<p>I am looking to buy a winter home. I need advice on the best way to finance it.</p>
<p>Should I take out a mortgage so I have some interest deductions against earned income ? If times get really bad I can even rent out the place and I can deduct the interest against the rental income. </p>
<p>Should I take out an home equity loan on my principal house ? The mortgage people tells me the rate is prime + .25% and there are no application or other expenses. It is a much lower rate than a 15 or 30 year mortgage (2% less). I don't know if the interest paid on the home equity loan is tax deductible against earned income or rental income of the new property. </p>
<p>Should I finance it 100% myself by liquidating some other assets ? Then I won't have a mortgage to pay but the place will have to cost considerably less.</p>
<p>Do you have a CPA or decent local banker who could help you run the numbers?
I recently refied a business property. Ran the numbers and went with the home equity. My CPA confirmed that it was the best way to go BUT only because she knows me well and that I am disciplined enough to make principal payments monthly. Many of the home equity loans are automatic deduct of interest only. Unless you are self disciplined enough to pay principal by going into the bank monthly you will never pay down the principal. </p>
<p>We have a fixed rate home equity loan on our house. That's how we refinanced. It includes interest and principal...and also had finance charges that were lower than a conventional loan. Of course...this was six years ago.</p>
<p>I thought you are only allowed to deduct up to $100K for home equity. I personality would not take a HELOC to buy a second home. I don't want to loose 2 homes if something does not work out.</p>
[quote]
Home equity debt limit. There is a limit on the amount of debt that can be treated as home equity debt. The total home equity debt on your main home and second home is limited to the smaller of:
$100,000 ($50,000 if married filing separately), or</p>
<p>The total of each home's fair market value (FMV) reduced (but not below zero) by the amount of its home acquisition debt and grandfathered debt. Determine the FMV and the outstanding home acquisition and grandfathered debt for each home on the date that the last debt was secured by the home.
<p>I hate the idea of home equity loans except in the most extreme case of medical emergency. Your goal should be to pay off your house (i.e. the house you live in), not mortgage yourself to the hilt. A paid up house brings peace of mind.</p>
<p>Mortgage, but interest rate will be higher since it will be a second home. Your mortgage people maybe stretching the interest rate. Check several FI and be prepared to walk at closing because the mortgage terms may be different from first presentation. </p>
<p>Renting out a second home is tricky. First issue is that the home is Your second home. Second issue is that if the home is in a resort or vacation area you will be competing with other vacation rentals that may be below your cost. Third issue is the rent to mortgage ratio. Fourth issue is it worth your time and money?</p>
<p>I used to feel this way, then last summer, a bank representative tried real hard to get us to take out a HELOC out of our home, "to protect our home against fraud". Seems like crooks will search out houses with clear titles and take out mortgages on them, and in one case that made news, sold the house. The poor homeowner eventually got it all sorted out after two years and a court case and his title insurance paid for the court costs, but it was a big hassle for him. She said houses with mortgages and HELOCs had an added layer of protection, beside title insurance, which some people have or not have. She told us we can have a HELOC and as long there is no funds taken out there is no interest and there are no admin fees or applications fees. I don't know what is in it for the banks. :confused:</p>
<p>We never went for any HELOC but ever since then I worry about some crook selling my house under me, especially when I get old and confused. No peace of mind. :(</p>
<p>My sister has two homes about three hours apart. They normally live at one and visit the other one once in a while. It was recently burgled and ransacked and they have to go and put it back together again. Homes left empty for long periods of time can be crime targets. The house is in a relatively quiet place where you can't see your neighbors.</p>
<p>The city where my kids go to school have had three armed robberies within two miles of the campus and one more within the city. Economic problems are resulting in more crime.</p>
<p>
[quote]
We never went for any HELOC but ever since then I worry about some crook selling my house under me, especially when I get old and confused.
[/quote]
</p>
<p>I have the same worry. I would keep a small amount of debt. That is what my MIL does so the bank can keep the title for her.</p>
<p>EDIT: You need to get a house in a gated community so nobody can move in while you are not there.</p>
<p>The city where my kids go to school have had three armed robberies within two miles of the campus and one more within the city. Economic problems are resulting in more crime.
</p>
<p>I am looking at condos at gated communities. I was originally looking for condo apartments in high rises with security but can't find any at my price range and location. I am looking at Carlsbad, Murietta or Tecumsela in Cali. I figure it's hard to tell if a place is occupied or unoccupied for an apartment. Who knows, if we like the weather and environment enough, we will move into the summer home full time when we figure the kids can stand on their own two feet. I can't take the snow and cold much longer. If Cali does not work out I will have to look at Florida, or another southern state, I know there are condo high rises near beaches within my budget.</p>
<p>Florida residents have to deal with high property tax and home insurance issues and I think that these issues will continue unless they too get a bailout. I know zip about California.</p>
<p>One thing that I've read about with high rises is that condo fees can be very high. I'm a New England person but winters here can be very taxing. We have an option to live in Singapore but I don't like THAT much sun and humidity.</p>
<p>
[quote]
One thing that I've read about with high rises is that condo fees can be very high. I'm a New England person but winters here can be very taxing. We have an option to live in Singapore but I don't like THAT much sun and humidity.
[/quote]
</p>
<p>Stayed in Singapore this March. I would say you made the right decision. There were times I just wouldn't leave my air-conditioned room, and no amount of fluids I drank seem to be enough. </p>
<p>
<p>Renting out a second home is tricky. First issue is that the home is Your second home. Second issue is that if the home is in a resort or vacation area you will be competing with other vacation rentals that may be below your cost. Third issue is the rent to mortgage ratio. Fourth issue is it worth your time and money?
</p>
<p>It didn't occur to me that the interest rate on a second home would be higher. When I spoke to the mortgage people last week I got quoted a rate of 6.375 vs 5.81 from Bloomberg today so I guess you are right. The costs associated with a mortgage are higher than a HELOC as well. Fees and expenses associated with a mortgage comes to about $3000, just the appraisal fee is $600. But I think a mortgage adds a layer of protection for the purchase. If we take out a HELOC it will be against a house we already have. Also, HELOC is based on prime, so it can go up or down and the commitment is for 3 years. If we are unlucky and prime may go up to 10% so there is risk there.</p>
<p>Yes munchkin
Murrietta and Temecula are out not the big city. 45 minites to a real malll Prices are down, one coworker bought a nice home for 290, 1/2 what the neighbor paid. Another has 3acre wine country for less than 800.</p>
<p>The real estate agent who recommended Murietta said it's about an hour from LA and SD and LV, so it's not close to any cities but close enough to all three. He said Carlsbad may be a reach for us and we get more "house" with the other two location. Some other agent also suggested some condos in SD itself, around the Logan Square vicinity (about 30 blocks) but I don't know about the city of SD itself. I am used to living in the suburbs. Either that or I live in the heart (downtown) of the city. I do not think I can afford living downtown LA or SD. Living in the city have the advantage of using public transportation. If the kids wants to move to Cali and find jobs or go to graduate school living in the city with public transportation may be better.</p>
<p>I'm somewhat familiar with the San Diego area so feel free to Pm me if you think I might know something you're interested in. Keep in mind that the weather is actually different between Carlsbad and Temecula. It varies as you go even a few miles inland from the beach and varies even more as you go further inland from there. Some prefer one or the other due to weather quirks. And Palm Springs is in the desert and really miserably hot in the summer but some people like it.</p>
<p>OK...here's a thought...if you are concerned about financing options and just how to go about doing this...maybe purchasing a second home isn't such a good idea at all.</p>
