Financing in 91765>Question Details

Tk, Home Buyer in Diamond Bar, CA

Need Advice on Home Loans / Financing on Buying Second Residence - Refi 1st house and pull out down payment, or not?

Asked by Tk, Diamond Bar, CA Wed May 12, 2010

We currently have a primary residence in Diamond Bar. We are currently around 60% equity in the house (current loan vs conservative home value). Looking to purchase a second residence in Diamond Bar / Chino Hills (for family). So neither property will be a rental. The interest on our primary residence is in the high 5's.

We are looking to refi the primary residence to bring down the interest rate to low 5 high 4's.

So here is the question: Should we refi the primary house and pull out money to help w/ the down payment of the second houes? Or should we refi the primary house and leave it alone, then find another way to raise down payment and loan for Second House?

I have been a bit cautious to just refi my primary house, then find out I should have pulled out money. Then end up having to refi it again. Trying to plan now, for a summer house purchase.

Any suggestions or tips would be greatly appreciated.

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Depending on your credit score, you'll want to manage how far you leverage your primary residence in order to get the best pricing. If you see table two in the web reference, you'll see a mixture of Loan to Values and credit scores that either do or don't generate pricing hits. This should be a factor in your decision making.

You may also want to consider 85% financing with single premium seller paid mortggage insurance to reduce your down payment exposure. Depending on your credit score, this may be a good option to consider.

Find yourself a nerd and work through these cost benefit analysis. I'm happy to help if needed.
0 votes Thank Flag Link Thu May 13, 2010
Hi Tk,
First I think you should make sure you have 60% loan to value. You know how much our values have changed here. Second, how much interest do you hae on the first yousaid high 5's, is that just ove5.5 or is it 5.875%. right now we have 4.875%. Depending on how much you owe on your home, that in itself could be very helpful with the payment on the second home. If you only owe $150K on the first home it won't be too significant. But if you owe 550K and refi your savings a month will be great. You may have enough to offset
the second home enough to be comfortable. If you need to know just how much your home is worth give one of us a call we can help you out with that. Then you can make an informed decision.
Best of luck to you,
Connie Bramble
Prudential Ca Realty Brea
714-337-8718
0 votes Thank Flag Link Thu May 13, 2010
I'm going to throw out a third option, which is just my opinion. I would suggest buckling down and paying off the first home before you buy the second. It will take you about 2-3 years to recoup the cost of refinancing the first one, and see any real savings (your monthly payment will be lower, but by the time you factor in the bank charges for the refi, it takes a while before you truly come out ahead). If you take that time instead to use the money you were going to put on the second home and pay additional principle on your existing loan, you will knock it out in no time. Then you will have you primary home free and clear of any mortgage. This will then open you up to have a lot more money to purchase the second home, all the while having the security and peace of mind that your first home has no debt against it.
0 votes Thank Flag Link Thu May 13, 2010
Hi Tk,

You will need a minimum of 20% down on the purchase of your rental property, and that interest rate will be higher than your primary residence rate, so the question comes down to, can you kill two birds with one stone by securing "cheaper" money through your refinance and will the cash-out portion be enough for your down payment?

Is the property you are purchasing a single family residence, a condo, multi-unit property?

Hope this helps,
Ros

Roswell Moore, CMPS
Certified Mortgage Planner
480-422-5095 direct
Web Reference: http://www.ezAZloan.com
0 votes Thank Flag Link Thu May 13, 2010
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