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queef_quencher OP t1_ja315x5 wrote

Reply to comment by 1hotjava in Is it possible to pull cash out when refinancing VA loan to conventional loan? by queef_quencher

Oh interesting, thank you. The thought is to use this "equity" to help buy the new primary residence with VA loan. I am assuming if I take a loan out against first house in this example, that will work against me when buying new primary residence?

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93195 t1_ja3283l wrote

Say you buy a house for $200K. When you go to refinance, you’ve paid it down to $180K and it’s now worth $250K.

For the conventional refinance loan, they’re going to want you to have at least 20% equity ($50K), meaning they’ll loan you up to $200K on your $250K house. Since you only owe $180K on your mortgage, you can get up to $20K cash out.

It’s still money you’re borrowing though, as you just went from an old mortgage of $180K to a new mortgage of $200K.

There is no free money.

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queef_quencher OP t1_ja333vq wrote

So then is the general view that using cash-out refi money to purchase a second home, in my case using the VA loan, is usually not a good idea?

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93195 t1_ja33o73 wrote

I wouldn’t say that. I would say it depends on the math. What’s the rate of the old loan, what’s the rate of the new loan, how much will the property rent for, how “in demand” is the area (lower chance of extended vacancy), how does the expected rent compare to your mortgage and maintenance costs, how much is it going to cost you to buy a new place to live yourself and move there?

It’s not an inherently bad or inherently good idea. It’s case specific, depending on the math above.

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queef_quencher OP t1_ja350ct wrote

Understood, thanks for taking the time to respond. I really appreciate it!

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