Home Purchase w/ Second Home?

Question

I have a home that i inherited that doesn't have a mortgage, and I use it as a second/vacation home. I am planning on purchasing a primary residence in about 2 years. I was wondering if it is possible to purchase the primary residence by using the second home's value as my down payment. Specifically, I want to cash-out the amount needed for a down-payment on the home through my secondary home to avoid paying PMI. Is this possible to do? Also, if it is possible, should I expect a higher interest rate on the cash-out refi?

Thanks

Also, selling is not an option, due to sentimental value. Also, since the interest on the second would be tax deductible, that would cause a greater difference between the PMI and the second loan in actual true dollar costs, correct? Basically, i'm curious if I take this strategy, would a loan company still charge me PMI, and if not, would the interest rate be materially higher on the HEL (greater than 1%), if the second home is at 40% financing and the first home is at 80% financing?

Also, one more quick note. I am just graduation college, so my income is not extremelly high, and savings up the 20% would take several years to accomplish. Basically, my only asset would be the second property that is used as a vacation/second home, and selling it would not be an option.

Answer 1

not a smart way but can be done. why place a new mortgage on one that is clean and take up yet another loan for the new house as well.

are you going to sell your first primary home or use it as income also? if selling use proceeds to buy the new primary home. if keeping for investment then i would start saving now for the down on the new home.

with as many mortgage companies out there you can find one that can get you in for 0 to 3% unless you just want to be rid of pmi then you will need to get 20% or more.

Answer 2

You should take a Home Equity Loan, provided that your income can still support a primary mortgage payment on your intended new home. The ration is about 28% of your monthly income to qualify.

Home Equity Loans generally are higher rates and are based only on a 15 year payment schedule, as opposed to a 30 year schedule that a first mortgage would give.

You should consider a First Mortgage Loan for the amount you need in total to buy the second house. This presumes that the the inherited house can support such a loan. If not, borrow what you need as a First Mortgage on the inherited house so that you give yourself 20% down on the second house you buy.

Answer 3

As mentioned above, the typical time is 6-12 months depending on the lender. Also, make sure you do not have a Pre-Payment Penalty. If so, you will be hit pretty hard if you refi within that penalty period. These penalties could be from 1-5 years in legnth. You will also need to see some changes in order to improve your current loan program. What has improved since your current loan? Did your credit scores go up? Did your income go up? Did the value of the property go up? Did rates drop significantly since you purchased? If nothing changed, you probably would not qualify for a better rate than you just got with the same situation and same qualifications. Sometimes though, you can just refinance the 2nd mortgage if you shop it around. I have seen some banks offer great rates on 2nds that the primamry mortgage company could not match. Best of luck, Greg

Answer 4

I am a loan officer and I dont know what your credit situation is but if you have at least a 580 credit score you could qualify for a 100% financing loan with no pmi. So why not try that route before you take out a mortgage to get another mortgage.

Answer 5

Realize the 'cash out' is just another term for LOAN.
Sure you can get a loan, and you will have 2 payments. One for the HELOC on your current property and one for the new property. As you will be making payment with interest on the 1st property HELOC, you may not save much in $$ over the PMI. Best to come up with the 20% down from liquidating other assets or just saving up for it.

Answer 6

Sure you can do that, but then you would have to pay back the loan on the first house, as well as the mortgage on the second.

I am nots sure if you are attached sentimentally to the first house, but it sounds like a better option would be to sell it after two year, and use those profits for the second house.