Cash-out refinance dilemma

10 Replies

I have to decide what to do about refinancing two of my duplexes, and the banker is pressuring me to return my application, but closing costs are really hard to swallow. Here's the situation.

Duplex A

Value $90k
Loan: $30k, 5.25%, 30yr ($171 pmt)

Duplex B
Value $90k
Loan: $36k, 2%, 10yr ($343 pmt)

The bank has told me they will write me two $63k loans at 5% for 30 years. The problem is that the quoted closing costs are between $3200-$3700 per loan. This is a whole lot of money to spend just to pull out about $50k.

I have some private money loans I would like to extinguish and I have other opportunities that I would like to pursue, which is the motivation for releveraging.

In the alternative, if I wait a few months I can get an 8% 10yr HEL (fixed) or a 6% 25yr HELOC (variable) from another local bank with no closing costs.

Am I pursuing a bad deal? Should I wait?

First of all- tell the guy to back off.  No rush.  Is the bank including prepaid insurance and some taxes for escrow in that quote?  Those may be what is making the closing seem high. Around 3k is about right (in Houston anyway) for that size loan. 

You may get less LTV on a HELOC. What if you refi only one, then pay off the other and do a HELOC on that one right away? Or find a private lender who is happy with 5% APR and give them the opportunity instead of the bank.

@Christian Carson  Unfortunately closing costs are high. You can probably get a loan with less or no closing costs but the interest may be 6.5%. 

Consider it the cost of your next awesome deal. 

Originally posted by @Doug McLeod:

First of all- tell the guy to back off.  No rush.  Is the bank including prepaid insurance and some taxes for escrow in that quote?  Those may be what is making the closing seem high. Around 3k is about right (in Houston anyway) for that size loan. 

You may get less LTV on a HELOC. What if you refi only one, then pay off the other and do a HELOC on that one right away? Or find a private lender who is happy with 5% APR and give them the opportunity instead of the bank.

 Doug,

The original closing costs quoted were $3700 per loan, which includes a lot of fees that won't be applicable to the current loan, bringing it down to about $3000. Additionally, this loan is already at 70% LTV and the HELOC bank told me they would go to 80%.

Additionally, with the $600 appraisal fee, I'm a little worried that these houses might not appraise. One house is totally worth that much but is on a street with few recent retail sales. The other appraised at $91k when I took out the original loan, but I've had it listed for $82,500 for a month with no takers. Will this kind of pricing history make me lose $1200 trying to pursue this? It's really what is giving me pause now, more than anything else. The HEL/HELOC doesn't have an appraisal fee.

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If you really want to get crazy, take 30K out as cash advances on credit cards and pay off the smaller loan immediately. Then get a HELOC on that property. Pay off the credit cards and the other loan and get a HELOC on the second. Done. All you pay is cash advance fees on your credit cards. They'll be paid off before you ever show the balances and you'll have all of one HELOC and part of the other to go house hunting with.

Actually that doesn't sound so crazy!

@Doug McLeod They don't give you any grief when you apply for a HELOC with $30k riding on credit cards? I've taken advantage of some great 0% balance transfer credit card offers, but always worry it trashes my credit score/DTI.

Utilization is key on credit cards.  Keep them under 30% (i.e., balance is under 30% of credit limit) and you'll be OK.  Put $30K on cards, maxing some out in the process and it will hurt your score.

Originally posted by @Ben Stout :

@Doug McLeod They don't give you any grief when you apply for a HELOC with $30k riding on credit cards? I've taken advantage of some great 0% balance transfer credit card offers, but always worry it trashes my credit score/DTI.

 Oddly, no. My net worth is still positive and the debt service on these credit cards is low (under $500, total).

@Christian Carson  Forgive me if I missed something, but does that mean that you went through with the deal as suggested by @Doug McLeod  ? Did the properties appraise for what you'd hoped? I realize this was about 4 months ago. What path did you end up taking? 

@Ben Stout  ,

I decided to stay the course and wait until the 1 year mark. I actually ordered an appraisal on my first property, but the appraiser called and said even if he prepared it, he didn't think it would come back at higher than what I paid. (What a nice guy!) 

A local bank will offer me a HELOC for 7% with no closing costs at all, but they won't do it until we hit 1 year.

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