Cash Out Refi Personal Home for 1st Rental?

[Cameron Moore]

Hi Everyone,

Let me start out by saying I’m new and trying to learn so please bear with me! To give a breakdown about my current status see below:

-I’m 25 with a fiancé and 1 yr old

-Credit Score is 637

-First time home owner (6 months in)

-Loan Balance is 199,740 @ 5.5% Interest

(1550 monthly payment) (FHA Loan)

-Appraised Value is 235,000

-Currently household income is clearing only $626 a month after bills & living expense.

*Doing a VA cash out Refi @4.125%

*Can get 30k back and monthly payment will lowered to 1427 and loan balance will be 237,590 (7,590 is VA Funding Fee)

**If I don’t pull the equity my payment will be 1250

Here’s my dilemma.. I want option 2 but my fiancé strongly disagrees (I want to run before I walk)

Option 1

-If I pay off debt that will allow us to clear 1497/Month (871 more)

Debts (other than house)

- 25k in car loan @ 6.79%, 420/month (bad choice I know but you talk to my beautiful fiancé and you’ll understand) 71 months remain

- 2.4k in medical @ 0%, 151.22/month, 11months remain

- 3.6K in student loans @ 6.55%, 70/month (who pays these anyways?) 60months remain

Total Debt 31K

Option 2

I buy a rental through my buddy who does that for a living (turn key rental sales and management)

I’m still learning the numbers so I’m sorry I can’t give you a better breakdown but here is what I sort of know:

-20K down on a 70K property and 15 yr loan

-Will clear about $100 after mortgage, repair cost allocation, & mgmt fee.

-after loan paid in 15 years, will clear about 1,300 month.

I know I can branch out and cash out refi the rental a while later but again I’m new at all this so I’m taking it at face value.

Maybe option 3?

-refi with no payout and snowball the extra 400/month into debt

Should I pay off all loans and wait to recoup 30k in 35 months [math 30k/871 (money saved)] then invest? Or Invest now while I use the 200/Month lower mortgage to snowball off my debts? I’m sure some of you feel like I’m stupid and overly eager and you’re probably right. I do not come from a financial savvy family so I’m learning as I go. I really appreciate any advice you might have for me!