Financing options for our first investment property

[Megan Lamke]

We are looking to purchase our first investment property. My husband is hesitant to do a cash-out refinance or a HELOC in case the value of our home doesn't say high. How have you reassured first-time investors? Alternatively, we could use our 401K to fund our first purchase. What would you recommend?

Home Value: $260,000

Mortgage Balance: $98,000

Mortgage payment: $573.80

Interest Rate: 3.5%

401K: $171,000

We are debt free except our mortgage. 

[Stephanie P.]

Originally posted by @Megan Lamke:

We are looking to purchase our first investment property. My husband is hesitant to do a cash-out refinance or a HELOC in case the value of our home doesn't say high. How have you reassured first-time investors? Alternatively, we could use our 401K to fund our first purchase. What would you recommend?

Home Value: $260,000

Mortgage Balance: $98,000

Mortgage payment: $573.80

Interest Rate: 3.5%

401K: $171,000

We are debt free except our mortgage. 

If you're staying in the house long term, the value in relation to the HELOC doesn't really matter. If the value drops too much, the bank will close the line and if you're staying there long term, you don't have to worry about the mortgages being more than the sales price.

How much is the investment property?

I would leave the first mortgage alone at 3.5% and do a HELOC if you're looking for down payment and closing cost money for the investment property.

I'd also leave the 401K alone even though you would probably be able to get a loan against it. Ask your CPA about how interest on the HELOC will reduce your taxes. Maybe not much, but something as opposed to nothing with a 401K loan.

Best of luck

Stephanie