How to Leverage 1st Home to buy a 2nd Home?

Asked by Jackp, Diamond Bar, CA Sun Mar 29, 2009

I need a bit of advice. I currently own a home, and want to purchase a 2nd home in the next 6 to 9 months. If I sell my 1st home, I know I will have more then enough left over to help me purchase my 2nd home.

I would ideally like to keep my 1st home and rent it out. The going rental rates in my community is more then be enough to cover the cost of the 1st mortgage, with a little profit left over.

Here is my question.. How can I leverage my 1st house to by my 2nd house (what is the best way)?

a. Should I refi the 1st house, and pull enough to help w/ the down on the 2nd house? Current rates are lower right now then my current mort.

b. Should I refi 1st home and buy 2nd home at the same time?

c. Is there any other approach i should look at or other possible scenario?

Any tips would greatly be appreciated.

Jack

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4
Ginny Herman, Agent, Blue Ridge, GA
Fri May 1, 2009
hello Jack
First and foremost, you need to contac a lender, ask them these qustions. The lending "rules" are changing daily and what worke for your friend or neighbor may not work for you.
The three big items to a lender are and always were, untill the last 5 years which nearly crushed us all, and are now back in play, are
Credit Score
Debt to income ratio
Down Payment
You must have money to put down, 20% min. now on 2nd homes
you must qualify in income to be able to pay BOTH mtgs, even if one is not rented
you must have the qualifited scores to prove your crediablity.
I wish you luck and success!
I work in a 2nd home market and can give you some qualified lender names if you wish
0 votes
Jackp, Home Buyer, Diamond Bar, CA
Wed Apr 1, 2009
Thanks for both your input. It is greatly appreciated. Maybe I wasn't clear. I do not plan to do a 100% refi. I don't think that would be a prudent thing for me to do with the way house prices are still dropping.

If I went with the ReFi + cash out.. i am looking still maintaining a nice chunk of equity in the house.

Maybe there is a good rule or suggestions? I would say I am pretty close to 50/50 on the my current home. I was looking at potentially pulling out 15 to 25 % out to help with the down payment.

I have also read and heard about the 1% increase for a home loan on a 2nd house. Is this true? Can it be avoided?

Is there any FHA 1st time Home buyer programs for people looking to buy a 2nd house?

Jack
0 votes
Andres Garcia, Agent, Hoboken, NJ
Sun Mar 29, 2009
From my understanding cash out refinances have gone the way of 100% refinancing and dinosaurs. They are nowhere to be found. You may want to refinance on your 1st home now to get the lower rate while the home is still owner occupied but you probably will not be able to take out extra cash for a down payment for a second house.

Keep in mind that one of these houses is probably going to be considered an investment property so you will pay up to an extra 1% on that loan.

My advise would be to talk to a mortgage agent. They're going to know what products are being offered locally. One product that comes to mind is a Cross-Collaterilized Loan. With this mortgage both homes are under the same loan and both act as collateral for the loan. Generally Cross-Collateral Loans are made by private banks or portfolio lenders as there is no secondary market for this type of loan. I know they were available a few years ago but I don't know if they are still an option.

Just keep in mind what is going on in the market right now and don't overextend yourself with prices still declining in most markets.

Andres Garcia
Sales Associate
RE/MAX Gold Coast Realty
56 Newark Street
Hoboken, NJ 07030
Direct: 201 795-5200 x340
Office: 201 795-0100
Fax: 201 795-1245
andres@milesquarerealty.com
http://www.milesquarerealty.com
0 votes
Robert Spino…, Mortgage Broker Or Lender, Mill Valley, CA
Sun Mar 29, 2009
Jack,

You probably know more than you think, and if some of my recent clients are any indication, your option "A" above seems to be quite a common approach these days.

If you'd like to talk about this more, please feel free to get in touch on Monday and I'll be happy to discuss more possibilities and fill in any details for you --- no cost or obligation, of course.

Best regards,

Rob Spinosa
rspinosa@mortgagemasterinc.com
877-270-5959
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