Currently househacking/Wanting to do again-Is refinance worth it?
I currently have an FHA on a 4 unit 3 bed, 2 bath unit that I have lived in for about a year and a half. My plan originally was to refinance to a conventional and begin looking for a new place to live & utilize the FHA again.
Here are some of the numbers I am working through thus far:
1. The potential rent gained from vacating & renting out my current unit is about 1000/month.
2. Bought for 243k. Estimated value is around 320k.
3. My rate currently is 2.875%. With current rates I would expect an increase of 3-400 in monthly payment even without attempting a cash out refinance.
From a straight numbers perspective, it seems I probably would still end up ahead. I just don't have another property yet lined up, so it stings to take that kind of hit on cash flow in the near term.
Would love your opinions on whether to get it refinanced and push for another FHA or to keep as is and double down on a few other strategies.
Thanks!
It all depends on what you want to do in the future. Your rate will be double the 2.875% , but you will most likely still cover 100% of all your debt service with rent.
Do you plan on just buying one more house ? Are you over your house ? Maybe you stay living in your current house and buy another one to be a rental.
Tyler,
Have you considered a HELOC? A HELOC would allow you to pull equity on your primary without having to refi the full balance of the 1st mortgage into a higher rate. You could then use that money as a down payment on a 2nd home or investment home (typically need 20%). Some lenders will allow you to pull up to 90% LTV on your primary. Another benefit is you typically don't get charged interest on the money until you withdraw so that money could sit interest free until you're ready to use it. I've helped clients in the past use a HELOC to buy a second property.
There are some downsides though. Number one, HELOCS are variable interest rate lines of credit so be sure to talk to the lender about how frequently they can change and what the cap rate is. Secondly, as with any new line of credit this will increase your debt ratios and you will need to be sure that you can still qualify for 2 mortgage loans unless you go with a lender that will take into consideration your potential rental income on your primary.
@Tyler French Brandon Turner suggests you look at total cash flow. So if you refinance and your payment goes up $400/month but the new investment brings in $600/month then it's worth it to refinance.
- Conner Olsen with The Moorhead Team
- 702-521-0034
- [email protected]
As Lorenzo said I'd do a HELOC. You'd keep your rate and still use the equity. One downside to doing that is doing a refi would eliminate the PMI. That wouldn't be a big deal to me as the tenant would be paying it down and rates are higher than what yours is. I plan to use a HELOC to keep the low payment. I bought a live in flip and my current rate is 3.1% and will be doing the HELOC option
Appreciate all the insight!
@Sean Ross Good question in terms of plan. I have three 4 families (including my current i live in) and trying to close on another 8 family. I am looking to make the leap to a larger multifamily (16-18 unit) next so i am looking to build up as much capital as possible for the down payment.
@Conner Olsen Agreed- It would net some amount of cashflow. I think the wild card is that this current building is actually pretty good location to my work, etc. so I am having to decide if the risk of finding another multifamily that i'd feel comfortable living in is worth it. Before when i was projected to net 1000+ cashflow a month just to move out, it was worth it, now the numbers are not quite as persuasive.
@Lorenzo Prieto @Caleb Brown Thanks for the suggestion. I had been trying to track down banks recently that would allow a HELOC on my other two 4-families as they have 100+k each in equity. Originally i was thinking a HELOC on this primary wouldn't get me enough compared to the rent I would get from vacating my current unit but it might be the best approach. If i could get one at 90% and a good appraisal it would close to the cash upfront saved from second 3.5% down payment.