Situation where it's a good idea to pay off your hours?

3 Replies

To clarify, I'm not in this position, but wish I was!

Let's pretend someone financed a 150,000 house with an FHA loan. After 3 years they owe ~147,000 and the house has appreciated to 300,000. Now let's say this person inherits, makes, finds, etc 147,000 and they want to make the most out of it.

They could:

  1. Keep paying their mortgage for another 27 years, or until they move and invest the 147,000 in real estate.
  2. Pay off their mortgage and take out a HELOC. Some banks will loan up to 90% LTV. PenFed will loan up to 85% LTV and require interest only payments for 10 years. This person will now have a line of credit for $255,000 and won't be paying a mortgage.

Seems like a good idea to me.  Worth it?

till the housing market crashes and the HELOC comes due and you lose your equity. Option B) do a cash out REFI and start investing... You could do delayed financing to spice things up a bit.

Originally posted by @Yiftach Ilyov :

Matt K. Could you explain a lot delayed financing please ?

 Buy property cash and then up to 6 mo later (verfiy exact limit with lender) you can get a loan.

So example would be:

80k purchase, 100k value. You could finance 100% of house through delayed financing. If you had used loan it'd be based off purchase price.

Now more realistic example would be forced appreciation through rehab. So something like 80k house, 20k rehab, 130k value. Same idea you're getting 80% of 130k out.

If you buy with a loan everything is based off purchase price and then you have seasoning of 6-12 mo before you can do a cash out refi. So even if you got the best deal in the world you'd potentially have to wait up to a year before you could do a cash out refi.

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