How to pay for my next house. WWYD?

Question

So this is def still a newbie ish question...but trying to figure this thing out one step at a time.

Here is my current situation.  Would love to hear what you would do and also why you would do it so I understand your reasoning.  Hopefully I provide you enough information.

Current renting out my old primary residence (I have only been renting it out a few months now and hoping to keep it as a rental long term).  Its worth about 120kish and I have about 55k left to pay off.  Have about 80k saved up in savings.  Currently living with soon to be wife until we find our house we would like to buy.  That will probably be in the 200k range give or take 20k.  Im not well versed how HELOCs or refinancing works, or even if anything applies to our situation.

But to you veterans out there, how would you pay for a new primary residence and why?   Thank you in advance

Joe M. · Answer

A coworker who has a few rentals told me he would pay of my rental with my savings and use a HELOC for a primary

Any thoughts on this?

Joe M. · Answer

Thanks to all the replies.  Good stuff to digest.

(also I should mention I probably dont plan on picking up any more rental units for the time being

Michael Lee · Answer

Hello Joe!  Turning your existing house or other sleeping space is hard to answer without knowing what kind of resident it is you/might have a different answer.  Assuming it is a house there are a few primary things you should do.  First, I would recommend you find out if any city, state or federal laws that do not to allow a conversion your existing place you live in to a rental unit.  Secondly, I would assure yourself that your layout is good for a rental unit or is there any or a large number of people that demand that layout or that location.  Many homeowners do not look for their home as a future rental unit and that your existing place was not looked at as a future rental unit and you might find what you need to know is to ask an experienced Building Inspector that has been around for a while.  It may not be the floor plan looked for.

It's age might  make you do a recent capital expense.  Just make sure that you consider that.  I would suggest that you shop around for a new loan from a Bank, a Private Lender, a Hard Money lender, a local Credit Union, etc. looking for the ideal source for a loan with a commitment letter that says what you qualified for from the most desirable lender.  I would suggest you that you try to use a "good debt" versus the minimal cash needed for your existing home.

in case you do not know, what a "good debt" means is that you get a debt that has a lower payment than the rent payment is more after any other expense you have to make like insurance and property tax.  Just like I already mentioned you should shop around for the best loan you can get on your new home. A HELOC  could work if you are disciplined and responsible for that type of a source.  I would shop around for that too to make sure you are getting the vest overall deal.

You could also look into the possibility to get a line of credit or a loan to put up your existing place as security for those sources.  A Bank or other financial source will probably treat you better if you have a W-2 Job when you apply.  Even 0% Credit Cards might help you if you feel you will be responsible to pay on them and on payment due date.  I hope that some of this was helpful to you.  Since you are renting now might mean that renting to somebody else will not matter.

Good luck to you!

Anthony Gayden · Answer

I would do a 5% down conventional mortgage. That will be about 10k. I would probably buy a fixer upper where I can put 20k into it and gain a lot of equity.

I would use the rest of the money you have saved ( 50k ) to invest in real estate. I like small multi family 2-4 units.

Aaron K. · Answer

You have more than enough in savings for a down payment with a conventional mortgage which will be far cheaper than a HELOC 99% of the time, even an FHA loan would probably be cheaper even having to pay for PMI