Author Topic: Looking for my first rental, how to finance? house paid off  (Read 2082 times)

medinaj2160

  • Stubble
  • **
  • Posts: 158
Looking for my first rental, how to finance? house paid off
« on: September 01, 2016, 05:08:20 AM »
We decided to start looking for a rental house to diversify our investments. Currently our house is paid off and I was thinking about getting a second mortgage for the down payment instead of using our money also considering that the loan interest will be tax deductible. However our house is paid off and I imagine I cannot get a second mortgage since I don't have a mortgage. Maybe I am wrong; how would you guys finance the 20% down payment.

Thanks 

Fishindude

  • Magnum Stache
  • ******
  • Posts: 2573
Re: Looking for my first rental, how to finance? house paid off
« Reply #1 on: September 01, 2016, 05:16:16 AM »
Talk to your banker.   
If you have your home paid off, good credit, a reasonable down payment and a good plan most banks would loan you money for an investment property.
Interest rate for something like this is typically slightly higher than a home mortgage, but that goes with the territory.

NoNonsenseLandlord

  • Bristles
  • ***
  • Posts: 396
  • Age: 61
  • Location: Eagan, MN
    • No Nonsense Landlord
Re: Looking for my first rental, how to finance? house paid off
« Reply #2 on: September 01, 2016, 06:55:53 AM »
Do not get a second mortgage.  Get a HELOC.  You can only get a cash out refinance and it will be a first mortgage.  A HELOC is nearly free, no closing costs and cheap interest. 

Then save as much as you can.  Look for a pre-foreclosure.  Be creative, or you might wind up broke.

medinaj2160

  • Stubble
  • **
  • Posts: 158
Re: Looking for my first rental, how to finance? house paid off
« Reply #3 on: September 01, 2016, 07:36:47 AM »
Do not get a second mortgage.  Get a HELOC.  You can only get a cash out refinance and it will be a first mortgage.  A HELOC is nearly free, no closing costs and cheap interest. 

Then save as much as you can.  Look for a pre-foreclosure.  Be creative, or you might wind up broke.

What do you mean be creative or might end up broke?

thanks for the info I will do more research on the HELOC

LiveLean

  • Pencil Stache
  • ****
  • Posts: 808
  • Location: Central Florida
    • ToLiveLean
Re: Looking for my first rental, how to finance? house paid off
« Reply #4 on: September 01, 2016, 10:17:06 AM »
You're not getting a second mortgage because at the moment you don't have a mortgage, correct?

You're getting a mortgage on your house for the second time, correct?

If that's the case, we've been there. We paid off primary residence in 2008. In 2014, we found a second home/weekly summer rental/future FIRE home. We found it much easier to get a mortgage on our primary residence (which had been mortgage free for six years) and paying cash for second home. Not only is it much cleaner from a tax standpoint -- all mortgage interest from primary is tax deductible -- it's much more difficult to get a mortgage on a second home (even if you don't have one on your first.)

As a self-employed person, I learned that I was not going to get a mortgage on a second home regardless of my lack of existing mortgage and regardless of my balance sheet. They want to see that W-2 income. Ridiculous.


clarkfan1979

  • Handlebar Stache
  • *****
  • Posts: 2171
  • Age: 41
  • Location: Pueblo West, CO
Re: Looking for my first rental, how to finance? house paid off
« Reply #5 on: September 05, 2016, 09:47:34 PM »
You're not getting a second mortgage because at the moment you don't have a mortgage, correct?

You're getting a mortgage on your house for the second time, correct?

If that's the case, we've been there. We paid off primary residence in 2008. In 2014, we found a second home/weekly summer rental/future FIRE home. We found it much easier to get a mortgage on our primary residence (which had been mortgage free for six years) and paying cash for second home. Not only is it much cleaner from a tax standpoint -- all mortgage interest from primary is tax deductible -- it's much more difficult to get a mortgage on a second home (even if you don't have one on your first.)

As a self-employed person, I learned that I was not going to get a mortgage on a second home regardless of my lack of existing mortgage and regardless of my balance sheet. They want to see that W-2 income. Ridiculous.


I agree with above. Get a mortgage on your primary house. Pay cash for the rental.

jwright

  • Bristles
  • ***
  • Posts: 269
Re: Looking for my first rental, how to finance? house paid off
« Reply #6 on: September 06, 2016, 09:39:08 AM »
You're not getting a second mortgage because at the moment you don't have a mortgage, correct?

You're getting a mortgage on your house for the second time, correct?

If that's the case, we've been there. We paid off primary residence in 2008. In 2014, we found a second home/weekly summer rental/future FIRE home. We found it much easier to get a mortgage on our primary residence (which had been mortgage free for six years) and paying cash for second home. Not only is it much cleaner from a tax standpoint -- all mortgage interest from primary is tax deductible -- it's much more difficult to get a mortgage on a second home (even if you don't have one on your first.)

As a self-employed person, I learned that I was not going to get a mortgage on a second home regardless of my lack of existing mortgage and regardless of my balance sheet. They want to see that W-2 income. Ridiculous.

All mortage interest from your primary home is deductible - if you actually live there.  If you use the funds for something other than buying, building or improving your personal residence it is not deductible as home mortgage interest on Sch A.  Look up the definition of qualfied home in Publication 936.

 Additionally, a HELOC would be deductible in this case only up to $100K of funds.