AGC

Question for mortgage experts out there.

I am looking to buy a second home and will be getting a mortgage for that house, my plan is to put down 20% and finance the rest for 15 years (fixed). I currently have a mortgage on my first house (8 years and and less than 100k owed). Should I pay off my current mortgage and then apply for the new one or should I just apply for the new one and pay off my current mortgage after I close. A friend suggest I use option 2 (wait to pay off mortgage) because he does not think I benefit from paying off the loan before applying for a new one.

Any advise would be appriciated, if you need more specific numbers send me a PM and I can go through the actual numbers (current salary, credit score, house price, etc.). We are planning on signing the contract early next week and I want to make sure I plan ahead.

Thanks again

tonypai

6 of one and half a dozen of the other.

In scenario one, the bank will see your existing debt but you'll have more cash on hand. While in scenario two, you won't have an outstanding mortgage but will have less cash on hand. Lenders usually ask for 3-6 months of banks statements to see your cash flow. And if they're are irregularities, they will ask for more statements and an explanation.

Now, that being said, these lenders are under pressure to only lend to "qualified" borrowers. And using their complex formulas you might actually be better off in scenario two. But practically, if after you close, you have a problem that requires repair you'll be better off with cash on hand.

Sounds like you're in a good position, but talk it through with your mortgage agent.

porschemikeandnancy

You say a "second home". If it's not your primary residence, I think you can't deduct the interest on that mortgage on your 1040, while interest is still (for the time being anyway) deductible on your primary residence.

matt777

I would talk to the bank as they may want to see a larger down payment on the second house. Up here they would probably just want you to get a line of credit on the first house and use that to finance the second.

DC from Cape Cod

20% down on a 2nd home is fine for FNMA.

M Fig

I own a mortgage bank (Fidelity Bancorp)...so I'll throw in my $.02.

It probably makes more sense to pay off later unless you will you have problems qualifying for both payments (the current mtg and the new 2nd home payment)...I'm guessing not, but if so, pay off the current mtg first.

Cash is king in this market, so if you have a more cash on hand, it will give you more options with the 2nd home mtg and more options may equate to a lower rate...

If you have any specific questions, please don't hesitate to email me directly at mark@fidelitybanc.com

Mark

TRINITONY

^ shouldn't be a problem to qualify, I've done it in the past and my bro-in-law as recent as last Dec. It helps if you can provide a lease showing rental income for one of the properties. However these weren't jumbos...

dcdude

Mortgage interest on subsequent homes indeed deductible. I've owned investment properties since 2005, and that's a big part of the appeal.

You didn't say what your objective is (rate? lower total payments?), but as others have said, unless the rate on your primary residence is unusually high, if you can qualify and make the payments on both, there's no particular need to pay off your primary.

Actually, if you can save at least 1% on the rate (say, going from 6%+ to 5%) you could consider a cash out re-fi 15 year fixed on your primary residence and even use some of that cash for the down on your second home?

Feel free to PM me if you want to discuss further.

993inNC

Here's plan C. If your LTV on the first house is now low, why not take a Heloc out and purchase the second home with the first's equity? Rates are probably 4% and deductible. The key to most things in life (I've found) is the principle of OPM (other people's money). Why use yours, when someone is willing to finance you? Keep your money safe and close. Just my .0002 cents in general terms since we don't really have any of your details necessary for real advice

AGC

Thanks to everyone for their advice/suggestions.

At this time I agree with everyones suggestion to hold off on paying off the first mortgage, I gues it's just me trying to keep my monthly expense down. I will see how it goes for the first couple of months before paying anything off, as for my first mortgage its at 5%, my new mortgage will be under 4% for 15 years.

With rates so low and real estate becoming more affordable I figured why not buy a second house for my family to enjoy. We will not be renting out the house as we plan to go as often as possible (only 90 miles away)

Anyone here have a place in the Poconos (PA)