Refinancing Primary Home, Renting it, then Purchasing New One

[Njeri S.]

Hello,

My husband and I are thinking of renting out our primary home and purchasing a second. I've read several forums, but I still haven't found an answer to my question. Is it possible to take cash out of the first home to use as a downpayment on a second? If that is possible what is the process (i.e. is there a time period that I should wait before taking out a loan on the for the second home)? Second, would lenders view this negatively?

[Christian Bors]

Your options would be a cash out refi, or a HELOC (home equity line of credit). Both have their advantages and disadvantages. To answer your question, yes you can take cash out of your primary home to use as a down payment on a second house. As far as a time period that you should wait goes; most lender will require a 6 month "seasoning" period from the date you purchased your property. Lenders do not view this type of transaction as negative. However, they will calculate a new DTI (debit to income ratio) based on the new monthly payments from your cash out refi or HELOC loan.

Some quick pros and cons about Cash out Refi vsHELOC

Cash out Pros

-tax free money

-low interest rate

-no monthly payments 

Cash out Cons

-closing costs (couple thousand)

HELOC Pros

-tax free 

-its a line of credit, hence you can use pay back then use again

-usually NO closing costs

Heloc Cons

-higher interest rate

-have to make monthly payments on money borrowed

Hope this helps,

CB