Cash Out Mortgage Refinance: Mother in Law Unit
by Maria in Bakersfield, CA
Ask Kate about a cash out mortgage refinance to build a mother in law unit: Maria is thinking of renting out her home which means she will need a different place to live. So she asks about refinancing to extract cash from her home's equity to be used for building herself a small apartment on the property. At the same time, she could pay off the private loan that currently liens her home.
Cash Out Mortgage Refinancing: Adding a Mother in Law Unit By Maria in Bakersfield, CA
I have a private loan and I need to refinance to get a better mortgage rate. But, at the same time, since I recently became disabled, I decided to build a mother in law unit in the back and live in it while I rent out the main house.
I need a serious mind to advice me how to proceed from here on.
My income is SSDI which I can prove it. I intend to pay off or settle all my debt and get a better credit score through that.
I also intend to do some minor maintenance on the house as to no show peeling paint. I will have the house and the yard cleaned, I will "showcase" the house a little (I have no furniture).
That is pretty much all I can do that I can think of. What do you advise me to do? What is necessary? What is unnecessary?
Ask Kate answers: Cash Out Mortgage Refinancing
It sounds like you are brainstorming for ways to make your home more affordable. That's great! To proceed, here are several areas I recommend having addressed by local professionals.
How to Shop and Compare Loan Originators
First things first. Find the most experienced mortgage originator with the best reputation in town who is familiar with investment property financing. The individual who handles your loan application can make or break your mortgage experience. So it is important to not only pick a lending institution with a wide array of mortgage programs, you must also choose an experienced originator.
Here are some tips that will guide you while you shop: How to Compare Mortgage Representatives with Ease
Rate and Term vs Cash Out Mortgage Refinancing
I would ask to be prequalified based on both a rate and term refinance (no cash out) and a cash out refinance. How to compare monthly payments and fees on Good Faith Estimates
. If you find the payment from the no cash out refinance is affordable, you might not need to build a unit and rent out your house after all. It's an idea certainly worth exploring!
Either way, go here for cautionary cash out mortgage refinance tips
Paying Off Debt vs Keeping Your Savings
For any type of mortgage transaction, a lender should advise you if paying off your debt or retaining your savings would be more beneficial to your qualifications. If you pay off debt, ask for paper trail guidelines
to avoid a snafu before heading to closing.
Here's what I told a home buyer about paying off debt before getting loan approval
Rental Property Considerations
Next, contact local rental agencies to determine how much income similar investment properties in your neighborhood generate. Again, consider whether the rents justify increasing your mortgage balance and monthly payment.
Another important step is to determine if your zoning allows two separate dwellings on one property. Or perhaps, under certain circumstances, your municipality will not consider that a mother in law unit IS a separate dwelling.
Go to the Bakersfield website for a phone number to call for information. For example, ask if it is easier to get a building permit when each of the dwellings have separate utility meters or if it's required to share meters. It's better to find out now so you can plan!
Refinancing vs Buying a Home
Lastly, I would consult a real estate agent who, like the lender, is experienced in investment properties. Ask if it could be more cost effective to sell your current home and buy another that has an existing apartment.
An appraisal will be key to getting adequate financing whether you refinance to get cash for building a unit or buy a home that already has a supplementary unit. Generally speaking, getting an acceptable appraised value for a purchase transaction is less complex because there is an agreed upon sales price between the seller (you, the homeowner) and your buyer.
How to Form a Real Estate Dream Team
Lots to think about, right? Align yourself with professionals and take advantage of their guidance. Good luck! How to Form Your Own Real Estate Dream Team
, a linked series on my website.
. Go here for more information on no cash out vs cash out refinancing and appraisals vs assessments
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