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Personal Finances / Buying or Selling a Home
|Subject: Re: financing the next house||Date: 2/10/2014 8:27 PM|
|Author: 2gifts||Number: 126814 of 128456|
I'm confused by this statement because it's just the opposite. A HELOC provides a line of credit, you draw money as you need to use it, you pay interest only on funds that are drawn. Not sure why you would be paying interest on money that was still available as a line, but not yet drawn? The strategy of a 3YR or 5YR ARM is one where you will be paying interest on money that's just sitting in the bank. On the ARM, you plan to take a loan large enough to retire the current loan balance and provide funds for the land purchase. Until you purchase the land, you're paying interest on money that you have parked. I don't think that's too expensive of a proposition to forego the ARM strategy, just confused by your statement. My own comfort level would be the ARM vs. HELOC due to the fixed rate, even with paying interest on borrowed money sitting in the bank. But there are many on these boards who would run spread sheets to analyze interest costs on parked money, what ifs on HELOC and rising interest rates, etc.
I am refinancing the current house, and changing from a 10-year FRM to a 5-year ARM, which is based on a 30-year amortization table. That will reduce my payments on this house by 2/3. So I am not taking out an HELOC on this house. I will then just use the difference between the new payment and my current payment to add to our land acquisition and construction funds. This will free up my cash flow, and make it much easier financially if I end up carrying the current house, with the new refinanced mortgage, and the new house with its mortgage for any length of time.
I have enough cash now to buy the land, and then will take some time to do the house plans, and then we will get a construction loan on the new house.
Another point worth considering, or to plan for, may arise at time of application for this new loan. The credit union will likely ask for a letter of explanation on the purpose of the cash out. If you state that the cash out proceeds will be used to purchase land for construction of a new home they may have an issue with considering your current home the "primary residence". Of course you intend to continue living there for 2 to 5 years, but you are also stating that you are planning to move. May be an issue, you may want to consider having a hypothetical conversation with the Loan Officer on the statement regarding purpose of cash out. I've heard horror stories on the tiniest detail tripping up a slam dunk loan.
I'm not doing a cash-out refi. I'm just refinancing the existing balance. That said, I've done a cash-out refinance before to use the proceeds to buy a house (with this same credit union), and they were fine with the money being used to purchase a new house.
I think I've got a good plan at this point, and just did the online paperwork tonight to do the refinance. I already have the approval, contingent on us providing the standard paperwork like paystubs and taxes, and will get that to them tomorrow.
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