Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Hello wise folks - I'm hoping you can help this non-financial person decide whether leveraging equity to buy a new home is a good idea or a risky move.
My husband and I bought a home in Denver, CO four years ago. We bought it for 300k and currently owe 220k on it, which we're paying on a 30 year mortgage at 4.125%. Our mortgage payment (with taxes and insurance) is $1450/mo. Happily (I guess?), our area has gone bananas, housing-wise. Values around us have skyrocketed. Although we haven't had a new appraisal yet, I estimate that the house could now sell for 400k. This is a conservative estimate.
Last year, my husband got a job transfer to a city 60 miles away. We rented out the Denver house quickly, at $2100/mo. rent. Since the area has become so desirable, we like the idea of holding on to this house as an investment property. But now we're trying to decide whether to buy in our new city, or to keep renting (Our rent here is $1600/mo., and prices seem to be on the rise a bit in this area as well). I'm considering a HELOC of some kind (although I'd prefer something without an adjustable rate) or a cash-out refinance in order to get some equity out of the Denver house and apply towards a home in the new city. We'd be looking at spending about $325-350k on a new house and although we're saving like mad for a downpayment, I know that lenders will want more down on a second mortgage. I don't want to spend our whole savings for this purpose, knowing that we need a large cushion to cover unforseen expenses with the rental property. Using some equity seems like the only way we'd be able to purchase a second home.
Should we do it? Or is this getting putting too many eggs in the real estate basket/leveraging ourselves too heavily? We make $80k/year combined and have one car payment at $320/mo., but are otherwise debt-free. Thanks - I appreciate your thoughts!
I know that lenders will want more down on a second mortgage.
Not in this scenario, but your income will look to be more of an issue than the down payment. You might have to wait until after you file your income taxes next year.
Do you have any savings now? Tapping into your home's equity can be done, however, you will being paying a premium because the home is not owner occupied. (I believe most cash out investor loans are limited to 60%-65% of value). By the time you pay closing, there's little equity to utilize. You may find a heloc, but if fixed owner occupied is 6% on 2nd trusts, no idea where investor seconds will be.
Right now, your rental for qualifying reasons is at $175 income ($2100 x 75% = $1575). How much do you think you need down? If one of you is a first time buyer (are both of you on the Denver home?) you can go 3% down (depending on income caps in your new area), but you certainly can go 5% down or 80/10/10. Qualifying takes a bit more info, but right now, your investment property is carrying itself before you add another loan to the home. So, you could buy again, but without savings and income calculations, it's unfair to throw numbers out there. Contact a lender for a full workup.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
