Refinancing our Primary for Down Pmt

7 Replies

I am going through the numbers on possibilities of getting a down pmt to be able to get into investing. One option I am exploring is to refinance our current house, rent it, and use my refinance cash to buy 2 houses (a primary and investment). I know through listening to podcasts, that you can typically refiance to 70% of FMV in the brrrr strategy. If it is my primary at the time, is it up to 80% FMV even if the plan is to rent it out later? I am not going to be dishonest...I am just not sure if future intension is something that will come up in a refinance.

Ive never been asked what I was going to do with the cash when doing a cash out refinance on a primary residence.  Typically on a home purchase, you will have to sign an affidavit saying you intend to live in the property, but I do not think that is the case on a cash out refinance. 

@Holly Saxby   Im always leery of refinancing a primary in order to get involved in RE. We do hear success stories of people doing it, but for every success story I know there are many that have back fired.

I would say, save your money until you can afford a down payment on a new home, before taking equity out of your primary. I always tell first time investors, what's the rush?

depending on the type of loan, you're more than likely required to live in the current primary for a year if you do a refi.

That said, I just did a refi for cash on my primary so that I can use the funds to buy another house. It was hilariously easy, cheap, and fast to do. Not sure about the LTV requirements but 75% sounds about right. I was way under that so I didn't even have the conversation with my lender.

@Jordan Thibodeau I feel like we have saved it up...it just happens to be stuck in our house equity. Isn't it the same as the scenario of buying 1 rental with a large down payment or 2 rental houses with smaller down payments (mine will be split from the home equity)? I'm a newbie so I appreciate any advice. Here are some more details. Primary FMV 220K, loan 132K, 20 yr mortgage. Since we have been wanting to move anyway, we refinance to 80% and have 44K. If we refinance our current primary back to a 30 yr mortgage, cash flow from renting would be $238/mth(without me managing). I'm not sure if the 44k would be used for a fixer up for us to live in or split for 2 houses if possible. If my hubby is dying to move, maybe this is the best investment scenario. If we just straight rent our house, we won't have a down payment for our next primary.

@Holly Saxby You should shop around. I think some institution will allow you to get HELOC up to 100% for owner occupied. The earlier you start investing, the better you will be from compound and accumulation perspective. Even if you made a mistake (small one), you still have more time to correct it instead of waiting. Your owner occupied only has value when you are utilizing it. If you don't, it is still the biggest liability.

@Holly Saxby I agree with using the equity of your current house for a down payment on a new primary residence. But keep in mind that if you want to avoid PMI, you'll need 20% down on the next (which would limit your next house to $220k.)

Now if you plan on buying two (2), one to live in, and one as investment, since you are using equity from a soon to be investment property, I dont have any issue with that (if you did not plan on moving, risking the roof over your head might not be such a good idea).  I think your issue will be with downpayment on the new houses. Investor loans will need at least 80% down (sometimes down to 75%), so you will end up looking for two houses that total less than $220k, not sure if your target price range for your next house can support that.

Also be careful with HELOC's, they are easy, but almost all of them have a balloon payment at the end of the term (mine have been 5yrs) that is like a ticking time bomb. If your situation changes in those 5 yrs, you might not be able to refinance that HELOC and be in quite a mess of a situation.