In our last blog, we looked at refinancing an existing property for the purposes of getting an investment property and how to do so. This week, we’d like to stick to refinancing as a real estate investment hack but look at how it can be used to facilitate a new home purchase that you move into while renting out your existing home.
Let’s set the stage, you have a current home and would like to buy a new owner-occupied home to move into. You’re not wanting to sell your existing home and instead want to have it become a rental. Remember, you can refinance up to 80% of the value of that current home! For example, if you bought a home two years ago for $500K, your mortgage today would be roughly $462K (assuming 2% interest on a 25-year amortization with monthly payments). That home today is likely worth something in the ballpark of $700K.
Refinancing the home will allow you to get a new mortgage of $560K which nets you approximately $98K cash in your pocket. That $98K can now be used as a down payment for your new owner-occupied property. Buying a new owner-occupied property means you do not have to put 20% down (and could do the minimum instead) plus we will get to use a portion of the projected market rents of the new rental property (the home that was refinanced) in order to qualify for the new mortgage.
The point here is to acquire another piece of real estate where someone else pays down the principle, the market helps with appreciation, and the difference between the two goes directly into your pocket! That said, you may have heard that you have to be a first-time buyer in order to only use the minimum down payment. Actually, as long as the property you’re buying will be owner-occupied, you can always put down the minimum required down payment! It could be your first home, your 10th, or 25th… it does not matter.
So, imagine you’ve now got a family big enough where your existing townhouse is too small. If you’d like to upgrade but don’t know how you can afford to move, keep the existing home as an investment property, and rent it out. Once again, refinancing is the answer and key to bringing all of this to life!
Our plan of attack would be to refinance the home you have, pull out some equity to use as the down payment on a new home, and allow you to keep your original one as that desired investment and rental property. You might not know for certain if you’ll have 20% equity in the home and if you can afford two mortgages though. No worries, because that’s where we come in! By looking at your current mortgage balance and market appreciation on your home, we should be able to get at least a 5-10% down payment from its equity.
From there, we can use a portion of the projected rent that will come from that home to help qualify you for the new home you’d like to purchase and move into. Be sure to check out our next blog where we look at how you can leverage your savings to purchase a new home and rent out your existing one.
Disclaimer: The opinions expressed herein are just that, and should be consumed as such. Always do your own research when considering investments in real estate or otherwise.
Contact the Kyle Miller Mortgage Agent team to learn more about your income situation and how it can affect your refinancing and mortgage application processes. We’ll provide you with different options so you get the best deal possible!
Recent Comments