I've heard and read multiple sources talking about refinancing loans when their equity goes up and pulling out cash. In Massachusetts, this seems relevant with properties growing in value at 3-5% year over year. When people are refinancing their loans are you pulling out the equity(in cash) on the accumulated equity that is over 20% so that you eliminate PMI as well as get cash out? What's the best way to go about this?
For my particular situation, I am purchasing my first 3-family with FHA loan or Mass Housing loan. My thought is go in low money down because appreciation is happening so quickly I could refi out of the PMI. Although putting down 10% does seem to make the cash flow more attractive
Your lender may not agree to refi at higher to 80% LTV, @Maxwell Kaplan . So, yes, PMI would be eliminated. If you're putting down 10%, you may not have to use any kind of program. You can probably just get a regular mortgage with PMI, of course. A lot less red tape and no need to refi to remove the PMI once you hit 20% equity.
@Maxwell Kaplan what's your strategy or goal with the property? Cash flow? Leverage for next property? Education?
I've refinanced many properties and the most I've found a bank to do is 80% LTV, so odds are you won't have to pay PMI after the refinance.
However, if this property negative cash flows while you're waiting to refinance, are you okay with that?
I love appreciation but I never, ever make a bet that I'll get it. You never know what the market could be doing when you want to refi.
Hope that helps!
The first goal should to be to gain the most equity in the first 2-3 years of ownership to refi into a 20% no PMI loan and then worry about the cash out refi after.
Saving $ on the PMI cost not only increases your cash flow but you're taking advantage of better rate savings also. From my experience pulling out the cash on the property diminishes the cash flow and your DTI ratio become higher.
I think there's still room in the Greater Boston market to achieve this goal.
@Maxwell Kaplan I am currently in the process of refinancing my 2 family to get out of my FHA loan. I purchased last march and my new monthly payment will go down ~$500 based on the new appraisal and low rates. I'll still have a small amount of PMI, but that will go away soon.
Putting more money down may increase the cash flow, but that makes your money not work as hard. All deals for cash flow would be amazing if you put 100% down, but then you couldn't put your money to work elsewhere.
Also going through the refinance process and talking to a few lenders I was told any conventional (non FHA) low money down loans for a multifamily you now need to put at least 15% down where you used to be able to do 5%. FHA you can still do 3.5%. Do no quote me on this, but something to note.
@Jaysen Medhurst great points. curious to hear what banks are offering loans for 3 families at 90% ltv. None of the banks I have spoken to have offered such programs. seemed like the only option was FHA(which is an expensive way of borrowing)
@Cameron Tope Thank you for sharing your experience. goal is cash flow. secondary goal is appreciation with hopes to leverage for the next property. As you mentioned no thanks to negative cash flow :)
@Maxwell Kaplan , I don't know the lenders in your market, but I typically find the best products are with local banks, and CUs. Especially, the CUs. As long as you're owner-occupied, you should be able to find a lender that will go 10% down on a triplex.
@Lien Vuong thank you for the insight :)