Board Topic: Loan for Second Home, Loan vs. Cash
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Loan for Second Home

Posted by: Glenda Stroud Dec 20 2003, 10:37 PM
Our son wants to buy a home rather than pay rent with nothing to show for it. At the present he lives at home. His credit rating is A++++ and he is self-employed. We are planning to help him with a down payment if he qualifies for the loan. Because he is self-employed, this may defeat the loan being granted.

We have paid for our home and have A+++ credit rating. One alternative we have considered if his loan is not approved is buying a second home as an investment and letting him make the payments. What would be the things considered in order for us to obtain such a loan?I know this would be considered rental property and would have a higher rate of interest.

We could buy the second home on our own, but a loan with a lower rate than what investments are making seems more prudent.

What are your thoughts?

Posted by: loanuniverse Dec 22 2003, 10:35 AM
Glenda:

First, let me start by saying that I am not a residential lender. However, I am sure of one thing, and that is “try to get a primary residence loan first”. This year has been great when it comes to residential loan rates. Although you are not getting in at the lowest that they have been, thirty-year mortgages are still around 5.5%. ”It will be next to impossible to beat that rate on a fixed basis”

Some thoughts:

a- Do not assume that the fact that he is self-employed is an automatic rejection.

b- Him having A+ credit and you having A+ credit is great.

c- According to your message, you are willing to help with the down payment. I would recommend 20% so that he won’t have to pay PMI {Private Mortgage Insurance}.

d- In addition to the above, you could offer to cosign the loan if it helps in the qualifying.

e- Your investments are making more than 6%? “I am impressed and jealous”.

In my certainly valueless opinion, the best way to do this would be to talk to a residential lender and ask him how this can be best structured {your goal is low and fixed rate}. I had a chance to talk to one of the private bankers here at work to get the correct information about what it is that we require. This is just to give you an idea since you are probably hundreds of miles away.

In addition to the regular documentation requirements a self employed person has to do the following:

- Two years of personal tax returns {all the pages}

- Copies of corporate tax returns with all schedules and K-1s.

- A year to date profit and loss statement.

- If extension filed {copy of statement} and a year-end profit and loss statement.

Hope this helps
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