quick newbie question

[Vaughn Black]

Hello everyone,

 I have a question and I was hoping I could get some input from people with wayyyy more experience and knowledge than I currently have. I am new to investing and looking to do a fix and flip or a fix and rent deal (in case I can't sell in a timely manner) very soon (1-3 months ideally). Here is my question- We currently have a mortgage on our home in northeastern Pennsylvania on  which the payoff is  about 68-70% of value. I have a few options and I was wondering what the opinions are:

Option 1- Refinance with an 80% home equity loan and payoff the existing mortgage and pull a few thousand out in cash to put towards an investment deal. I could refi this at 30 years instead of our current 20 year mortgage and drop the monthly payment by $200.00 also which I could use elsewhere. This would give me the needed cash to purchase an under 40K property outright or a significant down payment for a more expensive deal and help with rehab costs But would be a new loan/inquiry on my credit report 

Option 2- leave it as is so I don't have any new inquiries on my credit report and no recent loans to make it easier to obtain financing for an investment deal over the next few months.

I see advantages and disadvantages to both and am trying not to over-analyze.

Thanks for any input

[Charles McCabe]

Just to be clear, you're not going to be paying off the existing mortgage, right?  A home equity loan would be an additional loan against the equity in the house.

So maybe you're talking about refinancing the whole thing, not really doing a "home equity loan", per se.  I think that decision would largely be driven by the current loan terms for me.  If you can take advantage of a significantly lower rate than you have now, I'd do it.  And if that results in a cash-out refi, even better...you'll be financing investment property at owner-occupied rates.

Probably depends on the size of the investment deal you might do (and therefore the amount you'll need to have/borrow) and where your credit stands now.  If your credit is decent and the investment deal is smallish (like the 40K you mentioned, which is about the average of mine so far), I'd think it's best to refi your residence and use as much of the cash-out for investment as possible because of the great terms.  If the deal might be big and your credit can't take the strain, perhaps you're better sticking to your current mortgage and doing the investment on its own or doing the refi and socking away the cash saved until you're in a better position cash-wise or credit-wise.