Cash-out Refinance for next Downpayment???

[Steve Borodin]

Hey everyone. I'm looking for some advice on my next deal. Currently, I own one rental property which I purchased using a conventional mortgage with 20% down. That property is currently rented out. I'm looking to buy my next rental property, but obviously my first purchase absorbed most of my liquid cash (aside from emergency reserves which I plan to hold onto). I do, however, have about $65k of equity in my primary residence. Although it's not enough money to fund the entire purchase, pulling out that equity would provide more than enough for a downpayment and minor rehab on my next property. That's all assuming I can lock in a lender that would be willing to count that cash as usable funds. I'm looking to buy either a SFR or a duplex in the neighborhood of $140-$170k. After speaking with a few lenders and hearing the terms, I decided that a HELOC wouldn't be the best loan for my plan of action. I initially inquired about a home equity loan to pull out some cash. After further discussion, I found out that since I have a VA loan on my home, I could also do a cash-out refinance for up to 100% LTV. I am currently 3 years into a 30 year mortgage at a fixed 3.25%. My options for withdrawing $50k of equity would be the following: - 15-year Home Equity Loan @5.5% which amounts to $408/mo - 30-year cash out refi at 3.375% which would add $180/mo P&I to my current mortgage payment (plus the 3 year extension) My DTI is currently 30% and my credit score fluctuates between 780-800. Not including the rental income it would bring in, acquiring this property would put my DTI at around 36%. I have a few questions to go along with this: 1. First of all, are there lenders out there who will view this cash as a legitimate source for a downpayment? 2. If I can't translate this cash directly to a downpayment, could I deposit it into my account for a few months to let it "season" before seeking a conventional loan? 3. Which option would you recommend for extracting equity? On one hand I would have the loan paid off in 15 years and my original loan would remain untouched, however the interest is 2 points higher. On the other hand, my primary mortgage rate would increase very slightly and my loan term would get extended by 3 years, but my monthly additional payment would be significantly smaller. This would make it much more likely that my rental income would cover both my mortgage payment and the additional payment incurred by the refi. 4. Should I just take out the minimum amount of money needed to fund the downpayment? Or with money coming so cheap currently, should I take out a little extra to put towards future investments right now? 5. Any other pros or cons you could point out with using this method of funding would be appreciated. I'm all ears and have a very open mind in regards to this. If you've used a similar strategy in the past, I'd love to hear your lessons learned. Thanks for hanging with me through this mini novel. Looking forward to hearing from you all!