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tala

Refinancing Options? -- Residence to Rental

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Single family residence..purchased 393K 6/04, owner occupied, current value 550K.

 

Current loans are Stated Income 100%loan...first TD is $314,400 interest only payment $1283, second TD is $78,600 payment of $649. The first TD pmt goes up by $400 June of 2007. First has a 3 year prepay.

 

Goal: My goal is to relocate to another state. I would like to keep this home for the next three years then sell it so I can claim my $250,000 tax free. I can rent it for the existing house payment, possibly more, but not sure rent will go to the 2300-2500 mark.

 

Have no bills, 2 investment homes purchased last year rented out to cover mortgages. Had a 768 Fico last fall, currently mid score is 683 (I'm told by lender this was due to two properties I purchased being so new, not long enough to establish a payment history--they were purchased in 9/05 and 10/05.

 

Questions: Any suggestions on getting a refinance with cash out that will lower payments for the next 3 years til I sell?

 

If I take cash out now in a refinance and sell in 3 years (actually BY 3 YEARS FROM LAST OCCUPANCY) am I still ok with the IRS for the tax free 250,000?

 

Should I sell now, suffer the pre-pay, but reinvest the money in the new state, which is having a faster market growth right now (New Mexico). Appreciation rate in new state is higher, but home values are lower.

 

 

Appreciate some insight/suggestions on what I should be looking to do, and anything I should watch out for, avoid, etc.

 

Really, really, thank you for the help!

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Hi, tala, and welcome to The Naked Investor. First, I'm curious as to where the property is located. And where in NM are you headed to? I lived in ABQ for about six years.

If I take cash out now in a refinance and sell in 3 years (actually BY 3 YEARS FROM LAST OCCUPANCY) am I still ok with the IRS for the tax free 250,000?
As for your tax question/issue, I suggest you ask Dave T, who moderates our Tax Strategies forum. The gent knows more about the tax code than the IRS.
Any suggestions on getting a refinance with cash out that will lower payments for the next 3 years til I sell?
And as for refinancing possibilites and options, the number of available programs these days is staggering. Contact a creative thinking, well connected mortgage broker. I can tell you we have a few here who can help you. Fellow member Mike Pine is one I can personally recommend. Send him an email or PM and he'll help you out.

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Just how expensive would the pre-pay be? It might be less expensive to pay it than to hold and miss out on the other side.

 

You have not been in the property for 2 years. Check to see if you qualify for an exception and therefore could get the maximum tax savings for your residence if you sell now. You are coming up on the 2 year mark and might just hit it anyway.

 

The goal is to move and to make it tax efficient. Holding a third rental might not be required.

 

As you noted if you were to take the profits and put them into a property in the new market you might have better upside. You did not mention if you need to buy a home to live in there. If you move the cash to buy a larger home then you need you would not be much better off. If you can buy both a home to live and a rental or otherwise use the extra cash to buffer any problems with the two present rentals you might have a real winner.

 

It might take a while to sell in the present market so be prepared for a holding period.

 

John Corey

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