what is the best alternative to financing a second (vacation) home?

Question

I currently have a mortgage balance of 95,000 on a home valued over 325,000. i want to buy a second home for 200,000

Answer 1

I would not mortgage my primary residence to finance a second residence. If you cannot pay cash, or choose not to, then get a mortgage secured by the second home. You will still be able to deduct mortgage interest and real estate taxes.

In the worst case, you may be forced to sell you vacation home, or have it foreclosed. You will not risk your primary residence.

Answer 2

The interest rate to finance a second home should be as good as the rate on your primary residence.
Assuming that you have decent credit and can qualify, you shoudl refi your primary residence to 60% of the value, say $195K, which will give you $100K cash.
Take the $100K cash and use as a down payment on the 2nd home.
Both of your loans will be 50%-60% Loan to value (LTV)
which is very little risk to the lender, and will get you a decent rate and might be easier to qualify for.
The lower LTV the happier the lender is. You have the option to do both properties.
What state are you located ??

Answer 3

Well, your scenario gives one method with no alternatives, so I have no idea what your limitations are. I agree with Bostonian-if you can, pay cash.

Do you have enough cash to put 20% down on the new home? If so, then compare the rate of a First Mortgage on the new home with your current rate on the old home. If it is higher, then there is no point in giving up the lower rate on he old home. Just put down 20% and finance it with a new First mortgage.

If it is a lower rate loan, you might consider refinancing your first home to a maximum of $260k (80%LTV) giving you $165K down and about $35k + closing costs to finance.

Another possibility is to take a second mortgage out on your first home of $40k to use as a down payment on the new home.

DO NOT use a loan broker-- he is a middleman who will do little except add cost. Shop with several different lenders ( over the phone. Give them each scenario and tell them to fax you a good faith estimate for each. Be sure to have your ducks in a row & ask them each to quote apples to apples (ie, not comparing a 30 year fixed to a 30 year ARM). I suggest 30 year fixed for first morts & 20 year fixed for 2nd mort,gages. I typically ask them to quote lowest rate with ZERO Points, if possible.

Answer 4

Paying cash.