Pam recently asked me about getting mortgages for second homes. Actually, she wanted to help her adult daughter buy a home. Jamie, her daughter, had enough income to afford the payments but didn’t have a high credit score. Jamie was sure she couldn’t qualify for a mortgage on her own. She was still struggling with college credit card debt. On top of that, she didn’t have the money for the down payment either. As a result, Pam started looking into getting a mortgage for her “second home” and then leasing it to her daughter.
Pam had a good amount of savings and enough retirement income. And to make matters even better, her own home was free and clear, without any mortgages whatsoever.
Pam approached her daughter and explained that she’d buy her a home but it would remain in Pam’s name. Jamie would make the payments as rent. Pam would change her estate plan to reflect that Jamie would inherit the home upon her death.
Jamie had nothing to complain about. While Pam would own the home and get the tax benefits, Jamie’s mortgage payments would be less than her current rent. She would have a roof over her head. She’d end up owning a home. And she wouldn’t have to come up with any down payment. Sounds sweet-a-kimbo to me.
At first, Pam got quotes from lenders for this second home. She also considered tapping into her credit line. But then she had a brainstorm. It would be cheaper for her to get a mortgage on her existing home that was free and clear. That’s because owner-occupied mortgages carry lower interest rates than rental units.
Indeed, Pam saved a bundle by going this route. If you’re thinking about buying a second home (for whatever reason) first consider tapping into the equity of your primary residence. You’ll never get a lower rate than on an owner-occupied dwelling.
What other inventive ideas do you have to help folks looking for a mortgage on a second home? If you needed to start borrowing money inexpensively, how would you go about it? Would you do what Pam did?
Want a Free e-Course and Report on how to invest like a genius?
Just subscribe to Wealth Pilgrim and they are yours for free. Don't waste another day being confused about how investments work or how investment advisors work or how investment advisors work. Take back control of your financial life once and for all - for free!
Click Here to Sign Up For Our Free Newsletter!
Neal Frankle is a Certified Financial Planner™ with over 25 years experience. Subscribe today and tap into this wonderful, free resource!
{ 0 comments… add one now }
{ 2 trackbacks }