Is there enough room on this refinance?

Question

Hey Everyone,

I'm thinking about refinancing and I wanted to hear your opinions.. I bought a single-family house in Middletown, CT in April for $172,500 and took out a loan for about $135,000. It's a relatively decent deal and I am currently house hacking. It was in good shape so not the best deal for a BRRRR but the plan is to rent it out once I move out. Now things have changed and I will likely be living here for another 1-2 years but want to pursue another deal without dipping too deep in my pocket. I estimate that the property is now worth somewhere in the neighborhood of $210,000. Assuming 75% of LTV, would it be worth refinancing and only taking out about 60% of my equity? There doesn't seem to be much else I can do to enhance the value of the property to receive justified returns. This will also (likely) be a long term hold and I estimate that vacancies won't be much of an issue as it is a high rental area.

I'd like to note that this is also my first of (hopefully) many deals to come. This particular purchase happened to be for an investment but also a place for me to live so I didn't have the time to wait for the "perfect" deal that would be a good BRRRR property.

Thanks guys and gals for your help!

Ryan Twombly · Answer

Hey Mike,

I live in Middletown CT myself. Have you thought about taking out a HELOC? For a single family owner occupied property you can probably get a HELOC up to 90% LTV. This way you can achieve a higher LTV than refinancing. HELOCs also typically have no closing costs which is a big advantage. I took out a HELOC on my owner occupied three family about a year ago and can recommend some lenders if you're interested.

Mike Sangapore · Answer

It looks like this will be the best route for this property..  I don't know if there are any better options other than a HELOC or waiting it out.. thanks for sharing @Brent Kane! I appreciate it!

Brent Kane · Answer

Mike, I'm going through a HELOC right now on my primary residence and definitely recommend it for the same reason Ryan mentioned above. My numbers are pretty comparable to yours and a HELOC proved to be the best option for me. Check out Nutmeg Credit Union's HELOC program, they will do 90% LTV on a primary residence.

Mike Sangapore · Answer

Nice! I just moved here back in April, I like it so far.

I haven't really considered a HELOC for this property but am digging into it more. That said, yes, any recommendations would be very much appreciated! Thank you!

Mike Sangapore · Answer

@David M.That's kind of what I was thinking as well - it would help for another deal, but wouldn't make a world of difference.  I suppose if there are low cost updates I can do that will create better returns I can fish those out, otherwise, I will let it sit and potentially refinance in the future if things makes sense. Thank you for input again.

David M. · Answer

@Mike Sangapore

Oh okay..  I normally don't look at recouping my money down (its not really a "payment," just part of the additional funds required to close).  So right...  you are able to pull out more equity from your home.

It really depends...  With mortgage rates going up, not sure if its worth it.  Probably since your price points are so low.  Also, does the additional $24k (gross) really make a difference in being able to do another deal?  Is it enough?  Don't forget you have to pay for another closing normally, so maybe you net $20k...  That's roughly a 20% "haircut." or maybe just under 20%.

For what I'm used to I wouldn't do it.  But, maybe this transaction works for you and lets you do a deal that will earn you more money...  I don't know.  Good luck.

Mike Sangapore · Answer

Hi @David M. I appreciate your response - sorry about the confusion. By 60%, I mean I would be recouping about 60% of my down payment after refinancing. My thoughts being: 210k* 75% = 157,500. 157,500 - 135,000 (now really about 133,500 after paydown) = 24,000. 24,000/40,000 (40,000 being my down payment) = 60%.  Thank you again for your help!

David M. · Answer

@Mike Sangapore

not sure of the deal you are asking.  75% of LTV..  60% of equity???  What are you dong?

anyway, 75% of 210k is $157.5k  With your existing $135k loan, that leaves you with $22.5k cash, less closing costs, etc.  60% of $210k is $126k.  That won't even cover your existing loan amount.

???

Is there enough room on this refinance?

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