With all the costs involved, buying a second home can be challenging for anyone. But don’t think that it’s something beyond your reach. There are many ways to finance your second home without breaking the bank. If you’re in Washington and you wish to buy Winthrop real estate as a your second home, here are your options.
- Home equity loan
Also known as a second mortgage, this type of loan allows you to borrow money against the equity of your current home by using it as collateral. The loan amount will be based on your home’s current market value and will be a fixed rate. This makes it easy to get substantial financing if you have built up considerable equity in your home. Also, having a home somewhere with rising home values like Winthrop or Twisp in Washington will make it easier for you to secure this type of loan.
- Home equity line of credit
Often called HELOC, this works like a credit card by allowing you to draw money from a revolving credit line. This gives you a lot of flexibility but be careful not to draw everything as it could negatively affect your credit score. When you can, pay off your outstanding debt to replenish the amount you can borrow. This depends on your home’s equity, so make sure the second home you want is not above what you can realistically afford.
- Reverse mortgage
You may apply for a reverse mortgage If you are 62 years old or older. It allows you to conserve your savings by borrowing money without requiring you to make any loan payments unless you move or sell your home. The amount to be loaned is based on the value of your home and can either be received as a fixed monthly payment, a lump sum, or a line of credit. Note that if you pass away with an outstanding reverse mortgage, your heirs will have to pay it off to keep the home.
- 401(k) loan
If you have a sizeable amount saved in your 401(k) account, you may also draw from it to fund your second home. This can be done tax- and penalty-free as long as you repay the loan within the agreed time, which is usually five years. However, monthly payments tend to be large due to the short repayment period. You also stand to miss out on potential interest the money you borrowed could have made had it stayed in your account, so consider all options before proceeding.
- Cash-out refinancing
If you opt for a cash-out refinance, it will replace your current mortgage with a new one that costs more than what you owe on your home. The difference will be paid to you in cash that you can use to spend on your second home.
For example, if you have a home valued at $250,000 with a mortgage balance of $150,000, you have $100,000 in equity. If you wanted to take out $50,000 in cash, you would end up with a new mortgage balance of $150,000.
Keep in mind that your home is the collateral for the mortgage, so be sure you can afford to make the additional payments. Your new mortgage will have different terms as well, so double-check the fine print before signing anything.
Whether you are buying your first or second home in Washington, our experienced realtors at Coldwell Banker Winthrop Realty can find you the right one. Call us today at 509.996.2121 or send an email to info(at)cbwinthrop(dotted)com.