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Refinancing a condo we plan to rent

Hi, we bought a condo for 120k 3 years ago in june of 2010. We pay about $750/moth because we did a 30 year loan with a 5 year arm at 4%. We plan to keep the condo indefinitely to rent out. We now want to buy a house, and are qualified for 300k with the condo NOT rented (which we are basing it on to be safe). My question is this, should we refinance now at a fixed rate or buy our house now and pay our condo down to have 20% equity and then refinance it as an investment property? We are planning on a 15 year refi, which will put our payments between 1200-1300/month, which means we will qualify for less of a house. Does anyone have any idea how much this will drop the amount we can do for a house? We currently owe 110k, we we would have to pay about 14k to get it to 20% equity, just as a reference. Thanks
  • March 08 2013 - Salt Lake City
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Answers (2)

Hi, there, this can be a tricky equation!  If you are refinancing, you have to state on the loan application whether you intend to occupy the home, and you don't want to have a fraud problem on your hands down the line.  Honesty is the best policy here!  If you refinance the condo.  If you drive the monthly mortgage amount up on the condo, then you negatively affect your cash flow from the rental.  It would be nice to stabilize the rate on the condo, particularly because your payment will increase at the 5 year mark regardless of what you decide to do.  It is very hard to calculate the numbers based on so many variables.  Your best bet would be to find a lender you trust and get them to run the numbers and explain the scenario to you completely.  A basic real estate investing book will help you to calculate the "cap rate" on your investment property and guide your decisions.  Good luck!
  • March 08 2013
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Hi.. I recommend that you complete your Home  purchase transaction first and wait to refi your condo afterwards.  Paying down the loan on the condo to 75-80% will be most beneficial for you 

  • March 08 2013
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