I recently (2+ years ago) purchased my first home, and we are financed with an 7:1 ARM loan as well as a HELOC as a second mortgage. I also have excellent (760+) credit. My family is growing and I need to upgrade my current home to a larger, longer-term property in a neighborhood with better schools (young kids growing up). The housing market is definitely a Seller's market, and home values are rapidly rising. Due to this, I have accumulated a significant amount of value in our current home.
I'm considering the following scenario, and would like experience or fact-based advice on what factors I should consider when making this decision:
- Cash-out refinance the first home to pay off the HELOC and get a fixed-rate single loan on the first property
- Take additional cash out of the refinance of the first home to accelerate saving or simply pay for the down-payment on a second property
- Purchase and move to a second property of greater cost and value to first
- Convert the first property into a rental/investment property
Are there certain timelines, fees, taxes, etc. that would make this plan be a complete farce, or does this plan hold water?
What kind of financial analysis would make you comfortable about this decision?
At what point does it make sense to become a landlord?
Also, when calculating the 20% down of a new property, does that need to be liquid funds, or can that be based on the value of the home you are selling?