I need to refinance my homestead/rental . I would Appreciate some guidance

10 Replies

I have a 4 bedroom that I have on a owner finance mortgage that I have as my homestead, I rent out 3 rooms (as I am a single man no kids no animals) the benefits are great because I can live in the property and still get a small return, anyway I have a 3 year balloon and I am coming up on 2 years in September. I would like to refinance or sell and do a 1031 exchange ,but preferably a refinance to keep control of the property , to give numbers I have a 8 percent owner finance and I have between 30-40 thousand in equity I am looking to get some cash out If possible. Please respond with possible advice referrals to brokers and ways to finance this property as soon as possible

@Jacob Olivos Do you have a regular job that shows steady W-2 income. What is the overall value of the property ? Based on income level and LTV you are seeking will determine what lenders will offer you as far as terms. I would seek out a local community bank or credit union since they tend to be more flexible on terms and wouldn't sell your loan as quickly , in a broad generalization

Originally posted by @Jacob Olivos :

I have a 4 bedroom that I have on a owner finance mortgage that I have as my homestead, I rent out 3 rooms (as I am a single man no kids no animals) the benefits are great because I can live in the property and still get a small return, anyway I have a 3 year balloon and I am coming up on 2 years in September. I would like to refinance or sell and do a 1031 exchange ,but preferably a refinance to keep control of the property , to give numbers I have a 8 percent owner finance and I have between 30-40 thousand in equity I am looking to get some cash out If possible. Please respond with possible advice referrals to brokers and ways to finance this property as soon as possible

 HI Jacob,

If you live there it is not considered investment property (like for like exchange). I recommend you get some advice on the 1031 aspect since its usually for an investment property which is not your primary but in any event you could potentially sell for partial to little tax as a primary home if you've lived in this home as a primary home. In most cases if your accountant claimed depreciation on the portion of your home used for rental activity or home office activity you may have whats called depreciation recapture at 25% of that portion claimed/gain.

- can you cash out if you have 30-40k in equity? it depends on the bank you go to, conventional financing can go to 85% cash out with MI on a primary. Will local lenders offer you a line of credit up to 90-100% of market? sure, its a possibility as well. Some banks can offer this most notably in 2nd position behind your first mortgage cash out loan (conventional). These banks tend to be local community banks or credit unions.

- The other question is will you qualify for a loan or a line of credit so you'll need to check your credit, assets, and income -?? 

- One method is 85% cash out using FHA since FHA will allow use of rental income from "boarders/roommates," while conventional financing will not, down side is hefty monthly MI payments but the effective overall rate is still much cheaper than your current of 8% with 3 year balloon

- it also depends on how you file your rental income or if you dont file it and take the rental income as cash this can change the characterization of your property from primary, to rental, etc (how loan underwriters will look at it)

The above is how I would review this file from from my perspective feel free to add any info about your scenario or PM me if you have any particular questions.

Medium new american funding logo  Albert Bui, New American Funding | [email protected] | 949‑514‑5106 | http://albertbui.com | CA Lender # 345453, WA Lender # 345453, TX Lender # 345453, TN Lender # 345453

You are looking at a regular, primary residence cash-out refi. The fact that you are renting out rooms will impact your income but does not change the other facts.

Keep in mind that any cash out that brings you below 20% equity will mean that you have to purchase private mortgage insurance, which will add significantly to your overall costs.

Good luck.

Thankyou for all the helpful and quick information and thankyou for such an in depth response @Albert Bui I am claiming my rental income through an llc i started for the tax benefits, how will they look at it? and what advice on how much to deduct?

The income will be considered the same as having it in your own name unless if you own less than 25% of the entity but from what you're mentioning it sounds as if you're holding it in your LLC as 100% member with a K1 form at the end of the year that will probably state 100% ownership. So the income will be considered the same as if it was on your Schedule E of your tax return (form # where all royalities, rental, and passive income activities are displayed).

Your Welcome

Medium new american funding logo  Albert Bui, New American Funding | [email protected] | 949‑514‑5106 | http://albertbui.com | CA Lender # 345453, WA Lender # 345453, TX Lender # 345453, TN Lender # 345453

This is my first time owning an llc and my first property getting traditional financing, when i deduct all my office expenses and depreciation and all the things i can from my llc will the price they add to my income be before or after taxes.

Originally posted by @Albert Bui

If you live there it is not considered investment property (like for like exchange). I recommend you get some advice on the 1031 aspect since its usually for an investment property which is not your primary but in any event you could potentially sell for partial to little tax as a primary home if you've lived in this home as a primary home. In most cases if your accountant claimed depreciation on the portion of your home used for rental activity or home office activity you may have whats called depreciation recapture at 25% of that portion claimed/gain.

I believe the OP indicated that the property was a fourplex and that he lived in one unit and rented three units out.  This is split use property and may qualify for both the Section 121 Exclusion ($250,000) and the Section 1031 Exchange.  The gain would be allocated between the primary residence and the investment usage generally by square footage to determine how much gain would qualify for the 121 Exclusion and could be deferred via the 1031 Exchange.

Medium exeter 1031 clr cntr bBill Exeter, Exeter 1031 Exchange Services, LLC | [email protected] | (619) 239‑3091 | http://www.Exeter1031.com

Thanks for the clarification Bill it seems taxes are always logical in most cases.

Medium new american funding logo  Albert Bui, New American Funding | [email protected] | 949‑514‑5106 | http://albertbui.com | CA Lender # 345453, WA Lender # 345453, TX Lender # 345453, TN Lender # 345453

Originally posted by @Bill Exeter :
Originally posted by @Albert Bui If you live there it is not considered investment property (like for like exchange). I recommend you get some advice on the 1031 aspect since its usually for an investment property which is not your primary but in any event you could potentially sell for partial to little tax as a primary home if you've lived in this home as a primary home. In most cases if your accountant claimed depreciation on the portion of your home used for rental activity or home office activity you may have whats called depreciation recapture at 25% of that portion claimed/gain.

I believe the OP indicated that the property was a fourplex and that he lived in one unit and rented three units out. This is split use property and may qualify for both the Section 121 Exclusion ($250,000) and the Section 1031 Exchange. The gain would be allocated between the primary residence and the investment usage generally by square footage to determine how much gain would qualify for the 121 Exclusion and could be deferred via the 1031 Exchange.

No, he said a 4 bedroom. He has room mates, nor tenants.

Originally posted by @Richard C. :
Originally posted by @Bill Exeter:
Originally posted by @Albert Bui If you live there it is not considered investment property (like for like exchange). I recommend you get some advice on the 1031 aspect since its usually for an investment property which is not your primary but in any event you could potentially sell for partial to little tax as a primary home if you've lived in this home as a primary home. In most cases if your accountant claimed depreciation on the portion of your home used for rental activity or home office activity you may have whats called depreciation recapture at 25% of that portion claimed/gain.

I believe the OP indicated that the property was a fourplex and that he lived in one unit and rented three units out. This is split use property and may qualify for both the Section 121 Exclusion ($250,000) and the Section 1031 Exchange. The gain would be allocated between the primary residence and the investment usage generally by square footage to determine how much gain would qualify for the 121 Exclusion and could be deferred via the 1031 Exchange.

No, he said a 4 bedroom. He has room mates, nor tenants.

Sorry, I was thinking four bedroom but typed fourplex.  He rents the three rooms out , so they are roommates and tenants.  The property will still qualify for split use treatment as he does rent three bedrooms out.

Medium exeter 1031 clr cntr bBill Exeter, Exeter 1031 Exchange Services, LLC | [email protected] | (619) 239‑3091 | http://www.Exeter1031.com