Asked by lisa  |  Submitted July 22, 2016

I have a rental home debt-free. Does it make sense to refinance and use the cash to buy another rental?

My credit score is over 750.

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  Answers  |  2

July 26, 2016

The answer to your question depends on many other items: How is your current rental situation working out? What is that home worth, compared with the probable purchase price for another rental? In general, 20% down payment is required for rental properties. Doing a cash-out refinance on a rental is also limited to 80% of the value. Both purchases and refinances are priced far better, as equity is higher than 20% - 40% equity post-closing gives the best pricing.

If you have the funds available to make the down payment on the new home, you'll probably get better pricing by taking out a purchase loan on it, rather than the cash-out loan on your current rental. Purchase loans are priced better than refinances, and cash-out refinances have additional pricing hits compared with "rate/term" refinances. You'll be making a payment in either case. If it's me, I'd take out the loan on the new property (presuming it's in good enough condition as is to obtain a mortgage). More questions? I write loans nationally, feel free to contact me through my profile.

$commenter.renderDisplayableName() | 09.21.17 @ 19:53

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July 26, 2016

Thank you, Mr. Rood, that was very good advice. Yes, I have funds available and good credit. I'll contact you when I find the house I like.

$commenter.renderDisplayableName() | 09.21.17 @ 19:53

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