Anyone own a second property - how did you finance ?

[Deschodt]

I'm not aware of how this works... We are buying a piece of land in the boonies as a second place (that will likely become #1 home for retirement in 15y). We have a Home Equity line of credit on our paid-for home, that will cover that purchase and possibly even a small prefab home or barn to put on it (thought that's less urgent)...

However, a HELOC is interest-only for 10y and variable rate... useful to jump on something quickly in cash, but too risky long term... What then ? Can you refinance / get a loan on a new land/home that you already "bought" - something after the fact with a fixed rate, and use it to repay the HELOC, or is this the wrong way to go about it ?

Any clues gratefully appreciated. I've obviously never done this before...

[MysticLlama]

Yes, as long as it has it's own deed, you can refinance it out to it's own fixed rate mortgage. It will be a higher rate than a primary residence, but should be pretty reasonable right now, although possibly higher than your HELOC.

If you're buying raw land and want to put something on it, a construction loan can be very difficult to get if your intention is to keep it vs as a spec or to rent later. I work at a hard money lender and we wouldn't be able to do that because the intent is to be owner-occupied at the end. So it'd be good to make sure you either have all of the $$ up front, or purchase the land, get a land-only mortgage to free the HELOC back up, then the HELOC to build the house, then refi the whole thing again.

[Deschodt]

Thank you Rob, that's very useful - had no idea... We can do as you recommend (use heloc, land mortgage, repay it) since the house building can wait. Much appreciated ! (it is raw land, almost, burned 2 y ago, nothing left but an underground wine cellar.)

[MysticLlama]

I'd see if you can get a little info on the land loans if possible first, there are lots of banks and lenders that don't do them, and it'd be good to at least have an idea of how hard it might be in your area before getting stuck with it.

Though still, with the HELOC likely just as low or lower than a land only deal, it's not urgent other than for cash flow purposes, and I think there will be some time before that flips.

[KFC911]

My HELOC (through my credit union) was for 15 years, and I purchased properties with it.... paying them off asap (principle & very low interest rates) fwiw. I don't think you have to worry about high rates for a looooong time.... cheap, easy, credit has become "the path" the FED has been forced into.... like it or not, and I don't . I would not over extend and leverage too much however.... just not my thing. I'm a novice.... but that's how I've done it...YMMV.

[Tidybuoy]

I just mortgaged a rental property and since it is non-owner occupied, the rate is about .5% higher. I also had to put a 30% down payment in order to keep the rate at that rate. The min down payment on non-owner occupied (at least my bank) is 25% down.

[fintstone]

Is there any type of house on the property now? It is pretty easy to get a regular 30-year commercial of Federal guaranteed...but might need decent down payment.

Can you make it your permanent residence and you current home your "second"? Also, if rural, this is a program many do not know about.
https://www.rd.usda.gov/programs-services/single-family-housing-guaranteed-loan-program

As far as buying and then refi, you generally have to pay a slightly higher rate on a refi...but not always.

[Dantilla]

If time is of the essence, grab the property quick with the HELOC, then perhaps take out a conventional mortgage against your primary residence.

[Deschodt]

The only thing on it is a concrete wine cellar bunker - buried in the hill with a visible wall, the rest burned and was bulldozed and cleaned up...

[fintstone]

https://themortgagereports.com/32150/lot-loans-everything-you-need-to-know

[HardDrive]

Our second home is standard 30 fixed. Non issue because we put down like 40%

[BK911]

Just get a land loan.
Mine was 10% down for a 15 year loan.

[john70t]

Isn't a HELOC using your own home as collateral?
(which means if 'it doesn't work out' the bank confiscates both properties instead of one.)

The Current Federal Funds Rate is 1.75%
The Current U.S. (Fed) Prime Rate is: 4.75%. This should be negotiable if you have value as a customer.

[KFC911]

^^^^ True. In my case, I could have covered the HELOC loan in other ways if the shtf but it was used as just a "tool". If your primary home is in play... that's what I would call over leveraging...jmho. Everyone's situation is different.

[Cajundaddy]

Originally Posted by Dantilla

If time is of the essence, grab the property quick with the HELOC, then perhaps take out a conventional mortgage against your primary residence.

^^ This is often the simplest and cheapest money if you have a solid income stream. We did this to finance a commercial property when no bank would talk to us. Mortgaged our primary residence at 80% and had plenty of cash to build out the project.

[fintstone]

I have done that before as well. It usually gleans the cheapest money...and it much simpler than most others (except cash or owner financing).

[john70t]

Originally Posted by john70t

The Current U.S. (Fed) Prime Rate is: 4.75%. This should be negotiable if you have value as a customer.

The Credit System (anti-competitive and defamatory) considers repeat attempts at a loan as a negative.
Meaning the more you shop around, the worse your credit score becomes.

I found this out trying to buy CA real estate back in 1999/2000, before the market tripled and more.

So go with an 'honest lender', if they still exist, like a credit union or a local bank which does good with their money.

[jhynesrockmtn]

May want to check with a lender now. HELOC works fine in the short term. If you want to stand alone finance it that money may be hard to find now. I have a buddy that is taking early retirement from SW Air. He has some real estate investments and is hearing from his lender that money is very tight due to the uncertainties related to COVID.