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Scott Bilker is the founder of DebtSmart.com and author of the best-selling books, Talk Your Way Out of Credit Card Debt, Credit Card and Debt Management, and How to be more Credit Card and Debt Smart. Receive the 5-Year Loan Spreadsheet when you subscribe to his email newsletter. |
Scott,
Here’s my question. My husband and I want to buy a home being built in a new development. Our present home, worth $260,000, has no mortgage except a $30,000 home equity loan. We need about $15,000 down payment for the home being built.
Should we open a home-equity line of credit to pay the down payment? We will be selling our existing home so everything will be paid back at the settlement. If not, where is the best place to get the $15,000? We have several credit cards with 0 balances. Should we take a cash advance on one of those? Thanks.
Marian
Marian,
Great question!
Coming up with the down payment for a house is always a major concern. When my wife and I purchased our house, we had to use our credit cards, and other strategies, to come up with the cash. However, this is risky because mortgage companies want to be sure they track all the money for that down payment. They don’t want you to borrow from your credit cards because you must come up with actual cash or else it’s a 100% financed home.
If I were you, I would get the money from the home-equity line of credit since it’s linked to your existing house, or simply get a home equity loan. In fact, you could probably get a super large loan, like say, $150,000 and use that as a down payment since your home is going to be sold by settlement time.
Since you’re putting down such a large amount toward the new home, the mortgage bank won’t really care too much about the new mortgage since they’re lending you far less than the value of the house. Then, when you sell the existing house and get $260,000 you can pay back the $180,000, still have $80,000 cash, plus you’d have $150,000 equity in the new home!
The bottom line is that since you’re going to be selling your existing house, and you have a lot of equity, you have many creative financing options.
Good luck and please let me know what happens!
Regards,
Scott
UPDATE
Scott,
Just to fill you in, we opened the line of credit for our down payment. Our old house settled in May for more than we anticipated, and we made settlement on the new house in July.
We only needed to take a 10-year mortgage with a 4.62%!! Not bad huh? Thanks for your advice.
I love your newsletter.
–Marian
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