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Personal Finances / Buying or Selling a Home
|Subject: Re: financing the next house||Date: 2/7/2014 10:19 AM|
|Author: 2gifts||Number: 126801 of 127815|
I'm resurrecting this thread to continue the discussion, and would like some feedback on my additional thinking, particularly given the great feedback I got from everyone when I asked previously.
I am now thinking that it makes the most sense to just do a straight refinance of my existing mortgage. I have a 10-year FRM at 3.49% at my credit union that will be paid off in 2019. If I refinance that to a 3/1 ARM, which is currently around 2.75% with no points at my credit union, I can pay the new payment, and put the savings aside to go towards the land and new house construction.
I am thinking that this would avoid taking out the HELOC, where I would be paying interest on the money while it just sits in the bank, and it would avoid the issues around that portion that is not deductible as well as the AMT that was mentioned.
I could then use cash to acquire the land (we are still looking), take however long to do the plans, and then go to the same bank we used the last time for this house to get a construction loan when I need it. They will take the land as a downpayment, and will finance up to 80% of the total cost, which means we would actually get some money back that we had used to purchase the land to use towards the construction. They do a construction loan to mortgage program that has just one closing. Having the lower payment on this house will also help with our debt ratios, although they will still be under that 43% mentioned in another thread.
This would make it easier financially since it wouldn't be as tight, and would let us continue with the plan to build the new house first, move into it, and then sell this house. Once this house sells, we would pay off its remaining mortgage plus the mortgage on the new house, and put the remaining cash in the bank to backfill the savings that I had tapped, and to leave some money for a 2nd house down the road.
I am thinking that the best case is we are 2 years from being out of this house, and worst case is that we are 5 years away, so even if we have one reset period where the rate increases the full 2% putting us around 4.75%, that would be for a very short time.
I think this gives us the most flexibility and least stress, but I'd love some input/critiques.
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