Which property should I finance?

Question

Hello Everyone,

My husband and I live in Maine and want to buy a home in Florida in the $250K-$300K range.  It would most likely not be a rental.  Our home in Maine is not mortgaged.  It would probably appraise for $500-$600K.  We also own an investment property in Arlington, VA that is not mortgaged.  It is appraised at $750K.  Which property should we finance?  The new house in Florida, our home in Maine, or our investment property in Virginia?  Our credit is good, but we are retired and our income is $4300/month from Arlington, VA rental (gross), $2000/month Social Security, $1100/month pension, and $2000/month from investments (stocks/bonds).

Thanks in advance for your advice.

Cheryl

Jeff Rabinowitz · Answer

Congratulations. You appear to have many options to raise the funds you seek. A mortgage or equity line on your personal residence is likely to give you the best rates and terms. That would put that home at risk if you could not make payments. That risk seems small in your case but, if it concerns you, rates on non-owner occupied homes are still at historically low rates and you appear to have ample room to borrow what you seek from your rental property.

Cheryl Stevens · Answer

Thank you everyone for your knowledgeable advice. The down payment would be painful, but doable.  One thing I should mention is that we would most likely pay off any mortgage in 5-7 years when we will have more income and cash than we do now.

Melvin List · Answer

@Cheryl Stevens If you have the required down payment for the investment property in Florida then I would finance that.  You should come out better when it comes to paying Uncle Sam.

Bob Rowe · Answer

@Cheryl Stevens .... If you plan on living in the Florida property as your second home, then that would be a good option as well.   Properties can fall in 1 of 3 categories:

- Primary (you can have one)

- Second Home (you can have more than one)

- Rental/Investment (you can have many).

Second Home underwriting guidelines/rates are very similar to Primary Home, so not a bad option.   However, underwriters know that some will attempt to slip an "investment" property thru the system and have it underwritten as a "second home".   Knowing this, they will scrutinize the file a little more to ensure the home can be categorized as "second home".    Its a risk issue for the lender => Investment properties foreclose at a higher rate than primary/second homes.   (i.e. when you have financial trouble, the average borrower walks away from the investment home prior to the place they live).

Jason Little · Answer

@Cheryl Stevens you said the Florida residence would not be a rental? Just a second home? If you have cash reserves for a 20-25% down payment you could still easily get a great rate on that property with little hassle. Not quite as low as a 50% LTV cash out refi on your primary, but still more competitive than i would expect you to find on the rental.

Refinancing your primary is nice since you can use a local lender and speak face-to-face, where as the other transactions would be long distance..

Cheryl Stevens · Answer

Thanks to everyone for their ideas.  It seemed that the investment property was the right one to finance since it is a rental, but the higher rates and out of state location were barriers.  It is interesting that no one suggested financing the new home in Florida.  Is it an interest rate issue or out of state hassle or something else?

Bob Rowe · Answer

@Cheryl Stevens  I would advise against the Home Equity Loan (HELOC)... It is essentially a variable rate.   With Fed increasing rates, that payment will rise with it.

The good news is you have several options.   The option that gives you the best rate is the obvious choice ->  Your primary residence.    Find a lender who can do a 250K Cash Out refi of your primary...  Terms and Rate should be much better than your other properties.You could even add a small HELOC (50K) to the transaction to give you some flexibility/liquidity with your purchase price.

Good luck!

Rob Milliken · Answer

I would go for a home equity loan, interest is good and provided you have enough equity in it to get enough for what you are wanting to buy in Florida

Tanya S. · Answer

Hi @Cheryl Stevens

I have an out of the box idea for you... will send you a message offline.

Tanya

Which property should I finance?

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