Investing in Multifamily... Take Home Equity Line or Refinance Mortgage?

I am looking into getting a home equity loan or refinancing my mortgage to get funds for the down payment of my first Multifamily investment property . Which is the better option? Also is it better to put down 20% to avoid PMI? Lastly my wife and I are really soul searching because we don't want to use up all our equity in our home due to the fact we may sell in a year or two and will need to maximize our equity in our home for a down payment. I know I have lots of questions but I want to make the right choices. Our house is valued at 250000 and we owe 163000. Thanks, Scott

Investing in Multifamily... Take Home Equity Line or Refinance Mortgage?

that all depends where interest rates are.....if it makes sense to refinance your mortgage you could save alot of money.....what is the rate on your existing mortgage?......what is the price of the multifamily u are looking at?

Investing in Multifamily... Take Home Equity Line or Refinance Mortgage?

If you are going to move in a year or two, it might not be such a good option to refinance. Because, you will have all the settlement costs associated with refinancing--the lender can make you purchase another title policy ( under 5 years youcan

usually qualify for re-issue, which is a bit cheaper), and can charge a point or more for closing costs. However, the plus is that, with the dip in interest rates, you should be able to get a good fixed rate 30 year mortgage, assuming your fico score is 700 or better. ( used to be 680 was the magic number, but not anymore). You want to do two things:Consult a mortgage broker to see which alternative makes sense; and consult an accountant. If you take an equity line on top of your current mortgage, it may not all be tax deductible. It depends on what your original mortgage was. Really, If I were you, I would consider waiting until you know if you want to sell your current home. Right now, in most markets, housing is still declining. You may be able to pick up your rental property cheaper, without possibly putting yourself in the position of over-mortgaging your current home, in a declining market. Of course, you may be in one of the few markets still doing well--only you know that, so consult professionals that can deal specifically with your individual set of circumstances. This is a very complex topic for this kind of forum. One more thing, think about carrying two places at one time in the event your rental property is vacant, or you need repairs on both properties at one time. These things can be a budget buster, so be sure you are comfortable with the numbers, you should have a cushion of six months worth of expenses--for each property. Good luck!

Investing in Multifamily... Take Home Equity Line or Refinance Mortgage?

Hi Scott. You don't need to put down 20% to avoid PMI. You need to do two loans if your down is less than 20%. One at 80% of the loan to value (LTV) and one at 5-20% of the loan to value (LTV). This effectively avoids PMI. Plan on a minimum of 10% down in most cases for your investment loan. They don't usually like to go above 90% CLTV (combined loan to value). Just make sure to calculate your blended financing rate correctly (annual interest payment on the 1st plus annual interest payment on the second divided by the total loan amount) when you do your comparison shopping; averaging the interest rates doesn't work.

That said, a HELOC may cost you more than a second mortgage although you may have more flexibility with the HELOC in terms of what you need to pay monthly (interest only or interest and principal). I have a good loan advisor that I can refer you to if you want to run numbers without making a commitment. Just shoot me an email and I'll give you his info.

I calculate your current LTV (loan to value) in your home at about 65% That means that you may be able to refinance your existing loan and pull cash out for investment. Looks like you may be able to pull about $35k without a problem...

If you could provide information on the cost and income from your prospective multifamily investment, that would help. Keep in mind that going over 4 units ends up in the commercial financing arena with a different set of standards and loan/financing requirements.

Hopefully this is helpful.