I have a property under contract and a bank lined up to give me up to 85% of the appraised value. I anticipate a good appraisal based on comps in the area, so i would be in a position where i could get back all the money i have invested in the property + some. However, i am curious on your thoughts on whether or not to pull the Max out 85% vs a lower amount.
House will rent for 1550
Scenario 1: Pull 85% out, This would leave me with $8,700 cash in my pocket - Mortgage +T+I+HOA = $1,276.
Scenario 2: Pull 80% out, I am left with $506 in my pocket - mortgage of $1,223
The house is on the newer side so repairs should be moderate, and I plan to property manage it myself for now, but will build that into the equations since i want to eventually get out of Property management.
The area is growing and I anticipate rents going up as well as house prices, i don't want to bet on this but it does give me some comfort that equity will increase over the next few years.
My hesitation on doing the 85% is that it would expose me to more risk if the market drops, San Antonio is somewhat insulated from this based on the last market drop. That being said $8700 rolled into my next property would go a long way.
Based on what you posted, if you are going to pull cash out there's no point in leaving $8k behind for a $50/month mortgage savings. If the market tanks bad enough the extra $50 isn't going to matter.
If rate and term is the same at 80 or 85, do 85. You can pay the loan down if you find no use for the extra cash.
Curious- are you under contract on a new purchase? This scenario reads like a refi after seasoning. It's rare the appraisal differs from the PP. Value IS what a buyer will pay after all.
I've seen 'buyer appears to be paying significantly below market value' but they still didn't put a number on it and the bank would still only lend 80% of PP for me. Keep us posted how it goes!
Are you saying that you are going to pay cash for the house, fix it up, then refi at 80 or 85% of the appraised value?? If that is the case, do the 80%. You will get all your cash back anyway, you dont need extra. If you do, save it up like you did for the cash purchase.
If you are getting hard money for the purchase, I would still go with the 80%. If you are still working, you probably should not really worry about the cash flow. Paying stuff off is what wins in the end. That will get you to retiring sooner. Isnt that what its all about??
Yes its a new purchase, i have called 20-30 banks some are more friendly when it comes to seasoning and others state that if there is no mortgage associated with the property it can be seasoned quicker. I am purchasing with a personal loan and cash so there will be no mortgage on the property.
I have a call setup this afternoon to confirm what i was told by an assistant that worked for the mortgage group i am trying to work with. They stated that I would qualify for 85% of the new appraisal value and that it would season immediately no need. I am waiting to get quotes on the rates and fees and if there is any "gotchas" but it sounds promising .
With the 85% do you still have to pay PMI?
Also, in a market downturn cash flow is what’s going to save you. But, $50 isn’t much of a difference.
I usually never recommend refinancing so high because you typically have PMI and a higher interest rate.