Rental Property Investor · Flint, MI · Member since 2018 · 60 posts · 43 votes
Looking for first rental deal. Approved for conventional mortgage. We own our home through an interest only hard money lender with no mortgage. House has about $130k in estimated equity if we paid it off. Knowing the market is softening soon and already starting in our area, should we change the strategy and try for a cash out refi on our home, pay off hard money lender, and shop for deals with cash? Our total payment doing it this way would only be a few hundred dollars more. I like this option because our monthly debt is far less but I doubt we could get another loan in future. Advice??
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
7y
@Pamela Morrison if you have a Hard Money Loan on a property you are planning on keeping long term you should absolutely be seeking to refinance out of that loan. Most HMLs are for 6-12 months. I've seen some that will "modify" into a permanent financed type of loan but the rate will be SIGNIFICANTLY higher than a standard mortgage. Especially if you are living in the property your rates will be better than any rate us investors see on our properties. Primary home loan rates are just the best rates you can find on a 30 year mortgage. Now, even though you mentioned the dollar amount of equity you have in the home the more important number to know is the "loan to value". Meaning, how much do you owe vs. how much the home is worth. A HELOC might even be an option. But let's say that you cannot receive a cash out loan or a HELOC....you should STILL refinance out of that hard money. I've got alarms going crazy in my head right now so unless I am missing something please seek out a local lender to provide you some options to refinance your home. Thanks!
Rental Property Investor · Flint, MI · Member since 2018 · 60 posts · 43 votes
7y
Thanks. Yeah it was supposed to be for a few years as we had a credit issue about 8 years ago. It still shows on our credit but it is far in past and we have good scores and low utilization. The HELOC makes me nervous based on our credit utilization increasing significantly. I am realizing now that we can save money by doing the cashout. I have never heard of it before and thought refinancing was not available since we own the home and we basically have a personal loan. I appreciate any info on what is best.
Lender · Chicago, IL · Member since 2018 · 352 posts · 147 votes
7y
@Pamela Morrison definitely get rid of the HML loan and get a conventional one. Keep in mind you can't refi owner occupied and also purchase owner occupied. What's property are looking to purchase? The biggest loan should be intvestment, so the puchase should be owner occupied. You could close the refi and the purchase in the same time, this way you will be allowed to refi and investment and purchase as owner occupied, otherwise you will be forced to refi owner occupied and leaves you with the purchase as an investment