I’m wondering if I am taking the right action and I’m looking for some advice. I have a property that I want to refi and pull some money out of, but now I’m wondering if I should take a HELOC instead. Let me give a little background. Currently I owe 137K on the property and am cash flowing around $120 a month with a Lease Option tenant living there. I was thinking of refinancing it for 185K and using that money for another project. I want to get a Negative Am loan that I’m not going to pay any closing costs on due to the fact I have that Lease Option tenant living there and under contract until September of 2008. I don’t want to get hit with closing costs twice. Once now and once again in 2008 should they execute and buy. I know that with a no closing cost type of loan, I can typically expect to pay a premium of around $150 per month, but that’s ok. With the Neg Am loan payment being low I’m still going to be able to cash flow positively each month. Even after 12 months of only paying the lowest payment and having the difference applied to the back end of the loan, I will still come out a head. Like I stated earlier though is this best route for me to go? Would it be cheaper to do a HELOC or another type of loan? Any insight on this would be greatly appreciated.
You have not provided enough information to really get any advice. FICO scores, property value, LTV you are looking for, documentation type… all of that information will go a long way towards helping point you in the right direction. I can say this though; a HELOC will have the lowest closing costs because all of the major national banks are doing them with no closing costs now.
I concur with the previous poster—you haven’t provided enough info for any of us to give you a definitive response.
Please proceed with caution with your intent to use a neg am loan to improve cash flow—this could potentially be “short term gain for long term pain” outcome for you.
Regards,
Scott Miller
Ok sorry about that guys. Here is some more info. . My goal for even considering this is to pull some money out to do a couple of more deals. I’m self-employed so going basically off my credit score (730’s) and my assets. I just had the property appraised for the refi and that came in at 215K. The reason I started thinking of doing a HELOC instead was for the reason Christopher brought up. I see you can get one with little or no closing costs. Ezloanz what kind of issues are you referring too that I can run into with a Neg Am loan?
One question you didn’t answer with respect to refi or HELOC is how long you intend to hold the loan—longevity doesn’t favor the HELOC despite the low cost of entry…
The core issues are Neg Am and recasting—has someone explained to you what happens when you make the min. payment every month?
Regards,
Scott Miller
Well my lease option contract with my tenants will expire in June of 2008. So if they execute I want the loan for only that long. I’m assuming what you mean by recasting is that the difference between the minimum payment and the maximum payment gets attached to the principal. Instead of my principal decreasing it will actually increase. If that’s not right please correct me.
Neg am is the accumulated difference between the min. payment and the I/O payment over time—recasting is when you loan resets/reamortizes after too much neg am has accumulated (anywhere between 110-115% is the sweet spot for most lenders).
Regards,
Scott Miller