Refinancing our first (breakeven) deal

7 Replies

Let me preface this post with this was our first deal ever and didn't really know what we were doing. My friend and I purchased a 750sf SFH during college in May 2007 at full price of 68,000, 100% financed at 6.375%. Skip to 4th paragraph for my ultimate question of best refinance option. We haven't done this before and are looking for advice. We know this isn't a great deal, but would appreciate your input.

We were looking to live in the house instead of paying for room/board during school then rent after graduation. The home needed renovations at the time so we did a complete gut by ourselves, with the help of family and friends, totaling approximately $12,000. Seemed like fun at the time - so much for buying it right, but we've learned a lot since then.  We have broken even so far at this point in time and will take the experiences so far as paying for our School of Hard Knock education.

We've managed the place ourselves for the past 10 years and had no major issues up until beginning of January 2016.  At that time we found the sink cabinet was water damaged and replaced it (still not 100% sure if Tenant, we took the hit on it), sewer line backed up due to roots and had costs associated with jetting & roto-rooting sewer and hot water heater replaced.  June 2016 repainted the interior and other minor maintenance in preperation for sale, however 2 contracts have fallen through and we are about to have our 3rd fail (with Possession Prior to Closing to make the situation more complex now). Due to trying to sell, house was vacant June-November 2016. 

We are now exploring renting again since selling the house hasn't worked. We simply forgot about our interest rate in the past (won't make this mistake again) and are now looking at refinancing our current loan (6.375%, 20 years left) to one of the following options. Without getting into too many numbers, a 15-year will keep us at current cashflow, 30-year will save ~$150 but will obviously put us back on a 30-yr schedule increasing interest owed again.

  1. Current lender offering no-fee refinance at 15-yr, 3.875%
  2. Refinance with another local bank 15-year, about 3.38% APR (most likely will be higher % due to non-owner occupied, maybe 3.8%?)
  3. Refinance with another local bank 30-year, about about 3.6% APR (most likely will be higher % due to non-owner occupied, maybe 4.0%?)
  4. Continue to push forward on selling with a documented pre-qualified buyer.

We are leaning towards the 15-year refinance.  Should we be leery of the "no-fee" refinance with current bank?  Do you have other suggestions?

Sorry for the rambling, but we greatly appreciate any input you have!

If ultimately you want to sell this one then I would suggest keeping what you have without getting locked into many more years and try to find a buyer using a lease option for 12-24 months. Nice cash down payment and if they choose to buy then you have an end in sight, at least preferably and you aren't locked into this property for many more years without paying a prepayment penalty.

No fee re first is the way to go. It's called streamlining... Run to current bank...No headache..Even better if they don't  sell it off

Thanks for your feedback, Gents.  

@George Taylor I don't know if we are comfortable yet using the lease option at this time, but we will do more research into that for future deals. Seems like a good strategy to help buyers also. Do the Dodd-Frank rules still apply to this though?

@Robert J Carlson We have our running shoes on now and are talking with the bank about 15 vs 30 year refi's.  They are quoting 4.5%, 15-year & 4.8% 20-year as a non-occupied property.  Are these reasonable rates?  I'll also call a few other banks to see if they possibly have any better rate.

Don't worry about rates so much if your saving  $20 per month and paying $2300 closing . How long at $240 savings will it take you to recoup ?Take the 20 add principal reduction every month that it rented. Back off on vacancy

Hey there keep in mind you never owe time on a property just a loan balance and an interest rate.

I would take the 30 year fixed all day because you can put the extra $150 toward the mortgage and pay it off in close to 15 years if you chose that's what you wanted to do, but would not be be forced to make that payment.

If you are going to sell in the next few months it doesn't matter but cashflow>interest rate if you plan to hold onto the property.