No/Stated Documentation Programs
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Help answer the question about limited cash out refinance
I have read the answers about refinancing an upside down mtg. Basically no way out, w/out the diff in cash.?I have money in my 401k – but they will not let me have it – unless I'm in foreclosure – and even then, limited. Can these banks not see how much this money is needed to get out of a horrible mortgage situation?? I want my cash to pay off my 2nd mtg- to be able to refin the first…..
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September 24th, 2009 at 9:48 am
September 24th, 2009 at 9:50 am
there are multiple limits of various kinds.
1st. if you cash out more from property A than your remaining equity in property A [original down payment or basis less accumulated depreciation plus capitalized items during your holding period less salvage received or loss deducted], the excess is taxable income in the year received.
Depending on depreciation recapture provisions, some or all of this may be ordinary income.
2nd. yes, all the interest paid on debts on Property A would go on Schedule E.
3rd. yes, the net loss on Property A [including depreciation] would offset the net income on Property B.
4th yes, there is a limit on losses from passive activites — and a separate schedule on which to figure it out [see forms at irs.gov -- Limitation on Passive Activity Losses -- I think that's what it is called].
5th. points, costs, and fees paid to refi the debt on Property A probably have to be capitalized and amortized over the life of the new loan. [The loan statements will include them in the capital paid figure]. The similar remaining balance of points, fees, and costs that you are currently amortizing for the current loan on Property A are probably deductible as financing expense.
Atm, that's all I can think of…
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And that's all if you can find a cash-out refi of an investor property in the present loan market. My offhand guess is that you'll not be allowed to lower the equity to appraised value ratio beyond 20% at least — possibly more depending on market. AND, I'll bet the lender will want an unconditional personal guarantee of the loan as well.
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Are you sure you don't want to hire an accountant to figure out this stuff??