Should I refi? All details included

Question

Hi bp family, I have got my numbers sorted out and clear to close. I wanted to take advantage of lower rates during the pandemic but wasn’t able to until recently due to proof income (1099)
I’m cleared to close and feel comfortable but still want some people to poke wholes if possible. I’m the first in my family to own a home and want to own Real estate so I don’t have anyone to help guide.

House is 2/1 in largo FloridaCurrent loan:

I bought the house for 160k. I owe 150k , It’s at  6.25% interest,  house appraised at 278k last weeknew loan:  200k at 5.75% interest, would give me 38k cash back

My current payment is set to 1500 a month some applied to principle. The new loan would be just under 1500 a month with t&a

I plan on putting another bedroom on (at cost) me and family are contractors and then holding the rest (with other savings) for hopefully an opportunity to come up where I can buy an investment property.

my thought on this was to not max leverage my current house but give a little cash boost well also allowing room for the current market to cool down. Please any advice or ideas are welcome thank you!!

Corby Goade · Answer

Congrats on the purchase and your equity!

I don't recommend cash out refis as investment vehicles for new investors. The fact that you are paying interest on the cash from day one without any specific plan to use it, combined with the fact that most new investors suffer from analysis paralysis- that money can be very expensive in the long run.

I'd suggest you explore a HELOC. You can typically get a higher LTV and pay no closing costs. In addition, you don't pay anything until you actually use it. Yes, generally the rates on HELOCS are a bit higher than a conventional mortgage and they are variable, but if you have a solid exit strategy on your new investment and buy right, you should be able to cash out and pay it off in less than a year. Over time, it's much more likely to be less expensive and it will definitely be less stressful.

Best of luck!

Theresa Harris · Answer

If your mortgage payments will be about $1500 a month, how much are property taxes?  You want to make sure your rent covers all of your expenses.  You might be better off leaving it as a 2/1 and using that $38K for a down payment on a new rental.

Theresa Harris · Answer

Is this an existing rental or will it be a rental?  If you add a bedroom (I'd add a second bath if you can to make it a 3/2), how much would it rent for, how much would the renos cost and how much would it add to the value of the home.

Joseph Beilke · Answer

@Dakota Cochran

In most other states I would not be adding a bedroom with the current cost of materials.  In Florida I don't see it been as much of an issue at this time.  People are moving here in flocks and it will keep the inventory some what low, even with the rate hike.  If you plan on holding this property for the foreseeable future, I agree with @Corby Goade a Helco may be a better options.  The next few steps should play into your decision heavily.  If it's the home you live in, it's not an asset, it a liability.  Remember that!

Jonathan R McLaughlin · Answer

sounds like a very good plan

Should I refi? All details included

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