Can you get a mortgage when you owe nothing on house? (loan, fixed rate)

[Mikala43]

I will be buying a condo and will pay cash.

I was wondering, if, at a later date, could I take out a mortgage for tax purposes? Or will I only be able to do an equity line of credit?

[Jkgourmet]

Yes, if you can meet the income and debt guidelines. No different than a mortgage when you buy a house.

[josh u]

You can get a Heloc or Equity Loan.

Issues you will have to deal with:

1. Lenders are tightwads WRT cash-out loans now.
2. Interest rate will be 1%-3% higher than a purchase mortgage
3. You have to wait several months after buying the house before applying


#3 is a biggie because in order for you to qualify for the mortgage deduction in your scenario, you have to obtain the loan within 90 days of purchasing the house (IRS pub 936). If you get the loan after 90 days, it is not considered home aquisition debt and is subject to the $100k deduction limit

[chet everett]

Josh is correct about lenders having stricter standards for cash out finance than the easy money of years past BUT there are still PLENTY of options to get cash-out SO LONG AS your equity remains above 20%. In fact, if you work this right, leveraging a relationship with a lender that understands your overall financial picture (including investments and/or business accounts) you can get JUST AS GOOD a rate "new purchase"...

Josh is correct that most lenders will want to see at least several months of occupancy to be sure you are not trying to utilize owner finance rates on an investment property.

Bottom line, if you are not looking to scam the lender you can get as fair a deal on cash out mortgage as new purchase.

[Pragmaticus]

Originally Posted by Mikala43

I will be buying a condo and will pay cash.

I was wondering, if, at a later date, could I take out a mortgage for tax purposes? Or will I only be able to do an equity line of credit?

Doesn't make sense. Why would you spend a dollar to get a penny back? But to answer your question, sure you can.

[chet everett]

Originally Posted by MeInDenudinFL

Doesn't make sense. Why would you spend a dollar to get a penny back? But to answer your question, sure you can.

The simple analysis that needs to be done ought to include the potential use of the cash you'd get from the mortgage. Assuming you can get returns very close to the rate on the mortgage and the deductibility of interest payments, together with dearth of deductions for many individuals can dramatically reduce income tax bill.

Mortgage rate will NOT climb on a fixed rate loan, and pretty much EVERY economic forecaster believes over the next 30 years returns on other investments should be better.

Take advantage of cheap money NOW to have it working for you later is a strategy that is sound. The citations on the second half of this page support the assertion -- Article | Ric Edelman

[Mikala43]

Originally Posted by chet everett

The simple analysis that needs to be done ought to include the potential use of the cash you'd get from the mortgage. Assuming you can get returns very close to the rate on the mortgage and the deductibility of interest payments, together with dearth of deductions for many individuals can dramatically reduce income tax bill.

Yes, this is my reason. To add more information, I'm moving out of state. I will probably buy a property with the money from sale of my current house, before I have a job - thus, I won't be able to finance.

I do have a place to stay and the shipping company will hold my containers for quite awhile with no charges, so I can if it is wiser. I was kinda looking forward to a few months off...

[Mikala43]

Ok, next question...

After closing costs I will have about 50K in capital gains - before factoring home improvement costs.

Are home improvement costs depreciated, or actual costs at the time?

Theoretically... say the capital gains are 50K. Could I take out the 50K from my equity line before closing and thus not have any capital gains?

[Mikala43]

Scratch the capital gains question.

An accountant just explained it to me.

[Bette]

Originally Posted by josh u

You can get a Heloc or Equity Loan.

Issues you will have to deal with:

1. Lenders are tightwads WRT cash-out loans now.
2. Interest rate will be 1%-3% higher than a purchase mortgage
3. You have to wait several months after buying the house before applying


#3 is a biggie because in order for you to qualify for the mortgage deduction in your scenario, you have to obtain the loan within 90 days of purchasing the house (IRS pub 936). If you get the loan after 90 days, it is not considered home aquisition debt and is subject to the $100k deduction limit

Depending on what state you are in, it's possible to cash out on a free & clear property. However, in my state of Florida, I disagree with the above items.

There are some lenders, one of which is Wells Fargo, who will not do a HELOC (home equity line) in the first position. You can have a fixed rate mortgage in the first position (however small) and then a HELOC behind it.

The rates on a cash out are dependent on your loan to value, your credit score, type of property, etc. The rates are not 1% to 3% higher. I'm a mortgage broker; I do cash outs all the time.

Some lenders require you to wait 6 months before a cash out. I will check guidelines on this b/c they change frequently. I will check on the IRS guidelines; not sure on that.

Good luck.