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Second home purchase

Is it better to refinance our primary residence or take out a seperate mortgage for the second home from a cost and tax perspective?
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September 05 2009 - Bellingham
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Answers (3)

Check with CPA on interest deductions for a primary home vs. a second home.  It's a much simpler process to cash out refy on your primary from an acquisition perspective.  Increased purchase strength which translates typically to a more willing seller.

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December 10 2011
luv50 - definitely check with your CPA on the tax ramifications of a cash out refinance of your primary residence versus a loan on the second home.

From a cost standpoint it is impossible to answer your question without more particulars.  A cash out refinance is now one the least favored loans for the banks.  If your FICO score is even a hair below perfect and/or you don't have much equity in your primary residence there will be quite a few "add ons" to the base rate.  For an insider's look at how lenders price your loan check out the article I published

Financing for second homes is probably a close cousin to a cash out refinance from the lender's perspectives.  A LOT of those second home loans made in the last few years have gone in to default. Again, depending upon your FICO and amount you are willing to put down, financing for a vacation home may be difficult.

You need to apply with a professional lender who will run your credit and then prepare Good Faith Estimates for both scenarios.  Only then will you have proof of which is the better option for you.  Anything less than an application and credit report and your guess is as good as mine.
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September 06 2009
You can certainly do it either way. Often you will be able to negotiate a better price if you are paying all cash and no new loan is involved.  In that case pulling the cash our of your primary home might be the best way to go, especially if you are trying to purchase a bank-owned property.  If you decide to finance the new purchase with a new mortgage, you are normally able to finace a larger portion of the purchase price, usually up to at least 75% and you should be able to deduct most of the costs involved with the new loan and closing costs.  But, do check with your tax advisor on any tax questions.  Hope this helps.
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September 05 2009
 
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