Homeowners confuse whether to use cash or home equity for down-payment. The least expensive way to finance your second home’s down payment is to take out a HELOC (home equity line of credit) from your first home without tying up your cash reserves. These deals often cost less money and close fast because, in reality, you’re using your very own money. However, many HELOCs do ask for a minimal “early closure fees” that can cost you around $400, in case you want to close out the credit line within a period of the first 3 to 5 years.
If you pay cash, try to keep some reserves
If you want to make a substantial down payment utilizing the cash in your account, make sure that you still keep some cash reserves on hold for unexpected emergencies. In case you’re buying your second home with cash, you’ll bear some “passive losses” as your mortgage loan payment write-offs will be almost nonexistent.
The mortgage loan option
When it comes to the mortgage loan on your second home, the interest rates you get should be significantly lower especially if you’re making a substantial down payment of 20 to 30%. In any case, the mortgage loan on your second home should be a piece of cake. Look around and try to find competitive mortgage interest rates.
Maintaining your property
Moreover, if you are planning to buy a second home that’s situated a long way from your first home, consider that you’ll have to remain away from one of your homes for long periods and you’ll need somebody to maintain that house. Set your budget, and keep about 1% of your second home’s buying price for its yearly maintenance and if you’re buying a very old house, then add another 0.5% to it.
One benefit of not collateralizing or using your first home to purchase your second house is that if there is a hard market crash or any other terrible devaluation scenario you’ll still own a fully paid-for property.
If you need help going through your loan options or want to learn more about a HELOC, we at Texas Trust Home Loans are here to help you out. Our loan experts are non-commissioned, so they always prioritize your financial interests and not their own. For further information, please visit our website www.texastrustloans.com