I have recently signed a contract to purchase my first home and am about to apply for a jumbo mortgage with 20% down. The preapproval rate was quoted as 4.125. I also inherited a property a year ago that is completely paid off.
The property value is at least twice the value of the home i am about to purchase, would it be possible to take a loan against the value of that property, rather than the jumbo mortgage i am about to take? I would think the rate would be substantially lower this way, is that correct?
Also, what is the proper term for this? Home Equity Loan? 2nd Mortgage? Home Equity Line of Credit?
You might run into occupancy issues. What are you doing with the home that you inherited, and how far apart are the properties?
It sounds like you're purchasing your first home as your primary residence. If so, and you take a loan against the inherited property, you'd have to convince the lender that it's a vacation home. Otherwise, the loan would be subject to a higher rate as an Investment Property.
The inherited property is agricultural. I am currently paying rent elsewhere, so it should not be too hard to convince the lender.
The more i dig, this seems improbable. Another option would be to simply have my mom take out the loan against the house, and then i borrow from her. Would she be required to justify the reason for the loan? Would "to buy my son a house" be an acceptable reason?
I'm missing the logic here --- you are willing to pay 4.5 - 4.75% on a home equity loan just to try to lessen the interest on your primary mortgage? The average of the 2 interest rates that you would be paying would be higher than the interest quoted. And today's rates 4.125% is not a bad rate.
I did not expect that a loan against an existing property would be higher. Is that definitively the case?
Your lowest possible rate is the fixed rate Jumbo on your primary residence. You could get a prime based variable rate on the agricultural land but that would be a commercial loan that might start out at 2% but would have no caps and float with LIBOR or prime or any other benchmark the lender wanted to use.
Now if you just didn't want to take a chance that you would lose your primary residence to foreclosure you could structure the agri loan as a commercial loan holding all the assets and liabilities in an LLC. However you are still likely exposed as the personal guarantor. I am assuming you rent out the agricultural land and can apply the rents to the commercial mortgage.
I have always felt that debt and income should be tied together. I.e. your personal residence debt is tied to your personal income, commercial property debt tied to commercial income. My brain just thinks better that way (and my finance degree makes me think that way as well).
It seems everyone is a littke confused here. I think what the OP is asking if if taking out a loan against the property they inherited would get them a better interest rate than the quoted 4.125 for the jumbo loan. My thinking is they would take the loan proceeds and purchase a primary residence out right. I think the OP would be better off taking the jumbo loan for the 4.125 on the primary residence. You will not get a commerical loan for 4.125. It's more risk for the lender. You're probably looking in the high 4's low 5's as far as interest rates. Not to mention you would most likely have to buy more insurance since the property is now mortgaged. Commercial insurance is significantly higher than homeowner's insurance.
To add to the above, right now the jumbo loan rate is actually running a little less than conforming loan rate. That doesn't happen often, but it is the case at the moment. The whole idea of borrowing against the agri asset with a higher risk commercial loan to reduce the expense on the primary residence jumbo loan won't work. Unless there is some other reason the OP has to borrow against the agri asset, it makes more sense to keep the jumbo loan terms on his new primary residence. The OP may want to shop rates and terms - right now Chase is especially good on their rates and terms for jumbos (for example).
After reading all of your what I believe is its better to have a detail knowledge of everything before you commit to anything so that in future if incase there's any kind of issue then you'll be on the safe side,, and lastly its up to you,,
More often this type of procedure of getting the loan on your mom's name and then transfering it to your name seems a little doubtful it would be recommended that you should consult with a attorney or a solicitior who would tell you how you can use your first property to get loan on your second one.