Cash out refi question...what if...

[Steve DellaPelle]

I have a home equity loan out for ~$98,000 with the property being valued at ~ $215,000

I realized there was a ton of equity sitting there so I decided to apply for a cash-out refinance...during my 30 minute phone application one of the questions that came up was "Will you be using the proceeds to purchase any real estate?"

My first response was no but in my head I was thinking...well maybe?

Hypothetically speaking, are there any big consequences that can arise from using the proceeds on a down payment? The bank is TD so I am assuming they generally play it safe and don't want to risk it.

[Kevin Romines]

This is a standard question regarding a cash out refinance. Once the loan is completed and the cash is in your hand, you can use it for anything you wish? The reason the question is asked, is that if its known up front that, that may be your intention, they need to see what that could mean as far as additional liabilities and higher debt to income ratio's? 

Rentals can most always offset any mortgages you may have on them with the rents. The rents can only be counted once you have a lease agreement executed and in some cases deposits in hand. So that's the sticky point, they are asking the question now before you complete your cash out refinance, if you say yes, they may factor something additional into your debt ratio? If you say no, the cash will be used for some other reason, they can take that for face value and work to close the loan.