Cash Out Refi on Investment Property for Down Payment

[Jonathan Peters]

Mods: Sorry for the repost. I originally posted this in the Real Estate Deal Analysis & Advice forum, but I think it better fits here. Please feel free to close the other thread.

Hi All,

My wife and I own an investment property in California. The home was originally purchased as a primary residence with an FHA 30 year mortgage. We have ~20 years left on the mortgage and the fixed rate is 5%. Monthly mortgage is ~$1300 (~$1800 w/ taxes, homeowners insurance, PMI). Our renters pay $1950/month.

We currently rent in NYC and recently had an offer accepted on a condo in Brooklyn. For the funds the down payment on the Brooklyn home, we have been speaking to our mortgage broker about options. He recommended a cash out refi on the California home.

However, the cash out refi we were quoted is at a higher rate (5.5%) given the home is now an investment property. And the monthly payment will go up to ~$2600/month. We'd be pulling out $397,500 and paying down the previous balance on the home of $209k. We'd also pay off our ~$70k of student loan and credit card debt. After closing costs of ~$8k, we'd be left with ~$110k for the down payment on our Brooklyn home.

The 20% down payment on the Brooklyn home is $164k. We have the extra $54k and $30k for closing to toss on top of our cash out for the down payment.

I'm worried about the cash out refi on the California home at a higher rate than we have already. And after reading some posts on here, I'm wondering if we should be considering a HELOC instead. My mortgage broker never brought up that option. Appreciate your input and advice.

Thanks.

[Zack Karp]

The bottom 3 items are not closing costs.  That's interest, taxes, and insurance.  You would pay those one way or another, whether you refi or not.

The actual closing costs are high, way higher than mine.  But I'm not licensed in CA, so I can't help.  But @Chris Mason is a CA lender and fellow BP member.  He's a straight up dude and he'll tell you flat out if you're getting a good deal or not.

Hope that helps and best of luck!