banks will make the purchase and rehab loan and then convert it to long-term debt once the work is done. That can remove a second set of closing costs and the worry that nobody will refinance you. Conversion comes with conditions (a final inspection, a signed lease, a new appraisal), so get this bank's list.
Can you review the deal before I buy and put the likely refinance terms in writing?
Why ask it
This is worth most before the purchase, when a no still costs you nothing. A letter of terms subject to appraisal is not a commitment, so ask how long it stays good and what would change it. Build your offer price on those terms and not on numbers borrowed from someone else's deal.
Value and cash out
Once the property is seasoned, is the loan sized on the full appraised value, with no cap tied to what I paid?
Why ask it
A few lenders that advertise short seasoning still limit the loan to a multiple of your cost, so listen for a plain yes. Have them state the rule for a property owned exactly as long as yours will be on the day you apply.
Is there a limit on the cash I can take out, in dollars or as a share of the loan?
Why ask it
A cash-out cap works separately from loan to value, and on a deal with a lot of equity it can be the tighter of the two. Ask whether the cap counts the payoff of your existing loan or only the money that reaches you. If it would bite on your numbers, ask whether it lifts at a lower loan to value.
If the new loan only pays off my rehab lender and the closing costs, do you price it as cash-out?
Why ask it
A refinance that only clears the purchase and rehab debt is sometimes treated as rate-and-term, which can come with a higher loan to value and a lower rate. Ask how much cash can reach you before the loan tips into the cash-out column. It can be worth trimming the loan amount a little to stay on the cheaper side of that line.
What records of the rehab do you want: the scope of work, invoices, permits, before and after photos?
Why ask it
Ask this before the rehab starts so you collect the paper as you go instead of rebuilding it afterward. Invoices with proof of payment support a cost-based loan, and a clear scope helps the appraiser see what changed behind the walls. Raise any work done without a permit now and ask how they treat it.
Will a large jump between my purchase price and the new value raise extra questions in underwriting?
Why ask it
A house bought at 90,000 dollars and appraised at 190,000 four months later is exactly what an underwriter stops on. Say up front how you bought it (off market, at auction, through a wholesaler's assignment) and ask what they will want to see. Hearing the list now beats a surprise condition in the week of closing.
Which property types do you turn away: condos, rural acreage, mixed use, five units or more?
Why ask it
Every lender has a list, and it is better to hear it before you make an offer on the odd property. Five units and up is usually commercial lending on different terms, so a lender who is right for a duplex may be no use for a six-unit building. Condition belongs in the same answer, since some want every unit finished and livable on the day of the appraisal.
Do you place any conditions on how I use the cash I take out?
Why ask it
Loans made for business purposes often come with a statement you sign about what the money is for, so ask to see the form and whether buying the next property fits it. If part of the money was going toward personal debt, say so, because that can change the type of loan.
Borrower and LLC
Can the loan close in the name of my LLC, and will you ask for a personal guarantee?
Why ask it
Loans meant to be sold to the big mortgage agencies are generally made to individuals, while portfolio, commercial and rental-income lenders commonly lend to an entity with you as guarantor. Ask what the guarantee covers and whether it is full or limited. If the loan and the title have to be in a different name than they are today, ask who prepares the deed and what that costs.
Which entity documents do you need, and does every member have to sign?
Why ask it
Expect to hear the articles, the operating agreement, a certificate of good standing and the tax ID letter, but get this lender's own list. Partners above a certain ownership share are often required to guarantee, so learn the threshold before you tell a partner they are only a passive investor. An LLC formed last week is fine with some lenders and a problem for others.
Will this loan appear on my personal credit report, or only under the LLC?
Why ask it
A loan made to an entity with your guarantee is sometimes left off your personal report, which changes how the next lender adds up your debts. Either way, keep the note and a record of the payments, because a later lender can ask you to list every mortgage you have signed for.
If I close in my own name, can I move the property into an LLC later without the loan being called due?
Why ask it
Get the answer in writing, because a loan officer's verbal comfort does not bind whoever services the loan later. Many mortgages let the lender call the loan when title transfers, and lenders differ on whether they enforce that for a move into your own company. Take this one to an attorney in your state as well before you rely on it.
Do you qualify me on my personal income and tax returns, or on the property's rent alone?
Why ask it
This is the fork between a full-documentation loan and a DSCR loan. An investor whose tax returns show little income after write-offs often fits the rent-based loan better, and one with steady wages and clean returns may be offered a lower rate the traditional way. Ask a lender that offers both to quote both.
What credit score do you need, and whose score counts when there are two of us?
Why ask it
Ask for the score that earns the best pricing as well as the minimum, since the gap between them can be a real step in rate. With two borrowers or guarantors, lenders differ on whether they take the lower score, the higher one or the main earner's. If yours sits near a cutoff, ask whether they can recheck it after you pay a balance down.
How many months of reserves do you want to see, and can the cash-out proceeds count toward them?
Why ask it
Reserves are usually counted in months of the full payment, and some lenders want them for every financed property you own, not only this one. Whether the money from this closing counts decides how much has to be sitting in the bank beforehand. Retirement accounts are often counted at a discount, so check which of yours qualify.
How many financed properties can I have before you stop lending to me, and is there a cap on my total borrowing with you?
Why ask it
The last R depends on this answer. Lenders count differently: some include your own home, some skip properties held in an LLC, and a bank that keeps its loans may watch total dollars lent to you instead of a number of doors. If you are close to the limit, ask what kind of lender investors move to after them.
Do you require landlord experience, and how would I show it?
Why ask it
A first-time investor should ask early, because some programs want you to have owned a rental, or at least a home, before they lend on rent alone. Proof is usually a schedule of real estate owned, backed by closing statements or tax returns. Where experience is missing, ask whether a lower loan to value or an experienced co-borrower closes the gap.
On an income-qualified loan, how do you count the rent and the mortgages on my other rentals?
Why ask it
Skip this with a rent-only lender. A bank that qualifies you on income will usually credit a share of each property's rent against its mortgage, and it may want a year of tax returns showing that rent. A rental you finished two months ago will not be on a return yet, so ask whether a lease is enough.
Rent and DSCR
Does the property have to be leased before closing, or will you refinance it vacant?
Why ask it
The answer decides whether the tenant or the loan comes first. There are lenders that will close on a vacant, finished house using the appraiser's market rent, often at a lower loan to value, and others that want a signed lease in the file. If the lease is required, start marketing the unit before the rehab ends.
What debt service coverage ratio do you require, and how exactly do you calculate it?
Why ask it
On a rent-based loan the ratio is usually the rent divided by the monthly payment, and the differences are all in what goes into that payment: taxes, insurance, association dues, flood coverage. Have them run it on your real figures while you are on the phone. A property that clears one lender's formula can miss another's by a few dollars of insurance.
Which rent figure goes into the coverage ratio: my lease, the appraiser's market rent, or the lower of the two?
Why ask it
Lower of the two is common, which means a lease above the appraiser's estimate may not help you. Ask whether proof of collected rent, such as two months of deposits, lets them use the higher figure. Where the appraiser's number rules, the rental comparables you hand over matter as much as the sales.
What are my options if the ratio lands just under your minimum?
Why ask it
The usual choices are a smaller loan, a higher rate, an interest-only payment or buying the rate down with points. Some lenders also have a program for ratios below one, at a price. Decide before the appraisal which of those you would take, because you will be asked in a hurry.
What does the lease need to look like: a minimum term, a deposit received, a tenant already moved in?
Why ask it
A lease signed last week with a relative reads differently to an underwriter than a twelve-month lease with the deposit already in the bank. Ask about month-to-month tenancies and housing vouchers too if either applies to you. Then write the lease to fit before the tenant signs it.
Do you count short-term or mid-term rental income, and what history do you need for it?
Why ask it
Only needed if the unit is furnished or rented by the night or the month. Policies range from a year of booking history to a third-party income projection to a flat no. Ask whether they would fall back to the long-term market rent, and check that the deal still covers at that figure.
Do you subtract vacancy, management or repairs from the rent before you test coverage?
Why ask it
A bank that underwrites the loan as commercial debt may shave the rent for vacancy and charge management and maintenance against it even when you do the work yourself. That is why its coverage figure can look worse than your spreadsheet. Request the worksheet itself so you can see every line.
Rate and costs
What rate would this deal carry today, and which details would move it up or down?
Why ask it
Take the answer as a range, not a quote, and write down the levers: loan to value, credit score, coverage ratio, loan size, property type. Then ask for the rate at a loan to value five percentage points lower. Sometimes leaving a little more money in the house buys a much better loan.
Is the rate fixed for the full term, or does the loan adjust or balloon after a set number of years?
Why ask it
Bank loans on rentals are often set up with a rate that resets or a balance that comes due after five or ten years, even though the payment is figured over a longer period. Ask what the rate resets to and whether renewal is automatic or a fresh approval. Several balloons falling in the same year is a risk to plan for now, while it is still one loan.
Over how many years does the loan amortize, and is an interest-only period available?
Why ask it
Get the payment for each option on the same loan amount, since twenty years against thirty changes both the cash flow and the coverage ratio. Where the loan begins interest-only, the balance does not fall in those years, and you need to know which payment they test coverage on.
How many points and lender fees are in that quote, and what would the rate be with no points?
Why ask it
On a refinance, points and fees usually come out of the proceeds, so each one is cash that does not return to you for the next purchase. Divide the cost of the points by the monthly saving to see how many months they take to pay for themselves. If you expect to sell or refinance sooner than that, the higher rate is the cheaper choice.
What prepayment penalty comes with this loan, and what would a shorter one or none do to the rate?
Why ask it
Rental-income loans commonly carry a penalty that steps down each year, and bank loans may have their own version. Match the penalty period to how long you really plan to hold, and ask whether a sale triggers it as well as a refinance. Check too whether you can pay down part of the balance each year without a charge.
Do you require an escrow account for taxes and insurance?
Why ask it
An escrow account raises the monthly payment figure and takes an opening deposit out of your proceeds at closing. Some investors would sooner pay the tax and insurance bills themselves, and some lenders charge for that choice or do not allow it. Check which tax figure they are using as well, since a reassessment after the rehab can change it.
Can you send a written estimate that ends with the cash I walk away with after the payoff and all costs?
Why ask it
Set the bottom line beside everything you have put into the deal (down payment, rehab, holding costs) to see what stays tied up in the house. Have every lender write the estimate at the same loan amount, or the figures cannot be compared.
When can I lock the rate, and how long does the lock hold?
Why ask it
Some lenders will not lock until the appraisal is back, and others lock at application. Count forward from today to the seasoning date plus the closing time, and make sure the lock covers all of it. Get the daily cost of an extension too, because a late appraisal is the likeliest reason you would need one.
Appraisal and closing
Who orders the appraisal, what does it cost, and how early before the seasoning date can it be done?
Why ask it
Some lenders will open the file and order the appraisal ahead of the seasoning date so that closing can follow right after it. That can take weeks off the time you pay interest on a rehab loan. Ask for the earliest date they will accept an application, and put it on your calendar.
May I give the appraiser a package with the rehab list, the costs and my own comparable sales?
Why ask it
Lenders have rules about contact with the appraiser, so ask how they want it delivered: handed over at the inspection or sent with the order. Facts are generally welcome where opinions about value are not. An appraiser who is never told about the new wiring and plumbing can only credit what shows.
Does the appraisal include a market rent schedule, and can the report move with me if I change lenders?
Why ask it
The rent schedule is the appraiser's estimate of market rent, and on a rent-based loan it may be the number that sizes your loan. Whether a second lender would accept a report this one ordered varies, so find out before you pay for it.
If the value comes in low, can I ask for a reconsideration, order a second appraisal, or wait and reapply?
Why ask it
Ask what a reconsideration needs: usually better comparable sales that closed before the appraisal date, with a short case for each. Then price the fallbacks, which are a smaller loan now or another month on the rehab loan while a new sale closes nearby. Have your own comparables ready before the appraiser visits, not after.
How long does a file like mine take from application to funding, and what tends to slow it?
Why ask it
Hold the answer against the maturity date on your purchase or rehab loan and the fee for extending it. Ask what you can send on the first day to shorten things: entity papers, the lease, the insurance binder, the payoff letter.
Is there anything left from the rehab that could hold up title, such as an open permit or an unpaid contractor?
Why ask it
A contractor's lien that was never released can surface in the title search, and a permit left open can turn up in a municipal search, often late in the file. A lien waiver collected with each contractor payment, and permits closed out before you apply, head off both.
What insurance has to be in place at closing: a landlord policy, loss of rents, flood?
Why ask it
The vacant or builder's risk policy from the rehab normally has to be replaced with a landlord policy before closing. Three details set the price: the coverage amount, the largest deductible they accept and whether rent loss coverage is required. Get the quote early, since the premium goes straight into the coverage ratio.
Once this one closes, how soon can I bring you the next property, and does anything get easier the second time?
Why ask it
This is the repeat in the method's name, and the answer shows whether you have found a loan or a lender for the next five. Listen for what carries over: your entity file, your financial statement, a faster approval. If they sound interested, ask whether they offer a line of credit for the next purchase.
How to line up the refinance on a BRRRR deal
Practical guidance for the conversation itself
Before you pick up the phone
Put the deal on one page
Address, purchase price and date, how you paid, the rehab budget, the value and rent you expect, whose name is on title and your rough credit score. A loan officer can only answer in specifics once you have given some, and reading from one page keeps every lender answering the same deal.
Call before you buy when you can
The refinance is the exit from the purchase and rehab money, so its terms set the most you can pay for the house. Three calls made before the offer cost an afternoon. Finding out after the rehab that the nearest lender wants a year of ownership costs months of interest.
List one lender of each kind
Try a local bank or credit union that keeps its loans, a mortgage lender or broker offering conventional investor loans, and a lender that qualifies on the property's rent. The three will answer the seasoning, entity and income questions differently, and hearing all three shows you which lane your deal belongs in.
Work out your own minimum first
Add up the payoff on the money you used to buy and renovate, the closing costs and the cash you want back for the next house. That total is the loan you need. Then check what payment the rent can carry, so you know on the call whether an offer is short on proceeds or heavy on payment.
On the calls
Ask for whoever handles investor loans
At a bank that is often a commercial or portfolio lender, not the person at the branch desk who writes home mortgages. Saying 'a cash-out refinance on a rental I renovated, held in an LLC' in the first sentence usually gets you passed to the right person.
Screen before you explain
Seasoning, the basis for the loan, maximum loan to value and minimum loan size take five minutes and rule out most poor fits. Save the story of the deal for the lenders who pass, and end the other calls politely by asking who they would send you to.
Have them run your numbers
Give the rent, the tax bill, the insurance quote and the loan amount, and ask for the coverage ratio and the cash to you while you are still talking. A policy described in general terms sounds fine until it meets your property.
Confirm the key answers by email
Send a short recap the same day: the seasoning rule, the loan to value, the prepayment penalty, whether an LLC can borrow. Guidelines change and loan officers move on, and a rehab can run for months between the call and the application. Ask in the same note how long those terms are expected to hold.
Comparing lenders on one deal
Use one grid for every lender
Give each lender a row and use the same columns: seasoning, value basis, maximum loan to value, rate, points, prepayment penalty, entity allowed, reserves and weeks to close. Blank cells show you what you forgot to ask, and a second call to fill them is normal.
Compare the cash left in the deal
Suppose one lender offers 75 percent of value after six months and another 70 percent after three. The second gets you out of a costly rehab loan three months sooner and leaves more of your money in the house. Put a dollar figure on each side, the interest saved and the cash left behind, before deciding which is better for you.
Price the penalty against your plan
A lower rate with a five-year penalty suits a house you will hold for a decade. If you mean to sell in two years, or to refinance again when the rent rises, work out what leaving early would cost under each offer and count it as part of the price.
Weigh who will do the next one
The cheapest loan today may come from a lender that stops at a handful of properties. A slightly more expensive lender with no such ceiling, or a local bank that gets to know you, can be worth more across five houses than a small saving on one.
Signs to slow down
Terms that shift once the appraisal is in
A change in rate or leverage that follows from a lower value or a thinner coverage ratio is ordinary. A change with no reason attached, late enough that your rehab loan is about to mature, deserves a direct question and a call to your second-choice lender.
Large fees before anything is in writing
Paying for an appraisal is normal. A sizeable application, commitment or due diligence fee requested before you hold written terms is worth questioning, and so is any reluctance to say whether it is refundable.
A plan that needs the top appraisal
If you only get your money back when the value matches the best sale on the street, the refinance is where the deal will come apart. Run the numbers at a value below your hopes and at this lender's real loan to value, and see what stays in the house.
Answers that belong to someone else
How to hold title, whether to move a property into an LLC and how the cash you take out is taxed are questions for an attorney and an accountant where you live. A loan officer can tell you what the lender allows. That is not the same as what suits you.