Advice on buying 2nd home & renting the 1st

[Maria Medina]

Hello I am looking for advice on how to best finance the down payment of our new permanent residence we are shopping for. We plan to rent our current house and use it as our 1st rental investment. We have 70% of a new 20% down payment saved for our new home and $100k in equity from the house we live in now we could potentially use. Given interest rates are above 7%, What do you recommend the best way to finance our new home would be? I get a little confused on the pros & cons of the varios options (save & use all the down payment in cash, vs HELOC vs home line of credit). Thank you for your advice!

[James Hamling]

Quote from @Maria Medina:

Hello I am looking for advice on how to best finance the down payment of our new permanent residence we are shopping for. We plan to rent our current house and use it as our 1st rental investment. We have 70% of a new 20% down payment saved for our new home and $100k in equity from the house we live in now we could potentially use. Given interest rates are above 7%, What do you recommend the best way to finance our new home would be? I get a little confused on the pros & cons of the varios options (save & use all the down payment in cash, vs HELOC vs home line of credit). Thank you for your advice!

1st I would say DON'T touch equity in current property. 

Think of that equity as your safety net, once removed, it's fine until need it and if/when need it, one REALLY needs it. 

Next, depending on how you do the new unit, the down and rate is variable. For example, on new-con units I often use builder financing at a full point or more below market rate today. Or a 2-1 buy-down. Or both. 

The only time I advocate tapping equity is to a max position of 65% LTV on that property. Any more leverage starts to add risk, incrementally.

And here is the thing, a LOT of agents today are starving, so, yes, many agents will tell you to do whatever so you can buy with them, take out equity, sell a kidney, just BUY.... It's horrible advice that's based on their need for a pay-check not on your steps forward in financially sound actions. 

I am 100% for stepping up, but doing it on sound financials.