Finance Decision Crossroads for 2nd Property
Hello, BPs community!!
This is my official 1st post! A total Rookie here but ready to learn about the RE investment market in South Florida (for now).
I already have a Condo (primary residence) and planning to buy a 1st single-family home (to be my primary residence) and rent-out my Condo. The current mortgage of the condo is at 4%, and the property value has increased from 195 to 360K.
To get some cash from the equity of the Condo and purchase property #2, I have contemplated the refi-cash out AND the heloc financing options. But refi offers 7% APR average (as a primary residence), and HELOC 8.25% flexible rate.
With the refi, I am struggling to lose my 4% interest rate and obtain a higher one. With the HELOC, the fact that is a flexible rate is a concern. However, getting refi/heloc loan and a loan for house #2 is totally possible as I have excellent credit and a good w2 job.
Also, I was told that If I obtain the refi or HELOC from a primary residency loan (lower rate), I would have to live in property #1 for 6 months before I can use the money to buy house #2 (as a new primary residency rate) as well. Unless I do the refi as an investment property with a higher rate but with the ability to use the money fast on purchase #2. I have calculated all numbers as much as possible and numbers are coming kinda close, so I am uncertain how to proceed. Any insights or guidance? I would truly appreciate it. Thank you!
It may be a “chocolate or vanilla” kind of choice. Maybe even “strawberry.”
Pros to HELOC: cheap to get in place, most are interest only in the early years and repayment in the latter years. Some do not require a full appraisal or interior inspection (can be good during renovations). Simple interest. Cons: they are nearly exclusively variable rate, some lenders called them due in down turns.
Pros to cash out refi: Cash out and …? Good for 30 years. Cons: expensive closing costs in comparison. Rates are higher than they’ve been for some time.
Other options: ARMs, adjustable rate mortgages. Selling. If you have lived in this condo for 2 years or more, you may not have to pay capital gains. You can use all the money, less closing costs, and buy your new place. You could offset the higher interest rate with a bigger down payment, if you choose.
(Selling looks good to me, if I were early in my journey)
Quote from @Kerry Baird:
It may be a “chocolate or vanilla” kind of choice. Maybe even “strawberry.”
Pros to HELOC: cheap to get in place, most are interest only in the early years and repayment in the latter years. Some do not require a full appraisal or interior inspection (can be good during renovations). Simple interest. Cons: they are nearly exclusively variable rate, some lenders called them due in down turns.
Pros to cash out refi: Cash out and …? Good for 30 years. Cons: expensive closing costs in comparison. Rates are higher than they’ve been for some time.
Other options: ARMs, adjustable rate mortgages. Selling. If you have lived in this condo for 2 years or more, you may not have to pay capital gains. You can use all the money, less closing costs, and buy your new place. You could offset the higher interest rate with a bigger down payment, if you choose.
(Selling looks good to me, if I were early in my journey)
Thank you, Kerry for your thoughts and input!
I did not consider your "other options" yet.
I will have to investigate more about ARM. About selling the condo, I considered that at the beginning of this process, but since the idea is to hold my 1st investment property through a purchase, the ppl that is giving me advice, made me realize that I would not be able to find a property with a 4%APR, nor at the price of my current condo, concluding that is was best to keep it and use it as my 1st investment property. But I would need to buy another property for myself and my family. I have lived in the Condo for 6 yrs now.
