OPTION 1: REFINANCE YOUR EXISTING MORTGAGE
If you have equity in your existing home, you might want to use it to pay for the raw property. Depending on how much fairness you have, you could come up with the down payment or pay for the new property outright. If you ‘re buying a rental home, your existing equity could provide a allow account for alimony and repair of the raw property .
The advantages to this scheme are that concern rates on elementary residences are typically lower than for irregular homes or investment properties, and come with fewer conditions. You ‘ll besides be able to continue making good one monthly payment, assuming you do n’t have to take out another loanword for the property .
On the downside, if your new loan exceeds more than 80 % of the value of your stream home, you may have to pay Private Mortgage Insurance ( PMI ). besides, with the new tax laws, you may not be able to deduct your interest payments.1
OPTION 2: USE A HOME EQUITY LOAN OR LINE OF CREDIT
The remainder here is that you would use an fairness loan quite than a first mortgage. This option can work well when using the funds as a reserve account for the raw property by opening a Home Equity Line of Credit ( HELOC ). A HELOC lets you use your equity as you need it, quite than taking a ball sum all at once .
The advantages of using an fairness lend or HELOC are inadequate refund terms, typically 10 -15 years, rather of the 20 – 30 years of a first mortgage. You can normally access more of your home ‘s value through an equity loan than you can from a first mortgage. Often you can use up to 100 % of your equity as an equity lend without having to worry about PMI. Equity loans normally close faster and have fewer close up costs than first mortgages .
Disadvantages of this scheme include the unretentive payment terminus, which means your payments will be higher than they would with a first mortgage. As with a refinance, you probable wo n’t be able to deduct your interest payments.1 If you have a first gear mortgage on your basal residency, you ‘ll be making at least two payments each month.
OPTION 3: BORROW AGAINST THE NEW PROPERTY
The third base strategy is to use the new property as the collateral for its own loan. You ‘d likely go this route if you do n’t have a chief residence or do n’t have a draw of fairness in your existing home, or if you are only using your existing equity to make the down requital. You may besides choose this direction if you want to keep the finance for each property separate .
The benefits of this strategy are that you wo n’t be using your chief mansion to secure this loanword. This can be important if you ‘re buying a rental property, as you may be able to use have a bun in the oven rental income to qualify for the loan.1
Drawbacks include higher down requital and income requirements, higher rates ( particularly if it will be a rental ), and different requirements for second homes and investment properties, such as needing to maintain a reservation account for repairs. In addition, you wo n’t be able to take advantage of certain government backed mortgage programs, like FHA or VA, for these types of properties.
Purchasing a second base dwelling can be an important region of preparing for the future, whether you ‘re using it to grow your income, as a place to spend your fortunate years, or plainly a place to get away. Knowing your options can allow you to tailor your finance design to your singular situation. If you have questions or want to start building a plan, it ‘s important to talk to a restricted loan officer, like those at Seattle Credit Union .
They can help you understand your options and will work with you to find the scheme that ‘s best for you. To get in partake, call us at 206.398.5888 .
1Seattle Credit Union is not a tax adviser and does not provide tax advice. Consult a accredited tax adviser for guidance for your individual site .