Take equity out of house #1 to pay for house #2? (loan, heloc, credit)

[Dixie Rouse]

House #1 is in Illinois. We are buying a condo in Naples Fl. Should we take the equity out of our #1 house to pay for house #2 so we can use the interest on the loan to help pay less taxes or get a loan on the condo and just call it a second home. We might want to rent it out until we retire if we can come to an agreement with the home owners association (they say our condo cannot be rented out the first year and for no more than six months to the same person.) I think if we rented it out we wound not be able to call it a second home. We need to close on the property the first part of April so need to make a decision soon. We have good credit too. Any help I can be given would be appreciated.

[chet everett]

Technically what you are suggesting is specifically prohibited by the terms of just about all HELOCs / fixed term home equity loans. They started doing this around the time the mortage market was imploded.

That said I have not heard of any lender really calling a loan for that reason as long as the borrower remains current.


You need to understand the tax limitations of renting out a second home too. http://www.irs.gov/taxtopics/tc415.html

[Hemlock140]

A lot of people did this to buy mountain vacation homes up until a few years ago, and that's part of what lead to the big home mortgage crisis. Eventually the property values went down on both and they were underwater twice. It worked great when prices were going up 10% or more a year.

[Dixie Rouse]

Thank you for your replies. Regarding answer #1, I didn't explain myself very well. I meant to say a refinance of house #1 for house #2, not a HELOC. It is probably not a good idea anyway. Thanks

[mdcrim]

I did that in 2009- refinanced my primary property mortgage to pull money out to pay for a vacation property. My original mortgage was at 5.5% and the new mortgage was at 4.5% so my payments only went up approximately $250 per month. I refinanced again (no money out) last fall at 3.75% and my payments are back down to around what they were before the cash-out refi in 2009. I do owe more on the loan than i did but the payments are about the same. I kinda got a free vacation house (with a bit more debt).

[TimtheGuy]

Originally Posted by Dixie Rouse

Thank you for your replies. Regarding answer #1, I didn't explain myself very well. I meant to say a refinance of house #1 for house #2, not a HELOC. It is probably not a good idea anyway. Thanks

Actually it is probably a great idea. Much easier to do a cash out refi on your primary residence than it is to finance a condo in FL that may be an investment property. Better deal too.

[399083453]

Originally Posted by Dixie Rouse

We might want to rent it out until we retire

What if there is no renters in that area in the next 10 years? Can you pay for both houses without any financial problems? A flood of rental property is going to hit soon especially in the Ft Meyers/Naples area.

My advice? Dont risk your home to buy another house and then loose both.

[JollyOgre]

I am thinking about doing this as well, however my house is paid for. Just looking to get enough out for 20-30% down on a 2nd home in FL.

[beej55]

Our house just went on the market. It's paid off. We found a condo we love, but don't have enough cash to pay for it outright. Is it smarter to borrow against the first house to pay off the second? Or, to get a mortgage on the 2nd with no prepayment penalty and pay it off when we sell the first? From a previous answer it sounds like a home equity line of credit is out of the question. We'd need to take out 2/3 of the value of the first if we went that route.