I hope that one of you who are financial whizzes can offer some advice to me. I am trying to identify resources for investing. I am in Phoenix…a real sellers market right now. A broker that I contacted has suggested that I refinance the first (currently at 5.125% interest) and second (currently $38,000 at 5.5%) mortgages into a new first. The loan offers are 5.5% for a 5 year ARM with a 5 point cap) or a 6 % conventional 30 year loan. He also suggests using a line of credit to tap into the equity for the investment down payments (probably will be around $100,000-$120,000). I don’t know how long we will remain in our current home, but am open to taking a risk with the 5 year ARM if that makes sense since it has a lower interest rate. However, if I go with the conventional 6% loan my new payment will only be $40.00 more a month than I am currently paying between the current first and second mortgages. I know that on the surface it doesn’t make sense to pay a higher rate, but I think it may make sense to do so assuming a find a property with a positive cash flow after expenses and factor in the tax benefits from depreciation. Any advice is appreciated. Or, if anyone wants to suggest alternatives, I am open to them as well.
Thank you! ???
speshul,
What are you trying to accomplish? Will you be pulling equity out if you do end up going with the conv 30 yr? What will the LTV be? If over 80%, expect to pay PMI. Also, you need to look into the costs of the loan. If you do decide to move, how long before you recover the cost of the loan? ???
Yes you could do all that
You could do so creative financing with cross collateralizing instead of all of this loan Stuff
Thank you both. Laura, what do you mean by “cross collateralizing”?
Cross collaterlizing is putting a note or using the equity in form of a note against another property.
So instead of using cash from your home you use a note or mortgage against it
To better understand your scenario, I need more details on your situation.
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What’s the market value of the home and your current combined loan amount?
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How long have you been in the property?
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What’s your total combined monthly payment?
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What is the anticipated cost of the investment property?
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A good credit score is helpful. Do you know what yours is?
Laura and Sam, thank you both. Laura, can you respond again as to the steps I need to go through to use a note against the equity in my home rather than using a loan?
Sam, the answers to your questions are…
- Market value of my home is approx. $390,000
- Current combined loan amount is $251,000
- Current combined monthly payment is $1,791.
- Time living at current address is 5 years, 10 months
- Anticipated cost of investment property is about $240,000 for a multiplex building. I am willing to look at smaller, less expensive propositions
- Credit scores are 781, 785, 818 as reported by the 3 agencies.
Well you deffinately have equity in your home
What I would have you consider is this senerio
Say you are buying a multi units for 750k and they will do seller financing and all they want is 20% down well give them a note for 139,000 against your property and there is the 20% down.
or your and do a trade for 139k for a home that is worth 200k +. Create a note agianst you property and then Sell the Property via Wraparound sell the note and get the note paid for plus some cash.
There are many more idea this is just a start.
The way I’m approaching this is from a financial strategy not a mortgage point of view. Mortgages create a domino effect on your financial life. It’s important to leverage and balance them out so you’re able to go where you want to go.
I’m going to give you a very basic approach. However, given your current situation and the loan types available in your area, there are many potential options. We can discuss those options privately, if you like.
On the primary property:
Objective: combine first and second into one loan
If combined into a hybrid ARM, you have 2 options:
Option 1 (just Refi home):
$251k into hybrid loan – min. payment $646/mo.
You take your current payment of $1791 and minus the new minimum payment option of $646 from it to equal $1145.00 /mo. in savings (Do Not SQUANDER the Savings! Use it to protect yourself & your family) YOU control it, not the bank!
Option 2 (if buying investment property):
Current loan amount (251k) – pull all available equity out, approximately 42k for total of 293K.
Min. payment. Option for this type of loan approx. $753/mo.
$1791 minus $753 = 1038.00/mo. in savings.
If done correctly, the goal is to put down 25% on investment property = 60k
How to do this: 40k equity and an additional 20k of either personal monies or line of credit, for the down payment on the investment property in order to use the hybrid ARM with the minimum payment option.
Minimum payment option on investment property is $499/mo.
If you decide to get investment property, take your primary property’s min. payment of $753.51 + investment property’s min payment of $499 to equal $1252.51 a month.
If you rent it for approximately (depending on your market) $2000 per month, your positive cash flow could be $747.49 a month after both mortgages are paid for by your renter. (Doesn’t include taxes & Insurance.)
End result = own 2 properties and reduce monthly overhead. Both properties appreciating, monies available to protect you and your family either to earn an additional rate of return or as an emergency fund, renter paying off mortgages and possibility of additional income from renters.
Thank you both so very much!