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Hello. I am a new investor. I plan to buy a house in the price range of 100 - 150K in the next few months, then rent it to tenants. (I have enough money & then some to pay all cash if I choose).

I was thinking of trying to do an all cash deal for extra bargaining power, then doing a cash out refi later on (after the title seasoning period, of course) to pay for my next rental house. When I eventually buy my own primary house I will do a regular mortgage.

Does this plan sound wise? Thanks in advance.

steve2 · Posted: Wed Nov 26, 2008 1:50 pm Post subject:

A better idea is to find a home that you will live in, use the cash alternative to get the best deal (such as a foreclosure or short sale), then get a line of credit or cash out refinance on your primary residence to use on the investment properties.

The terms and underwriting guidelines are significantly worse on a non-owner occupied property than they are on a primary residence. Plus there are potentially more tax advantages with the loan on your primary residence than on your investment property (check with your accountant).

Posted: Wed Nov 26, 2008 4:59 pm Post subject: thanks steve -- another question

(that sounds like a great idea for the future--unfortunately I will not be able to buy my own primary residence for about a year for various reasons)

The question:
If I owned the investment property free and clear would it help me to get a better refi rate than someone who has, say 40% equity?

Thanks!

smithsussane · Posted: Wed Nov 26, 2008 11:01 pm Post subject:

Hi Guest!

Welcome to forums!

If you have an investment property which has a free and clear title (i.e no mortgage on the property), then you will definitely get better rate and terms from the lender. In that case, refinance is not required. Refinance is required when you want to change the terms and conditions of an existing mortgage. In your case, you will be getting a new mortgage.

However, if there is a property which has 40% equity that means it has some kind of mortgage. In that case you will need to refinance it. The rate and terms will definitely vary in this case from a property which is free and clear of any kind of mortgage.

Feel free to ask if you have further queries.

Sussane

Guest

thanks Susanne & Steve!
That is something I was wondering about. So if the property is owned free and clear, would I would get a HELOC? Or do they actually create a mortgage?

jameshogg · Posted: Thu Nov 27, 2008 8:40 pm Post subject:

Hi Guest,

I think you will get a HELOC. You do not need to have a first mortgage prior to getting a HELOC. A home equity credit line (HELOC) will offer you a large amount of cash with a low rate of interest compared to other loans. It also gives you some tax benefits which is not available with other kinds of loans.

A home equity line of credit (HELOC) is also a type of mortgage. In this type of mortgage, the lender agrees to lend an amount within an agreed period of time where the collateral is the borrower's equity in the house.

Thanks

Posted: Fri Nov 28, 2008 11:18 am Post subject:

thank James

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New investor -- all cash deal, then refi?