@erica1021 wrote:
My husband and I have a home that is paid for. My parents live in this home and had it deeded in our name in case they pass away. We are looking at selling the home we are currently living in so that we can buy a home next door to them. If we sell the home we are living in, we are looking at gaining $60k from the sell. We also have $18k for the down payment. The home my parents live in is valued at $170k We are looking at purchasing a home with the similar price. Should we just get a home loan for $92k (minus the sell and the downpayment savings) or should we get a home equity loc for the new purchase using the paid for home's equity? I hope this isn't too confusing.
My only issue is credit. We are barely under the 620 cut off for a loan so we are working on fixing that (using the restoration forum on myfico.com) Do you think credit requirements are easier on HELOC or home loans? Any help on what we should do would be great!
IMO, I would go with a new loan, either conventional or FHA. With a low-ish FICO score, the terms of the HELOC are not going to be that great, and since it's a variable rate then you'd be at risk for increasing cost of the loan whenever the Fed decides to start increasing the discount rate. The interest rate on the HELOC will likely be higher than the rate on a new fixed rate loan anyway.
With regard to qualifying for a loan, even though some lenders says that they theoretically go down to 620 for conventional, in practice it may not come to fruition. A lot will depend on the reasons why your score is on the lower end of the spectrum. The interest rate for a conventional loan with a 620 FICO might also be higher than what you'd get if you went the FHA route.
If you are able to make a decision about selling your current home and buying the new one before the beginning of June, you might be able to avoid the annual mortgage insurance premium on a new FHA loan. You'd be bringing a hefty down payment to the transaction, and if you opt for a 15 year mortgage, you will only have to pay the upfront MIP and not the annual MIP. But the MIP rules are changing in June, and if you obtain an FHA loan after then, you'd have to pay the annual MIP for 11 years.
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