Financing a second property - Posted by Jodi Menne

Posted by RJ Baxter on November 03, 2005 at 01:35:18:

True if the financing is short term, but I personally would rather pay 6% on $133,000 than Prime + whatever (Prime + 0%= 7%) now and likely to rise. The payment difference between 6% and 7%, interest only, on these two rates is about $110 per month, so it would not take long to re-coup any costs involved. Additionally, many banks offer no closing cost stand alone 2nds that are not HELOCs and are fixed.

Financing a second property - Posted by Jodi Menne

Posted by Jodi Menne on November 02, 2005 at 10:37:36:

Good Morning,

I currently own a property in Maryland and have about $250k equity in the property. I am purchasing a home for my mother to live in which will be located in VA, the purchase price is $165k. I am not sure which option is the most beneficial for me.

Do I refi my primary residence and take out enough to cover the purchase price of the second? OR do I refi my first house to have a downpayment for the second and then take a first mortgage out on the second?

I hope this makes sense, any opinions are appreciated!

Re: Financing a second property - Posted by Devon Daughety

Posted by Devon Daughety on November 02, 2005 at 17:05:29:

There are tons of different options… what part of VA is it in? I"m from Reston. If you email me privately I can run up a few different scenarios for you to see which one is most beneficial financially.

Re: Financing a second property - Posted by James Harris

Posted by James Harris on November 02, 2005 at 11:49:41:

Jodi, It is so nice to see some one doing something for their mother. I wish I was in the same position. A lot depends on what your plans are for Mom; meaning, are you going to have her pay rent? Or ,let her really enjoy what income she has. Can you afford the higher payments or another payment? My personal choice would be to buy the house for Mom; refinance my own property or get a HELOC; let Mom move in rent free. Just ask her to save some money each month for emergencies or even final expenses. A suggestion/thought for the second question, Can Mom afford the payments for a mortgage? Is her credit good enough to get a mortgage? Something to think about.

Re: Financing a second property - Posted by RJ Baxter

Posted by RJ Baxter on November 02, 2005 at 15:39:14:

Many lenders have the same rates on second homes as on primary residences, so you could finance it and get the same terms as if you occupied the home.

You will get the best mortgage terms with 20% down, so I would suggest taking a home equity loan on your primary for 20% of the purchase price of $165,000. I don’t feel it is best to do a 2nd for the entire purchase price ($165K) because the rates on 2nd mortgages are worse in general than 1st mortgages.

So, take the 2nd on your current home ($33K), use the money for the down payment, and take out an 80% ($132K) 1st mortgage on the second home in order to obtain the best terms on both. That’s how I would structure it if I was in your shoes.

Also, on the 2nd, if possible, steer away from a HELOC (home equity line of credit) because these are monthly adjustables tied to prime and prime rate is definitely going to continue to go up as long as inflation sticks around, so your rate will go up if you take a HELOC.

Re: Financing a second property - Posted by Ken(TX)

Posted by Ken(TX) on November 03, 2005 at 24:21:04:

Have to disagree on the “avoid the HELOC” advice in the last post. While I concur that a HELOC is tied to prime and the prime rate will likely continue to increase, the HELOC can be taken out without incurring more than $500 in costs to do so. A cash purchase can typically be done for under $1,500 in closing costs total which is much less than if you utilize a mortgage to purchase the new home. Also, a HELOC is an interest only repayment. So for short term financing the HELOC would be best.

No matter what, get someone to actually look at your COMPLETE situation not just banter on the board here.

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