I’m finalizing the purchase of a new home this Wednesday and plan to turn my current residence into a rental property. I have two mortgages with different lenders on it. Is it possible to refinance the house right after I close on the new one to get some cash out for renovations, or would that be generally discouraged
Yes, it’s perfectly legal to refinance immediately. However, consider a few points:
-
You’ll incur another set of closing costs.
-
The limit on how much you can borrow against your home’s value, especially for cash-out refinances, might be lower than for a purchase, potentially limiting your cash-out amount. Did you buy your home for well below market value
-
If you pay off the mortgage within a certain period, typically before six months, the loan officer might have to return their commission.
Wouldn’t it make more sense to reduce your down payment on the new property instead of extracting equity from it That approach seems more straightforward.
It sounds like you’re discussing refinancing your current, not new, home to convert it into a rental. It might have been more advantageous to refinance the old home before purchasing a new one. Now, refinancing it as a rental property means potentially higher rates. Also, if you’re new to renting out property, lenders might significantly discount your rental income, affecting your qualification for refinancing.
@Sidney
You caught something important here! Refinancing as an owner-occupied property should have happened at least 12 months prior to maximize benefits. The interest rate differences aren’t huge with excellent credit, but the LTV restrictions for rental properties do make a difference.
Just to clarify, you’re looking to refinance your existing home, right You can do that, assuming you qualify, but since it’s now an investment property, expect higher fees, reserve requirements, and a lower LTV, which means less cash out than possible a couple of months ago. Ideally, you should have initiated this before entering a contract for a new home.
What are the current rates on your two mortgages Do you still have equity after both loans Keep in mind that refinancing an investment property is usually stricter, often with a maximum LTV of 70% or less. Some lenders might not allow a cash-out refi on an investment property.
Is your goal simply to increase your cash reserves
You might consider waiting to refinance until you’ve made at least six mortgage payments. Refinancing earlier could mean your lender has to return their commission, which could significantly affect their personal finances, as many rely solely on these commissions.
@Shawn
The refinancing question is about the current home, not the new one.
Pax said:
@Shawn
The refinancing question is about the current home, not the new one.
Oh, in that case, it should be fine. What are the interest rates on your 1st and 2nd loans If they’re both for your primary residence, it definitely makes sense to consolidate them if the numbers work out.
@Shawn
I’m not the person who posted this question. I was just making a correction.