Forced Equity Cash out

[Joshua Martin]

Hello all,

I have owned my primary residence for 3 years. I have renovated with contractors and some DIY. All together around 80k worth of money invested. Looking to get that cash back as soon as possible to use it to fund my business. Intentions are to rent the house out next year and find a new primary. Wondering if it will be a waste in fees paid to either HELOC or Cashout Refi because there may be a possibility of having to sell to get the primary residence we want next year and end up paying Realtor fees to sell it.

Thanks in advance.

[Bryan Maddex]

Good morning @Joshua Martin

Great thing about a VA mortgage is you can do an IRRRL even after you have moved out of the property! VA loans are the only loans that allow this, and there is no rate penalty for it no longer being your primary home.

With that in mind, you could do a cash out refinance today at a higher rate than current market rates which will create profit on the loan, we can take that profit to pay for your closing costs. This way you have a free or mostly free refinance from a cost perspective.  Your rate will be higher than current, but give you your cash out to use for future opportunities.  If you decide to sell, you will only have paid a little more in interest over the remaining time that you are in your home.   That higher interest will be a lower cost than the closing costs for the refinance so a net gain (depending on your new loan size). 

If you decide to keep your house, you can do an IRRRL after you have made at least 7 payments on your new mortgage. You do not have to live in the home in order to do that!

Last thing to consider is if you are buying a new home, will you want to do 100% financing and will you have the remaining bonus entitlement to do so. This is a quick calculation that we can do to see how much house you can purchase at 100% financing if desired. If you purchase over that limit, you just put 25% of the difference down.  

Example: Lets say you can purchase a new home up to $500k at 100% financing using your bonus or secondary entitlement for a VA mortgage. Now lets say you find a house for $600k. You would only put $25k down on the $600k purchase and you would still not have PMI! $25k is only 4.16% of your new purchase price, heck of a deal.

Thank you for your service and let me know if you want to talk any more details and run actual numbers based on your situation.