Can I have a second home when I’m on my underwater house first?

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We have two objectives, we must achieve. 1) Buying a second home outside of our current city and 2) refinancing our mortgage is the first (of 6.5% over 30 years Updating current (15-year fixed 4.75-ish) Can I kill two birds with one stone? Can I kill a bird with one stone here is the situatioin: … We have a duplex we live on one side and rent the other, tenants pay half of our portal death, substantially, the housing market has plummeted here, my house is. worth about $ 207K $ 365K against whom he has been recognized for 3 years. I have about $ 270 on the loan . The refinancing of the traditional way is impossible. No lender wants us an opportunity because the value of the ratio was ready to take us. IWe’d like to take off our site and place for rent. We want to leave this town and buy another house about $ 320K-$ 270K. Our combined income is about $ 156K in thought is Jahr.Mein if possible, in cash of approximately $ 50K-70K out second mortgage and use the money to kill on the first mortgage, so that we reduce the amount of the mortgage, as we refinance at a lower price for experience of 15 Jahren.Glauben you think this is possible, probable and reasonable? Thanks advance for any response!
Here’s the situation: My husband and I currently have a primary residence in North Dakota, we have a mortgage (monthly payment is $ 823). We intend, in 15 years in retirement. Last year, we reviewed the properties for sale with or without a residence on it, as our primary residence is retired. This past week, we found it. Be perfect, surrounded by everything we want for our family, the State of New York, 5 hectares, orchards flow, apple and peach, 1 / 4 of Lake Ontario, across the road from a state park, 15 minutes from Amish country, a huge barn, etc. Currently, there are tenants in the property, and it is for sale by owner. The property sells $ 155k and the current owners bought it for $ 3 145k years ago. We believe it is cheap. Our credit score is between 760-770 and a low ratio of debt (no car payments, no credit card debt, a small loan of 3 years under 7k, we have for our parents to consolidate their loans and pay on time.) I think we did a good repor with suppliers. It is their second home as well, they live by the state. I talked to a handful of banks and we certainly are preapproved. The fall is that they are considering this as an investment property they currently tenants in the apartment, we agreed that they do not stay more than a year, then our apartment until we can withdraw there was. Is there anyway to get an “investment” classification, that lenders need. For 14 of 15, he is a home until we can make our first home. The classification of the lender is prepared according to strict rules. For example, we have to close 20%, plus costs, which total about 42k due at closing. It’s a lot of money! But we do now, because, as we will tighten mortgage lending practices and called for new rules to know are talking about. Thanks to this and we want inflation now, before it will cost us more money. Our plan is to have when we retire gezahlt.Bitte anyone with ideas / advice would be helpful. We are open to non-traditional ideas such as “accepting a loan” or dergleichen.Hier is what we have been given by banks: 30 year fixed points6 pay 2, 625% Payment Zinssatz20 approximately $ 1,070 per month through Voraus.Ich like to add some details and thank you to everyone who worked for the answer to my question so far contributed haben.Die current owners of the house itself in its entirety, so there is no Mortgage. Also, I know they want to sell this house so he can use money from the capital for their new home. We do not offer yet, but they already told us that ‘they are firmly on the prize, 155k, and has already been reduced by 15k. I think it is much too 155k.Hoffe that help these little things. Keep coming up with good advice.

11 Comments
  1. Reply
    TxDeedInvestor
    February 8, 2011 at 11:26 am

    Think outside of the box… see if you can do one of the following:
    1. Find a second home where someone will take a note back on the property. Make sure your credit score is good so they would be willing to work with you. Look for sale by owner and start talking with them.
    2. Try to locate a real estate wholesaler in the area and see if you can work some sort of deal with them.
    3. This option takes the most work, but could be the most beneficial: Look at tax deed sales in the area. You will have to attend, have cash ready and the bidding is bound to go up higher than the taxes due on the property, but you’ll be competing against wholesalers, who want the best prices but it will definitely be cheaper than paying retail. The other downside is that you will not have the standard deed compared to buying at retail. You’ll have to file a Quit Deed Claim to ensure there are no other claims against the property. As I stated, this is the hardest option, but could be the most rewarding. Go to the county’s Tax Collector or County Clerk’s website and look for Tax Sales. Best wishes

  2. Reply
    GVD
    February 8, 2011 at 12:25 pm

    I’ll try to take on your questions one at a time:

    You won’t be able to refinance your current duplex because there is no program that addresses that much of an equity deficit.

    You may be able to rent out the unit you are currently in and qualify for a new home. Your income sounds as if it may besufficient. Since you won’t have 25-30% equity in your home (requirements for different programs) you will have to qualify for principal, interest, tax and insurance payments on the property you vacate as well as the one you purchase.

    You cannot take “equity” out of a property with no equity so you can’t take a second mortgage on your current property to pay down a first mortgage, you have no equity and that would not change your situation anyway, your combined loan to value would be the same.

    It sounds like your best option is to vacate your unit, rent it and try to qualify for a new home purchase, possibly an FHA purchase with 3.5% down. With 156K income and hopefully a small debt load, you should be able to accomplish this. Get with an experienced loan officer to assist you.

    Edit:
    Please ignore these answers talking about not being able to use your current house as collateral, mortgage don’t use other properties as collateral anyway so their answers are pointless and wrong and they have no idea what they are talking about.

  3. Reply
    Steve D
    February 8, 2011 at 1:21 pm

    Not doable – as you point out, no lender will allow you to finance more than the appraised value of a house. Obviously, if you had the $ 70K to put down on the second house, you could just plug that into the duplex and pay down the mortgage there to get out from being underwater and then refinance. Since you obviously don’t have the $ 70K to do that, you are going to have to finance the vast majority of whatever house you buy and you will have no equity to borrow against. Also, it is doubtful that you can qualify for the second loan since: 1) you are underwater on the duplex mortgage and can’t use that as collateral; 2) you only have one verifiable rent and rent projections (the second unit) are not income until you actually have a rental contract in hand (which obviously you won’t have until you move out) which probably puts the new house out of your income range (although the established rent income may help there).

  4. Reply
    Realtyyoudefine
    February 8, 2011 at 2:16 pm

    Unclear where you are getting the $ 50-70K cash from?
    If you owe more than the current duplex is appraised for of course you cannot refinance it, and there is no cash to take out on a (second??) mortgage.
    You would have to use any cash you already have as a down payment for the new house.

    Or are you thinking you could take a mortgage on the new home for more than the value. Not going to happen, my friend.

    If you move out and rent the other half of the duplex that you were living in, so therefore your mortgage is covered it would be some help in qualifying for a mortgage on your new home.
    Normally the lender will want to see copies of the lease(s) and your tax returns for the last 2 years documenting the rental income.
    The also only take into account 75% of your rental income because they have to plan for vacancy periods.

    Therefore, this entire duplex becomes an asset or investment and is both a liability (the mortgage) and an asset (the value of the property and the rental income)

    So if you do not have cash already for the down payment on your new home, no, you would not be able to get another mortgage.

  5. Reply
    Monash
    February 8, 2011 at 2:39 pm

    Finding a home loan that is affordable when you have bed credit can seem nearly impossible and can be very frustrating. However, there are lenders out there who will approve yourhome loan regardless of your credit history. Yes, there will be some fees and catches associated with this, but it is possible. There are some things you can do, however, to help you buy a home and be approved for ahome loan even if you have bad credit. The following suggestions will prepare you for getting a home loan even with poor or bad credit.

    http://theloansonline.blogspot.com/

    A home loan approval for people with poor credit generally requires a 10-20% down payment. Basically, the higher the down payment you can make the betterhome loan rates you will receive. When you make a large down payment you have immediate equity, which goes a long way to you being approved for ahome loan.

  6. Reply
    Landlord
    February 8, 2011 at 3:38 pm

    There is absolutely no way. You can not rent out a “second home”, it has to be vacant when you are not there.

    You can buy it now as an investment, and refinance it later when you no have tenants.

  7. Reply
    I Buy And Sell Houses
    February 8, 2011 at 4:30 pm

    There are lots of ways.

    It’s true that, given what you’re trying to do, the banks would consider it an investment property. Frankly, you’ve been given a very reasonable rate for investment property. I realize that $ 42,000 is a lot of money, but for a traditional purchase, that’s about what you’d need.

    Before I get into the different ways, are you really sure the price is good. If they bought 3 years ago, it’s more likely that the price has gone down than that it’s gone up. Contact a Realtor in the area to give you a CMA. (Yes, they’ll do it, even if you’re considering buying FSBO.) See if the price you’re being quoted is reasonable. Sounds as if the sellers are just trying to get out without losing money, and there isn’t much downside negotiation potential. My guess is that the property’s overencumbered. So: Get a CMA before doing anything else.

    OK. Now for the different ways to buy.

    Option. Pay an amount of money to obtain an option to purchase the property. Once the renters move, you exercise your option and purchase the property.

    Purchase “subject to” the existing mortgage. This is similar to your “assuming a loan” idea except–as I’m sure others will point out–the seller’s loan undoubtedly is not assumable. When you purchase “subject to,” the sellers deed the property to you. You make their mortgage payments. In a year, you refinance the property (as a second home), cashing the sellers out. Note: This will violate the lender’s “due on sale” clause. That’s not illegal, but technically the lender could call the loan due and payable immediately. They seldom do, but it could happen.

    Land Trust. The sellers move the property into a land trust. You’re named a beneficiary of the trust. The trust documents provide that within a certain period of time the property will be brought out of the trust and sold for fair market value to you. However, although it must be sold at fair market value, there are ways to construct the documents (using a predefined “seller contribution”) to ensure that the sellers receive the equity they’re seeking. One advantage to a land trust is that it doesn’t trigger the due on sale clause. And it protects you against any liens, suits, or judgments against the sellers. For more information on that, go to http://www.landtrust.net.

    There are a lot of other ways as well, but you probably can find a satisfactory solution in one of those three.

    Hope that helps.

  8. Reply
    Valuation Expert
    February 8, 2011 at 5:19 pm

    The lenders are mainly concerned that it is not your primary residence. Many loan programs aren’t so much concerned with it being rented, just that it is not your primary residence.

    As far as the numbers go, you are seemingly getting a good deal. I grew up in ND and appraise real estate in AZ. That dollar amount might seem high in comparison to ND real estate, but in AZ the price you stated wouldn’t even get you half of that land, let alone the structures and that would be in some what of a desert area with no water features.

    Depending on their intentions, you can possibly do an owner carry back and pay them what the mortgage company wants. This can be deposited into any number of accounts for the seller to gain income the same way a mortgage company does. This is ideal if they want to invest the money and given the market, it might be in their best interest to cut costs. On the other hand they may want to have a lump sum to buy another house, etc.

    Suppose the first step would be to try and find out the sellers intentions. In your situation, you should not have to worry about inflation of the real estate market price, especially right now. If anything the market value of the home will be less in the near future. The interest rates are also looking at a possible drop, per the FED, very soon as well.

    As an appraiser, I would recommend removing the emotion from your decision making. Your motivations need to be based on your retirement goals. Many investors are scared today, withdrawing their money in droves, and this is why we see this crazy train ride in the different markets. Be sure about your goals and you can be sure about your decision to meet that goal.

  9. Reply
    AllCourt
    February 8, 2011 at 6:07 pm

    Do you have a retirement account with enough funds? You can roll a 401(k) or IRA into a self-directed IRA with a custodian that handles making “non-traditional” investments like real estate, mortgages, and many others.

    One scenario is that you use your IRA(s) to purchase the property and rent it out. You fix it up along the way (all income & expenses MUST be paid through the IRA) and when you are retirement age you take the property as a distribution. If you do this with a Roth IRA, there is NO TAX PENALTY. You can even partner with your IRA (as it is an entity separate from you) to buy investment property if funding is an issue, but that may trigger some tax consequences.

    There are other scenarios, but that is one example. I am not a CPA or an attorney, so I am not giving tax or legal advice, but it’s worth a bit of homework on your part if you know now you want to own property in 15 years that you can retire in. Find a good estate planner or just start doing some reading for more info….

    GOod luck!

  10. Reply
    Jay S
    February 8, 2011 at 6:18 pm

    There is another option that has not been mentioned.
    If you have enough equity in your primary home you could do a cash out refinance to buy your vacation home and should get a little bit better terms.

  11. Reply
    Ed Atun
    February 8, 2011 at 6:27 pm

    Borrow against your life insurance policy for the down payment. My brother did that today..

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