BRRRR... overwhelmed by lending options.. advice needed!

[Christian Scully]

Okay BP, help a confused rookie out... I'll give some quick background on my property and what I'm trying to do. 

In 2017 I purchased a home sold as a duplex for a total of $207k including about $23k of 203k funds to make repairs. This was an FHA loan with PMI.

Since then we have cosmetically renovated the 2 units with our own cash. I also took out a $35k personal loan to build the attic into a legal 3rd unit. Cliche story: our contractor underbid the job, took a lot of our money and left us to figure out how to finish the project and fund it. We managed to fund the rest of the project, replacing a lot of what the original contractor actually did, and we also put some money on credit cards. Now the project is just about wrapped up and I am looking at refinancing options since the value of the home is greatly increased. 

I am struggling to figure out the best way to go to achieve my goals. 

Goal 1: Refinance into a conventional mortgage without PMI.

Goal 2: Pay off the rehab loan and credit card debt.

Goal 3: Leverage the remaining equity to fund another property. 

My problem is that each lender offers different numbers on everything : LTV, rates, HELOCs, terms, intro specials... I'm getting lost in the numbers and can't tell which combination is the most cost efficient while achieving my 3 goals.

Here is the basic info for the property: 

Purchase price: $183k + $23k in 203k rehab funds

Current mortgage: $202,000

Additional rehab costs: $60,000

Estimated current appraised value: $325,000

Current interest rate: 4.375%

Rehab loan balance: $31,000

Credit Card debt at 13%-20%: $8,500

Credit Card debt at 0% for another 15 months: $19,500

Desired minimum equity available to use for next purchase: $25,000

And here is the best offerings I've received rom local banks and credit unions for each category: 

Best fixed LTV for Cash-Out Refi: 75%

Best 30 year fixed rate: 5.875

Best 10/1 ARM rate: 4.125 (but this bank's max LTV for the loan is 65%) or 4.625 (cash out LTV of 75%)

Best HELOC LTV: 95% at intro of 3.49 for 1 year then prime +1.25

I imaging the rates would go down if I weren't cashing out any equity. And then there is the option of just a home equity loan, which I can get a rate around 5% for 15 years with a max LTV of 95%.

I would so desperately appreciate any advice from people who have done this before. This is my first property and my first time trying to leverage the equity to move to the 2nd property. A lot was riding on the refinance part of this as we were attempting our first BRRRR.

[Anthony Thompson]

@Christian Scully I could be mistaken but looking at the #s and options you laid out, the only option which has any chance of doing what you're looking to do is the HELOC that will do 95% LTV.

Generally I agree with @Jason D. and would be very careful about getting adjustable rate financing in this environment, and strongly lean toward fixed rate.

HOWEVER you mentioned about 28K of credit card loans at high rates, so even a HELOC/ARM adjustable rate is going to be a lot better than unsecured credit card rates, so I don't think you can go wrong using the former to pay off the latter.

If you did the 95% LTV option you should net out about 45K after paying off your credit cards and rehab loan balance, which would give you enough for a down payment on another property.

What you didn't post though, and is really the other side of the story, is what your income/financial situation is and whether you'll be able to handle all these payments. Especially when you figure on "surprises" like evictions, needed repairs missed on the inspection, boilers/HW tanks going, etc.

It sounds like you over-extended yourself on the first rehab and I would urge you to be careful about getting involved in another major project when it seems you stretched yourself pretty thin for the first one.

There are times to "buy everything you can get your hands on" (like 2012) and times to be more cautious (I'm kinda feeling like that's now, or close to it).

These days, I pay more attention to LTV and debt service coverage ratio than I do cap rate and cash on cash return. So I'd urge you to consider risk/safety equally alongside the desire to aggressively expand your portfolio.