Financing options - what am I not considering?

Question

Hello everyone! I'm looking for advice from those more experienced for things I may be missing or not even considering on financing options.

I do have 20% cash I am able to put down but my bank has two attractive financing options that I'm considering:

1. 10% down first investment property: 7/1 or 10/1 ARM's with zero PMI (3.125% & 3.375% respectively at the time of the quote)

2. 0% down primary residence: 7/1 or 10/1 ARM's with zero PMI (2.625% & 2.85% respectively at the time).

My plan is to move out of my current home and turn it into a rental (remodeled while I've been living here, added +1BR and +BA, now a 3/2) and BRRR another but I would also the investment option for the right property and stay a bit longer in my primary residence until I find the right deal.

Curious on more experienced investors thoughts on the financing options.

Drawbacks to either of those options?

Keeping more cash on hand without paying PMI vs. putting 20% down doesn't sound like a bad idea - anything I'm not considering but should be?

Appreciate your feedback and expertise!

Nate Weber · Answer

Thank you for your feedback Greg!

I've considered either refinancing out of the ARM at the end of terms pending rates or accelerated loan payments for this property since my current primary is locked in at a low rate on a 15 year fixed loan and the expected cash flow (from each) would allow for this.

Both options seemed attractive to accelerate getting into REI without PMI or large down payments while maintaining cash reserves on hand for repairs/emergencies or acquiring additional properties - just wasn't sure if there was any obvious issues I was overlooking with these types of loans.

Greg Kasmer · Answer

Nate - If this is for your primary residence that you will eventually turn into a rental, I would suggest you consider either the 10% down or 0% option as I think having more money available for future purchases is preferred. However, I would make sure in either scenario you cash flow (rent - all expenses) about 6-10% Cash on Cash because in each of the lower down payment options your mortgage payment will be naturally higher.  In either of these options you don't mention the amortization length of the loan, which also impacts payment - I would suggest either a 25 or 30 year amortization if trying to limit your payments and grow your portfolio.  Good Luck!

Greg Kasmer · Answer

Nate - I can't see any obvious drawbacks of one scenario or the other. Looks like either one will help expedite towards your goals. Good Luck!