Buying with mortgage plus HELOC

[Onateag]

Hi there,

In there meantime you guys spin your wheels taking about the elections, I have a question here.

We started looking for homes one year ago, believing that it made sense going for a starters place, but it is clear to us that it would be much more conservative stretching a little and go for a more desirabke property.

Family is willing to sell a small property in Europe, but there things may get very slow and we don’t expect there sale to go through fast.

We would like to add a large ~150k cash infusion into our mortgage of ~400k and we would like that to lower or monthly payment rather than reduce the repayments time.

We have been advised to look to finance post of the home with a HELOC whose amount would be payed off with the lump sum, leaving a $ ~1000 month for 30 years.

Is there any other approach out there that will help us reducer the monthly payment with a cash infusion 1-2 years after signing the mortgage? Is it something that checks out with you guys?

[Coronita]

I don’t understand what you are asking. You’re going to be buying a house, presumably one that is more expensive that will result in larger payments. You want to lower your payments, so you want to bring $150k extra to the table and reduce the loan amount from $400k to $250k, so the monthly would be lower….

…But you currently don’t have $150k, so you are hoping to tap into a HELOC to borrow $150k, until your parents/family sell a home in Europe, which you could then use to pay off the HELOC….

Question: if you’re buying a house with a loan, how do you plan on getting a HELOC at the same time on the same property? Also, if you borrow $400k, what is your LTV going to be? Is there going to be $150k worth of equity for you to tap?

[NotCranky]

I think they are talking about something like this.
https://www.sindeo.com/blog/2015/07/30/purchase-money-second-mortgage-what-it-and-when-use-it/

If so, the piggy back loan is probably going to be adjustable. That would be risky.

Before someone flames me, I am not real familiar with this , and the OP’s post was not very clear.

[Coronita]

[quote=Blogstar]
Before someone flames me, I am not real familiar with this , and the OP’s post was not very clear.[/quote]

Yup, it wasn’t very clear. I guess the goal of this is to split the loan amount into two loans, one that you know you’ll pay off in the short term before rates adjust.

Assuming the funds are going to come in for the second loan in the short term.

[spdrun]

Can’t you get a line of credit against the equity in the property in Europe?

[millennial]

The original question is tough to decipher but it seems like you want to take out a $400 30 year fixed loan and a 2nd on the home for $150 totaling around $550 instead of just doing a 30 year fixed mortgage for $550. This way you can have a lower monthly payment by having a P&I payment for $400 and just an interest only payment on the $150. In another couple years you are planning on paying off the variable rate loan and having a fixed 30 year at today’s rates instead of refinancing. If that’s the case I think it makes sense.

[Onateag]

My post was not clear at all.

Next time I will refrain from typing from my cell phone while attempting to provide some hints of background into it. (Yes, very hidden in the post were my concerns about buying with such unfavorable valuation. The math adds up when you look at the prospect of renting for the next 5+ years at $2100 month a 90 sqft 2bdr).

flu and millennial got it right. The goal of this would be to split the loan amount into two loans, with one that I will be paying off in the short term.

My biggest concern is that I am absolutely unfamiliar with HELOC (home equity loans). How can I access this kind of loan without having any equity? Probably the name is misleading.

Is there an alternative approach to split the mortgage into a 30-year and a whatever makes sense load that would be payed off in less than 2 years?

[Coronita]

I’m not going to try to provide mortgage advice, since I’m not a loan officer. The best bet would be fore you to consult a loan guy. There is a guy that occasionally visits here named “HLS”. Send him a private message from your account ,and he’s usually pretty good at responding over PM….

[ucodegen]

I don’t know if a first/second is such a good idea. It does depend upon how much total down he has. If his total financing is 80% or less, there is really no purpose for the second – just prepay the first. A second will come in at a higher interest rate (it is ‘second’ in the case of default, so a higher risk premium is associated).

Make sure the first does not have a prepayment penalty.

[moneymaker]

Deja Vu-
Isn’t this what people did during the last bubble, they bought a house,took out a second/HELOC used that to put down on another house then rinse and repeat. The only thing is you need to do this from the beginning of the housing appreciation period and you need to sell before the crash. Good luck! If you are however trying to pay for 1 house that you will live in then I don’t think you can buy a $250k mortgage (after applying $150k) and only pay $1000/mo.

[millennial]

[quote=flu]I’m not going to try to provide mortgage advice, since I’m not a loan officer. The best bet would be fore you to consult a loan guy. There is a guy that occasionally visits here named “HLS”. Send him a private message from your account ,and he’s usually pretty good at responding over PM….[/quote]
I would have to agree, you should probably talk to a loan officer. But I get what you are trying to do. You would rather lock in the rate on the first right now with a lower monthly payment and get the 2nd on the difference to get a lower interest only payment; knowing that you’ll pay that off in couple years. To me it seems logical, but you’ll have a variable interest rate on the second and it might be higher. Not sure if this option exists, but you might be able to have a fixed 5/5 or 10/10 rate on the 2nd too if you want to lock in the rate. From what it sounds like though, I’m assuming you have a cash flow problem instead of a leverage problem…or maybe both. If that’s the case the 5 or 10 year amort. won’t work.

[Coronita]

The thing that really bothers me about this sort of arrangement is that it seems to heavily depends on a the sale of a home in Europe from a relative (presumably a parent), that happens at a later date.

To me, the money that is earmarked to be used to pay for the second mortgage doesn’t appear to be “guaranteed”. What IF the OP can’t get $150k out of that home sale in Europe? Then what?

In the past I took out HELOC’s on my primary up to $200k to short term finance my rental property purchases. But I only did so, because I knew that worst comes to worst I could pay them off if rates rose suddenly, and I knew I could refinance the condos into a fixed 30 year loan after closing escrow after the waiting period.

[HLS]

I don’t think that you will be able to purchase with a 1st & a HELOC but HELOC guidelines are up to each institution as they are lending their money with their rules. (You might)

HELOCS are usually always at an adjustable rate, tied to Prime and are no rate risk to the issuer, If prime goes up, so does your rate,

1st mortgages are underwritten with guidelines from FNMA, FHLMC, FHA or VA. Having 2nd may affect your 1st pricing

You CAN purchase with a 1st + a 2nd Home Equity LOAN.
These are typically fixed rate probably 6%+ today.
No prepay penalty.
*This option guarantees that you will be able to accomplish what you want to.

After purchasing, (you may need to wait 6 months) you could get
a HELOC (at adjustable rate) to pay off the 2nd Loan.

Another option, a bit more risky is purchasing with just a 1st mortgage now and attempting to have your mortgage payment ‘recast’ at the same rate & the same term when you make your principal reduction payment. You will get the lowest rate.

I work with lenders who will recast a payment on loans that they service if the principal reduction is in excess of $10,000.
**The risk lies is not knowing who will be servicing your loan at the time you are ready to make your principal reduction.

I made several inquiries today and they all said the same thing.
They will not originate a loan with an explicit guarantee that any future servicer must honor their recast policy.

Depending on what % of equity you will have, I could possibly structure a creative scenario that would guarantee you could do this.

SO…..
Assuming that you qualify, you do have options to accomplish your goal.

[Onateag]

All insightful comments, thank you.

I am planning to get my first home, where I am hoping to live for many years. This is the main reason why the math works, even with the valuation at this absurd level.

When we started to look for homes one year ago, we were planning to go for a starters place. However, who wants to buy a home now with the perspective of reselling in 5 years for a bigger place? Going for a more desirable and larger place now seems a reasonable call, *if* I continue to have liquidity to cover one-year of expenses and cash flow during the length of the mortgage. I don’t want to become mortgage poor! Please challenge my assumptions on this, there may be something I am leaving out of the picture.

Some clarity on the numbers. I’d be looking for a property in the 550-600 range, with the hope of putting 20 to 25 % down and be able to lower my monthly payment 6-16 months from closing. As a side note, we are looking in the CM / RB / RP / Poway area with small to no HOA. Good luck to us!

I had extensively read about HLS posts in the past, and now how detail oriented he/she is. He/she will be hearing soon form me.

For the folks in the forum, what does a “creative scenario” entail? I would be super interested in understanding if I would qualify for a recast payment with the same rate.

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