How to finance new home purchase...

brucewinaa · Joined: 27 Aug 2007 Posts: 6 3.61 Dollars($)

We have about 25K in equity in our primary home. It is on the market for sale. I own a 2 family rental property (my mom is one of the renters) free and clear. It is worth approximately 200K. We are looking to purchase a home in the range of 300K. What is the best type of financing to obtain for someone is my situation, ie. should I be looking for a home equity loan on the rental for a down payment??? My credit scores were horrible a couple of years ago but I have worked hard to increase them. My scores right now are in the low 600s. They increase every month, I have been tracking them for the last couple of years. Thanks for the help!

Peter

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brucewinaa · Joined: 27 Aug 2007 Posts: 6 3.61 Dollars($)

To come up with the 20% downpayment on a new house (60K), I was thinking about a home equity loan or LOC on the rental property but I am paranoid that my credit is not good enough. Again, my credit is not perfect but a vast improvement from even 1 yr ago. What do you think? Thanks for the help!

larry · Joined: 27 Jun 2007 Posts: 3328 473.40 Dollars($)

Hi Brucewinaa,

When you wish to take a home equity loan or HELOC loan, you must know that you may have to face a higher interest rate and the loan may also be denied to you because of your low score. As the U.S. mortgage industry is currently in a tight situation, I doubt whether you will at all get the loan or not.

Moreover why do you want to take another loan for financing the down payment? You can get the down payment as a gift fund from any of your friend/relative and can also get it from any Government or non-profit organizations. To know more about how to fund down payment, you can refer to http://www.mortgagefit.com/down-payment.html

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I do not want to pay PMI and I thought a home equity loan would be cheaper (lower interent) then getting a 80/20 or 90/10 piggy back loan on the new house. The interest rate on the second loan would be a lot higher correct? I have equity in real estate so I was thinking why not use it. Thanks.

ezmortgageloanz · Posted: Tue Aug 28, 2007 4:54 pm Post subject:

The cheapest approach is to wait for the sale of your primary residence and invest the proceeds into your new property/mortgage.

Another approach not mentioned (but more expensive then a HELOC) is a bridge loan.

I tend agree with the other posters, you might find yourself having problems getting a HELOC or HEL on your investment property given your current 600ish scores.

Regards,

Scott Miller

brucewinaa · Joined: 27 Aug 2007 Posts: 6 3.61 Dollars($)

Thanks for the response. I will not have enough for 20% down when we do sell the house. Their is not enough equity. Are you implying that I would be better off if I put what we have in equity down, 25K, and just get one loan for the new house? That would be a 1st mortgage in the range of 250-275K. Thanks again.

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Hi Brucewinaa,

When you are unable to afford the 20% down, why are you not going for any of the down payment assistance program? You can borrow the fund for the down payment from a number of sources:

1) You can obtain the fund from the 401(k) Retirement plan. But this will require you to repay a slightly higher amount than what you have borrowed.
2) If you are a first time owner, then under the IRA laws, you can borrow the up to $10,000 from your retirement account for the down payment.
3) You can obtain the down payment as gift fund from your relatives or friends and it does not require you to repay the amount.
4) You can also borrow the fund from any government or non-profit organization.

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