Refi mortgage with home equity loan

[Duane K.]

Hello all, I'm still fairly new to real estate investing and also new to biggerpockets (this is my first post). Anyhow, this is maybe slightly off topic as it's dealing with my personal home rather then a rental property, although I do plan to convert this home to a rental within a few months or year at most.

Background is I owe about $218k on the property, it's zillow estimate is about $212k, but i had a Realtor take a look and they recommend if i wanted to try to sell it (i was looking at options) to start at $240k. I have an FHA loan and am paying $200 a month in MIP for the next 3.5 years, my interest rate is 4%.

So, my bank got in touch with me about an option to pay off the mortgage using a home equity loan from them. Only closing costs are county fees etc, no appraisal fees or anything so less then $500 total. Needs to be 85% LTV but seems like they are willing to use the $240k estimate to meet that criteria. APR would be 4.09%, no PMI thus saving me $200 a month for the next 4 years. I can convert it to a rental, i just have to living in it when the loan is originated. If i pay off the loan within 36 months i owe them $350.00.

I've never heard of this option but it sounds like a great opportunity especially since they seem to be evaluating my property value on the high side to make this work for me, but am I missing anything? Any reason i should give doing this a second thought?

Thanks

[Jon Holdman]

So, they will loan you $204K based on the $240K value, right? You would have to come up with $14K for the shortage plus $500 in costs.

What are the terms on the new loan? Home equity loans are usually only five or 10 year terms, not 30. If they're offering you a 30 year term, this is really just a refi, and a cash in refi at that.

As far as it being a rental, what would be the new payment and what's the rent? Maybe it works, maybe not. Would you self manager or use a PM?