Should I get a cash out refi to buy more property?

Question

I’m trying to get a heloc or cash out refi on a primary residence duplex.l under FHA.

I have great credit but modest income

Wife has bad credit with better income therefore I don’t believe we will qualify for heloc.

Our plan was to get heloc to use as a down payment on another house hack or general investment property.

So far our mortgage company said they could do the cash out refi which would raise our mortgage from $800 to $1200 (current rate is 3.62) and the rate would go to 6.6

To pull out hopefully 30-35k max

My concern is if I do the cash out. We won’t qualify to get another mortgage anyway due to either dti or income.

From your investor expertise, what would you do in this situation? Really looking to get some more properties asap.

Derek Brickley · Answer

Depending on your loan amount, doing a cash-out refi to get $35k probably isn't worth it. It would depend the full situation, but I'd pursue the equity line before I touched my first at 3.625%. That way you have it available but aren't paying on it right away. If credit is the issue, talk with your lender to run a credit simulation to see what actionable steps you can take to improve it.

Tanner Lewis · Answer

If you are running into DTI issues, I suggest looking into DSCR loans. You would just be using the property's income to qualify. It would just have to be non-owner-occupied and with a 20% done payment.

Devon Shives · Answer

@Natan Eisenberg. That’s the thing. I really don’t want to use Dscr because of 20% down. Would like to do owner occ conventional with 5% down but don’t think we will qualify. I guess I’ll have no choice but to use dscr

John Morgan · Answer

Yes, I’m a fan of harvesting the equity built up in properties. I’ve done 4 cash out refis to buy 14 houses basically for free, since I didn’t have to come up with any out of pocket cash for my 20% down payments on the new houses. I’ve done a HELOC to help get me my first two rentals. I’ve bought 5 houses with 401k loans up to 50k. I’ve bought some houses with 0% interest for a year credit card loans. And a couple houses from random lines of credit from banks. If your DTI is bad (like mine was for several years) then you’re stuck with DSCR loans with 20% down. That’s ok, because I found ways to find that 20% down payments. Mostly from 401k loans and 0% interest for a year credit card loans from a few credit cards. This is how I acquired 29 rental houses in 9 years. Be creative and find ways to scale up. Tap into that equity sitting there doing absolutely nothing for you.

Bud Gaffney · Answer

Marry the house. Date the rate.

Carlos Collier · Answer

Great conversation! I've also been thinking of using a HELOC to acquire our next investment property, likely as owner occupied. These are good things to think about!

Trevor Finn · Answer

@Devon Shives,

Your situation has a lot of potential, but here’s a thought: A cash-out refi could work if you’re confident you can use the $30-35k effectively for your next property, but the higher rate and payment might indeed limit your borrowing power for another mortgage.

Consider these alternatives:
1. Save the low rate: Keep your current loan and focus on building savings for the next down payment through budgeting or a side hustle.
2. Partner with an investor: If DTI and income are concerns, partnering with someone who has better qualifications could help you scale faster.
3. Creative financing: Explore seller financing or subject-to deals for your next property, which often require less upfront cash and bypass traditional lending limits.

You’re on the right track thinking long-term—house hacking and leveraging your duplex are great moves. Keep building momentum, even if it takes small steps!

Cory King · Answer

@Devon Shives What's the plan to help the mrs improve her credit score? That seems to be a straightforward solution. Talk with your lender. If you can have a lease lined up for your unit they shouldn't count your current mortgage against you and could use that "potential" income as income on your DTI.

Bud Gaffney · Answer

YES. Pull as much as you can and buy as much as you can!

Kevin Walton · Answer

Depending on how long you have been in the first property (based on your interest rate, I am assuming 3-4 years), have you explored the option to utilize your FHA again? Or doing a FHA 203K loan to acquire another multi? Aim to increase your Operating Income by acquiring 3-4 units for the next purchase. Making sure your credit is 580-620 minimum, you should be good with qualifying. Always good to check before you cash out the 30-35k, which I honestly would not do with the drastic change in PITI, numbers would be tight even if you rent out the unit you are currently staying in. HELOC rates are high right now as well, which most lenders would not give the full amount anyway (maybe $15,000-$20,000 max in a credit line) which would leave your only option to be FHA anyway and still be tight as your DTI would increase more based on that. Which most lenders frown upon you utilizing a HELOC to cover EMD, Closing, and Down Payment.

I am happy to assist and have a detailed discussion to go over potential options to help if you would be open to it. Feel free to connect!

Should I get a cash out refi to buy more property?

Should I get a cash out refi to buy more property?

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