Rookie Refinance question

7 Replies

Hey BP I have a question in regards to rules for refinance.

I know that when you buy a primary residence, you typically have to live there for a year before you can move. Does that same rule apply when doing a refinance ? I’m approaching a year and Im wanting to refinance and get some cash out, but I don’t want that rule to reset and be at risk for a due on sale after I’ve moved. Thanks !

@Andy Acosta Hey Andy! Congrats on the purchase and embarking on the journey of real estate investing.

To clarify, are you asking if refinancing will reset your 1 year wait period and potentially trigger your lender's Due on Sale clause?

Let us know...

Thanks-

Hey @Andy Acosta

Congrats on taking the next step in your RE journey! You mentioned the due-on-sale clause. The due-on-sale clause is from your original mortgage. However, if you decided to refinance, then you are technically getting an new mortgage under new terms ( and possibly, a new due-on-sale clause/terms)

So for example, let's say you have an FHA loan in which you have to owner occupy for a year - correct. If after 8 months, you decided to refinance with another lender in order to get an investment loan in which you don't need to owner occupy, then the NEW lender will pay off the old lender. So sure... the next four months you may not live in that house (and meet your year requirement from your previous mortgage), but thats an irrelevant point because that loan was paid off. 


Hope this helps. Reach out anytime.

@Andy Acosta

There is typically a 6 month seasoning period on a new mortgage. Nothing that says you have to continue to occupy as your primary residence, but it is considered an early payoff if you refi or sell in less than 6 months. How much equity do you have in the place? Have you thought about a HELOC? Much cheaper fees (possibly none). Depending on what you're going to do with the cash and your ability to pay off the HELOC, it might be worth looking into. Good luck!

@Brett Chandler my plan would be to use the refi money for down payment in my next property so it’s preferable to not have a second mortgage for that purpose. I have around 50k in equity.

The thought was to buy a primary every year on a 15 year, live in it for a year and refi out of it as a 30 for the down payment for the next home and move.

@Andy Acosta

I guess I'm not totally sure I understand your plan. There are a few things to consider if you buy a primary every year on a 15yr term, then take the cash out after a year:

1) you will have to pay closing costs twice (once when you purchase, and once when you refi)

2) you will have a higher interest rate on a cash out refi than you would have if you just did a 30yr purchase in the first place

3) depending on how much of a down-payment you make, there may not be enough equity to pull back out for the next purchase

If you are in a property acquisition phase of your investment journey, looking to leverage fully, and willing to move every year, I would either do a cash-out refi on your current primary for your down payment, or take out a HELOC. You will be limited to 80% LTV on a cash-out refi, or 90% CLTV with a HELOC. Then, purchase on a 30yr term, 5-10% down conventional, and use your rental cash flow and job income to pay down the HELOC/save up for the next down payment.

Hope this helps!