Pay cash and Refi, or start with Mortgage?

Question

I am trying to figure out if I should offer cash, and then refinance, or get a mortgage upfront.  The properties I'm looking at are not BRRRs.  (I am doing that with a BRRRR, and the advantages of cash than a refi is much more obvious in that situation.) The appraised value won't probably go up much, as I won't be putting a lot of work into them.  For me,+ the disadvantage would be doing only one deal at a time, but if cash to refinancing season isn't too long, that wouldn't be a huge problem.  I am wondering if the advantages are no points, better interest rates, and better-negotiating power.  Would I be able to get better rates long term on a refinance?  Would fees and points be lower on a refinance?

Details: Properties I'm considering are in the $130,000 to $180,000 range.  I probably have to use my HELOC to have enough cash (though it is about half the % of the mortgage rates I'm being offered for investment properties).  The properties are SFH or Duplexes.  I will not be owner occupying the properties (which seems to be causing a lot of the issues with poor rates).

Some helpful suggestions I could use - companies and suggestions for refinancing companies with great rates and short seasoning time periods, or mortgage companies with better rates for investment properties (I've been prequalified by a few, but rates are in 5.9 to 6% rage - is that high?

Thanks for any suggestions or help!

Eric James · Answer

If you're buying properties that don't really need work you may not get much of a better price by using cash.

Chris B. · Answer

One small down side with cash then refinance is you would have a "cash-out refinance" and interest rates are about a half percent higher than a refinance and I assume that holds for new purchase financing also.  If you can get enough of a discount when buying with cash, and then having to sit on the property for 6 months in some cases before you can refinance, then consider cash.  Unless you get a good deal, it seems going in with financing is the option.  Regarding the mortgage rate you’re being offered for investment properties compared to a HELOC, I’m seeing them pretty close so shop around some more.  For example, I got a cash-out refinance on an investment property recently at 3.99%.  I was concurrently investigating a HELOC on my primary home and was seeing around 4.50% at the same time.  What you would qualify for would depend on your situation which may be quite different than mine.

Xela Batchelder · Answer

@Chris B. Yeah, I didn't realize the Cash Out would be a different rate from a regular refinance, so that is helpful!  My HELOC looked to be in the 3.4% range, but regular mortgages so far is 5.9% or higher.  So maybe I need to keep shopping it!  And you managed 3.99% on a cash our refinance?  That would be wonderful to find.  I'll keep looking (unless you want to mention who, no worries if you don't).

Thanks!!

Xela Batchelder · Answer

Oh, good point.  Just wondering since the market is a bit hot if it helps my offer go to the top even if it is the same as someone else contingent on loan.  But yeah, it would have to be a combo of a bit of that but really a better rate would really help.