tbg@apollo.uucp (Tom Gross) (03/10/86)
Suppose I take out a 2nd mortgage on my home (or refinance
my 1st mortgage for, say, $40k more than I need to pay off
the mortgage). Then suppose I take the extra $40K and use
it as a down-payment on a Condo I intend to rent out.
When I apply for a mortgage on the condo the bank will ask
on the application "is any of the downpayment borrowed?"
Can I say no, it's not borrowed, it's just an extra $40K
I happen to have? Will they object to this?
When my wife and I bought our house the mortgage company
was very curious about where we got the money for our downpayment
(I just said, in writing, "hey it was in my checking account"),
so I am unsure that they would go for the arrangement I describe.
Anybody know about this?
Tom Gross
Apollo Computer, Inc.
Chelmsford, MArdr@inuxh.UUCP (Robert Rindfuss) (03/13/86)
> > > Suppose I take out a 2nd mortgage on my home (or refinance > my 1st mortgage for, say, $40k more than I need to pay off > the mortgage). Then suppose I take the extra $40K and use > it as a down-payment on a Condo I intend to rent out. > When I apply for a mortgage on the condo the bank will ask > on the application "is any of the downpayment borrowed?" > Can I say no, it's not borrowed, it's just an extra $40K > I happen to have? Will they object to this? > > When my wife and I bought our house the mortgage company > was very curious about where we got the money for our downpayment > (I just said, in writing, "hey it was in my checking account"), > so I am unsure that they would go for the arrangement I describe. > Anybody know about this? > It all depends. First of all, you must have more than $40K equity in your current house or you're not going to get the $40K cash, either by a second mortgage or by refinancing. Loan companies will rarely, if ever, allow the total loans on a property to exceed 80-85% of value. If you do have the equity, then it'll depend on the institution. Like you said, loan companies don't like you to borrow your down payment. The way they check on you is they look at your statement of net worth and see where your liquid assets are - things like cash and securities. Then they check around and see if you have had at least your down payment's worth in liquid assets for the last 60-90 days. If so, they're usually satisfied. So you might get your $40K loan and sit on the cash for awhile. This will also help relieve a loan officer's anxiety about you taking on the $40K loan plus the loan on the condo at the same time - you can show that you've been comfortable paying on the $40K loan for awhile. On the other hand, you might not have to meet the 60-90 day requirement. What loan officers are really looking for is the guy who has his house borrowed to the hilt, then borrows still more (unsecured) for a down payment. If that guy gets in a bind he has nothing to lose defaulting on the loans because he has none of his own money invested - it's all borrowed. They want you to have a good chunk of your hard-earned money in there as incentive not to default. In your case, you'd be losing all that equity you had built up in your house, so if you can convince him of that he won't have a problem. One other thing - you will have to show that your total loan payments (house plus condo) don't exceed some magic percentage (around 28%) of your gross monthly income. For rental housing, they will let you include only about 75% of the rental property income in your gross income when they check this. Bob Rindfuss AT&T Consumer Products Indianapolis