Ready to invest, whats the best way to capitalize on my situation

[James Whitehead]

Apologies if cross posting isn't allowed, I looked around and didn't see any rules against it.

Im ready to make the plunge!

First post, apologies if I ramble...

Just came home after a year in the middle east trying to get a head a bit, after tax season we have a decent little egg in the bank, in addition to that the home we live in has a bit over 100k in equity we can take advantage of.

So my question is really this, should I purchase a second home and rent out the one we own so that I can do a cash out refinance? our mortgage is 1k and rent in our area is avg, 1600 a month. We have been researching and heavily interested in purchasing a STR in the Smokies. Or should I consider a HELOC on the equity we have and not purchase a 2nd home.

Another question I have as I am about to go start talking to banks and loan officers and see who is interested in my business, what questions should I ask loan officers with these goals in mind?

I have been researching, listening to hours and hours of the podcast, as well as reading books from bigger pockets, im hoping that through the forums I can meet other like minded people and maybe even find a mentor that understands my goals.

For everyone that takes the time to read this thank you and I look forward to hearing your responses!

[Andrew Garcia]

Hi @James Whitehead, wlcome to REI!

You do not need to rent out your current home in order to do a cash-out refinance. In fact, rates are better on primary residences.

A HELOC might not be the best option for using it as a down payment. @Scott Trench had a great post HERE about why it might not be the best option.

You might want to look for a fixed-rate HELOC or a fixed-rate second lien if you do not want to lose the interest rate that you have.

You also mentioned that you have multiple properties so you might be able to get a cross-collateralization loan.

As for the debt-to-income ratio, you will generally want to stay below 43% but you can go up to 49% for automated approval for conventional financing.

If your debt-to-income ratio is too high due to your current properties, you can get a DSCR loan. That is where they qualify you based on the income generated by the property, not your personal income.

As for what questions to ask your loan officer, a huge one is getting a rate quote. You do not need to go with the one with the lowest because often times they have worse service but you do not want to go with someone that is out-of-line.

You should shop with 2-3 different lenders. To properly shop, make sure you get rate quotes on the same day as rates change daily. Then, you will want to ensure you give each lender the exact same information. Finally, you want to ask for “par rate”. That means you will not pay any points to buy down the rate.

You do not need to fill out an entire application to get a rate quote. The lender only needs to ask you a few questions. You have 45 days from your initial credit pull to shop around with as many lenders as you would like without it hurting your credit.

Hope this helps! Let me know if I can be of any assistance.