I want to buy a new home and rent the current home. Should I cash-out refinance to get the 20% down on the new home or should I use cash for 10% down? Which one would be more beneficial. My current home is valued at $220k my balance is $100k with 13 years left on the mortgage. I am planning on buying the new home where about $25k of repairs/updates are needed and plan on living in the new home for at least 1 to 2 years. After that period the idea is to buy a nicer/better home and move there possibly on a permanent basis so if I don't cash-out refinance now, I can do that later and use that money as a down-payment for the third home. But if I cash-out refinance now, I would also have to cash-out refinance the second property later for a down payment on the third.
Current mortgage is $1170 per month, my agents is saying that it will rent for $1650-1700 no problems. Should I refinance and take a 30 year loan on it my math shows that it would still be approx $1200 per month in mortgage payments...
Rental Property Investor · Katy, TX · Member since 2013 · 417 posts · 171 votes
7y
@Tom Smith I am not a lender but it may be easier and you may get a different (possibly better?) rate and terms if you do the cash-out refi on the current home because it is “owner-occupied” instead of it being a rental.
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
7y
@Tom Smith these are really good questions to be asking but it might be really hard for us to truly tell what is best for you in this type of a setting. What if your current mortgage has an incredible rate? Then it might make more sense to get a HELOC and keep that first rate in place. When refinancing to a cash out loan that mean you would have to roll in the first loan...so if you had a good rate, you will be forced to carry the new rate on the entire balance. And what if it takes you several months to find a new home? Then you are paying that interest for several months...whereas a HELOC won't make you pay interest until you draw from it. I do believe that either refinancing while you live there or taking a HELOC will both be better to do while you are occupying the property but without knowing credit score, finances, etc. it might be difficult to say. Reach out to a mortgage professional in your state to find out the best options. If you don't know one, Bigger Pockets has great state forums that you can post in and a good local person should be able to point you in the right direction as well. Hope this helps!
Real Estate Broker · Santa Ana CA [South Coast Metro] · Member since 2016 · 459 posts · 202 votes
7y
1st question where are you located?
Is your market growing or contracting [market top]?
What are your long term objectives, to own a new home or build rental portfolio. Or both.
How is your credit and income?
If you want to own a rental and a new home you have alot of options.
The equity in the current home is untapped and you can get enough to get a down payment, will this property still cash flow after the new loan, or what is the threshold to shoot for.
Every time you refi you lose equity 2-3%, but if you can get a better rate and cash out that is a good way to go. I would look at a heloc vs a full refi because you are paying that 1st mortgage off much faster than a new one, you basically reset the clock.
You could also sell it and get all the proceeds [$250k to $500k depending on marital status] tax free assuming its your principal residence. You can also hold for another 2 years then do a 1031 exchange - but that is for another question.
Other question how much do you have to buy another home? You said it needs about $25k in rehab. How much do you have for a down payment.
If you can swing 5% down you can get a FHA or better yet a Fannie Mae Rehab loan that is one loan for purchase and funds to rehab. FHA is 3.5% down and you can do an FHA 203k Streamline loan for purchase and up to $35k for rehab pretty easily.
Then you buy the property, rehab it, wait one year and refi - you should have enough equity to refi out of the PMI.
Lender · Schaumburg, IL · Member since 2015 · 833 posts · 774 votes
7y
@Tom Smith easy slam dunk answer, if you want to buy more properties, cash out refi with a 30yr fixed and pull out as much as possible. Then buy the next property with 5% down since it will be a primary. Then after you house hack it for a year, then buy the next primary property with 5% down too. Meanwhile, feel free to use all that extra cash to buy another investment property or two, and/or have money on hand for rehab too without costly hard money loans. Use that cheap mortgage financing to your advantage and build your empire.