All Forum Posts by: Dan Craze

Our goal is to buy a 2nd house, move, then put our 1st house on the market (ideally, it will sell very quickly, however, we are planning on having to pay both mortgages for a while if needed). Let's assume for arguments sake that we have enough money in savings to handle closing costs, but don't have any for a down payment. We have been approved for a HELOC on our current home, with a limit of $75,000.

My initial thought was that I would pull from my HELOC to fund a 20% down payment on the new house. Since we would have 20% down payment, we could have a conventional mortgage and no PMI.

However, this poses a question. Assume the new house is $300,000. This means for a 20% down payment, I would need to borrow $60,000 from my HELOC. This does (2) things that will negatively affect my credit score, which in turn will affect our interest rate on the new home mortgage:

1.I will have $60,000 more debt.

2.I will have a high ‘balance to credit limit’ (60k borrowed on a 75k limit)

My question:

Would it be better to apply for a non-conventional mortgage with a lower down payment requirement, and pay PMI? (Lower down payment => less debt when applying for the mortgage =>lower interest rate). My thought is that once I close on the mortgage (interest rate locked in), I could then borrow from my HELOC to get above 20% and at that point should be able to have the PMI removed. Any advice is appreciated. Thanks!

Note: 

There are actually 2 goals:

1. Maintain the flexibility of buying before selling

2. Obtain the lowest possible interest rate on the 2nd home mortgage