What is the cheapest way to refinance?

Question

I am ready to refinance my first investment property and use the fund to obtain 2 or 3 more properties. I finally came across a lender willing to refinance 75% of my investment property that was appraised at $76,000 but her fees are a bit high - about $5,000 in total. Does anyone have a suggestion on how to refinance my first investment property the cheapest way?

Ethan Kramer · Answer

Nice, Matt, that sounds like a good deal. I will begin exploring small banks soon.

Wanda Wilkinson · Answer

Ethan, I have just been involved in getting a HELOC on one of my properties. When you call a bank, you want to ask for a Home Equity Line of Credit. It is easier to get one on your property that you actually live in (OWNER-OCCUPIED). And you can get a higher percentage of equity loan on an owner-occupied property. Of course, you are putting your home at risk if you can’t pay it back. Some, though not all banks, also will give a Home Equity Line Of Credit on a property that you own that you do not live in. It is called a HELOC on investment property. There is a higher threshold to qualify for this type of loan as there is considered that there is a higher risk of default on a loan on a property that you do not live in. Some banks will not give a HELOC on investment property if you own more than a certain number of properties in total. A HELOC on investment property typically will typically not exceed 75%.  You will also probably pay a slightly higher rate than you would for a HELOC on an owner-occupied property.

HELOCs typically have a shorter term than a mortgage. You should not assume that you can automatically renew a HELOC at the end of the term. Your economic circumstances could change during the term and the bank may not renew. So the prudent thing to do after buying a property with a HELOC is to refinance into a 30 year mortgage after buying and renovating. Then pay back the HELOC .

You need to be very specific when you talk to the bank about what you want. The mortgage departments and the HELOC departments are usually completely separate. HELOCs can have many advantages for real estate investment but you need to be aware of the limitations also.

Ethan Kramer · Answer

Would you kindly refer me to the small bank you used? I’m still having difficulty locating a bank that at least understands the concept of BRRRR

Matt M. · Answer

@Dennis M.

It sure did! That $60k bought me another house and covered all my rehab costs. Still have one free and clear

Matt M. · Answer

@Ethan Kramer

I had a property I paid cash for also. Took a commercial loan out on it in April. $60k, 5.25% 5 year fixed adjustable after, 20 year loan. Will be able to renegotiate another 5 years fixed. Total fees $885.  Small local bank investor friendly

Ethan Kramer · Answer

I will talk to a local lender to make sure I understand everything clearly for sure. I have $76k equity in my investment property (bought with cash, no mortgage) and about $140k equity in my primary residence home.

Marcello Di Gerlando · Answer

Definitely speak with your lender to understand the specifics of the HELOC terms. I'm sure you can find info on BP check the forums. The HELOC I am referring is a interest only proposition either fixed or variable interest rates. It operates like a credit card..sounds scary but its not; if you don't abuse it. My HELOC payments are not amortized insofar as I am not paying down the principal like a mortgage. I make interest only payments on only the cash I draw and then I throw my 'spare' cash at the debt to keep the payments affordable and until I flip the property or refinance into 30yr fixed mortgage. Also, I made some assumptions to your original post that I should clarify. 1) Do you have equity in the property you can draw on? 2) Are you trying to pull cash out to purchase another property?

Ethan Kramer · Answer

Thanks, Marcello for the super helpful response. I'll definitely look into securing a HELOC instead of refinancing. I want to make sure I understand what you mean by "To be sure the HELOC is a temporary position that you must have a exit for this method to work." Is it not possible for the HELOC to be "paid" by the tenant through rentals and have the HELOC eventually close in 30 years? Is this not a good idea? Again, thank you for your response!

What is the cheapest way to refinance?

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