what is your best method of financing

Question

I currently own two properties. Let me break it down,

Property 1: appraised 4 years ago at $110,000. Financing is 15 year conventional 4.375. $55,000 Currently rented at $850.00. This was a complete rehab.

Property 2: purchased 2 years ago for $101,000, Financing is 30 year FHA at 3.2. Comps are $150,000- $160,000.  Rents are $1375. I will be staying in this property for two more years.

So here is the question. I will be buying another rehab property in my area in the next 3 months. I am looking at best methods of financing my next investment. I am very new to the financing side and not sure of best practices. Try to secure a loan through the bank, cash out refinance on the two houses, or ......... What do you think

Daniel Dawson · Answer

J Scott, I have thought about financing another mortgage through my bank or local credit union. Since I am still in the very early stages of acquiring property I wanted to ask around and see what some of the more experienced investors like yourself would recommend before making my move. What limitations can one expect using traditional financing? I have rehabbed both of my properties and enjoy the equity I have obtained from it. With that being said I will be investing in something that does require some work but not a complete tear out. I had originally though of a cash out refi because cash is most definitely always easier to "work with". Thanks again everyone! Your opinions mean alot

Shaun Weekes · Answer

Daniel,

It sounds like the 15 year loan is a conventional loan. Rates right now for 15 year loans are much lower than what you have. Getting a cash out refi and lowering the rate would be a win win.

Your FHA rate is really good but since values have increase according to your research it might be a better idea to do a conventional loan this time around for cash out. This way you'll lose the MI (mortgage insurance) and maybe save more.

As long as the numbers work and you have income, assets and job history (if you don't have a job your schedule E could be enough depending on what your other expenses are) are looking good this could be pretty good for you.

Make sure you use a loan officer who knows how to structure your deals properly so everything goes smoothly.

I hope this helps and have a great day Sir.

Glenn McCrorey · Answer

Everything depends..... I use a credit union, buy in through an LLC and get 85% loan to value.  I would look for a deal like that, refi, pull out cash and use the same bank/CU to finance the 3rd deal.  Estimate the current value, multiple by .85 or .80 (whatever the bank terms are), subtract your current loan balances and that's how much cash you will have for deal number 3.  Make sense?  30 year loans are over rated because you're probably going to refinance long before that.  Depends on your goals and philosophy.

J Scott · Answer

Will you qualify for a conventional (Fannie Mae) loan?