Randy Johnson, president of Independence Mortgage Co. in Newport Beach, author of “How to Save Thousands of Dollars on Your Home Mortgage” and a mortgage broker since 1983, answers questions…
Q. My husband and I own a home in Orange County and due to our own ‘awesome’ mortgage principal paying diligence we currently owe only $48,000 on our home. It’s located in Westminster and the market had it as high as $640,000 back in 2006 but now in 2009 can probably be sold for around $450,000. Our question: 1. Take out a HELOC for about $100,000 to $200,000 for a down payment on another home and rent out the Westminster home, using the rental income to pay the HELOC, or 2. Sell our Westminster home and purchase another home. What is your advice?
A. What you are suggesting is putting your equity in your current home to work. I think that is a good idea given that you can buy properties pretty inexpensively today. There are a couple of options here. First, you can stay put in your existing home and buy a rental property, which will likely be cheaper than the home that you would want for your own use. Second, you can do what you suggest, buy another home and rent the current one.
If you think you would be happier in a new home, it’s a good time. Whether to keep and buy another or sell, I know so little about your ages, goals, financial affairs, income, and so forth to be of much help. You need to sit down with a professional and run some numbers.
As to financing, if you buy a rental, it will be best to put 25% down and then get a loan for the other 75%. If you don’t have enough cash for the down payment, a small HELOC would be OK. I would not get a big HELOC because of the rate risk.
Good luck and congratulations on being able finally to reap the rewards of thrift through the years
Heather in Santa Ana asks:
Q. I currently have a loan at $502,000 and can qualify with up to 105% refinancing (maximum allowed under Obama administration loan-aid plan). The problem is my loan is not owned my Fannie Mae or Freddie Mac but by Chase; it’s a jumbo loan. Are there any other loan programs that you see coming down the pike for people in my situation? A large number of people in California have jumbo loans.
A. Sorry to say, the options are few. I have a friend with a Chase loan and a ton of equity and they have called him twice about reducing his rate to keep his loan. You have no equity and they don’t call you. I think you can figure out their strategy here. You didn’t say what your rate is but assuming you’d like it dropped, I would keep pestering Chase and then let us know if you are successful. If you have a rate less than 6% and just want it to be better, you may have a tough time pleading your case.
That’s it. If you want Johnson to answer a question, email it to Mathew Padilla at mapadilla(at)ocregister.com. Include your name or nickname and the city you live in — that information will be published with your question.
Johnson will answer up to three questions each week, so keep checking back for a response. If many questions are submitted, it could take a while to get a response, or he may never get to it. Also, readers keep submitting variations on the same question, which has already been answered: what to do when you can no longer afford your mortgage. I have decided not to publish most of those questions, because they are repetitive, although I appreciate the difficult situation many homeowners are in these days.
Read prior questions and answers by clicking on the headlines below…
- Refinance to survive a cash-flow crunch
- Rainy day fund vs. lower mortgage payment
- Is ‘walking away’ from a home justified?
- Real estate investors get no sympathy
- The case for buying a home now
- Bigger home loans coming to O.C.
- A complicated mortgage that could fund retirement
- Loan doors open for serial housing investors
- Forget dodging refinance fees
- No job, no refinancing
- Avoiding a rate hit on an investment property
- Who qualifies for Obama’s mortgage refinance plan?
- Paying off a mortgage vs. refinancing
- Mortgage problems of the wealthy
- The skinny on 40-year mortgages
- Refinancing questions and answers
- How to buy with little money down
- Do banks renegotiate mortgages for ‘good’ borrowers?
- Is it time to buy a rental property?
- Caution urged on mortgages that fund retirement
- Refinancing can be tricky if your home was recently for sale
- Shopping for lowest rate is dumb way to get a mortgage
- Speedy mortgage payoffs could cost you
- Paying your mortgage may be the best use of your money
- A ‘good’ borrower these days is someone who…
- When insurers kill your mortgage application
- Mortgage insurance companies not giving breaks
Find out more about: MORTGAGE ANSWERS | MORTGAGE RATES | FORECLOSURES | HOME PRICES | INVENTORY | RENTS | FED |
The first couple should borrow 100% of the value of the home, put the money in a swiss bank account. Make 4 of the mortgage payments, and then stop. Live in the home for free for a year while the banks attempt to forclose on you are foiled by government programs. Once you are foreclosed on, take a year off from working and collect unemployment, visit switzerland to see your money. In about 2 years you can buy the house you lived in for about $225K.
Now this is how you put your home equity to work.
brilliant idea
in any event, whatever your plans are…
make sure you do it through Randy Johnson
… this message brought to you by Randy Johnson
I hear that’s what Giethners’ plan is
nano- lloollllllll
randy doesnt mention it but hes also writing a book-
“how to catch a falling knife”
heres one knife catchers story- multiply it by oh a million
http://globaleconomicanalysis.blogspot.com/
mr randy- what affect will the new and improved higher mortgage
rates have on the real estate market? take your time with that one
http://market-ticker.org/archives/1090-Bullgasm-Watch-The-Birdie!.html
Matt should ask the “Amazing Randy” what he predicts the direction of the market is. I like Nanowest’s idea but these people will probably buy the 2nd home in an area that still has prices (and Rents) falling, lose both of them and wind up in a hotel room in Santa Ana.
Thanks Randy for your amazing ideas. These people would be better off shouting their brains out then listening to you. Hey Randy if your going to try this how about buying in an area that prices fell more than 50% like Vegas.
They should put Randy in Jail and fire the reporter for allowing this horrible advise to be printed.
Stay in your house, grow old and enjoy it. The grass is not greener on the other side of the fence.
Realestate is going to be flat for a generation or more!
“Good luck and congratulations on being able finally to reap the rewards of thrift through the years”
yeah, give yourself a high five for being frugal….. now take on as much debt as possible….. yeeee-haw…. !!!
http://economy.freedomblogging.com/2009/06/05/oc-third-in-us-percentage-job-loss/
Orange County 3rd most percentage job losses in the country.
Must mean we have reached bottom
Observing the reinflation of the real estate bubble reminds me of that experiment where rats hit a button and addictive substances were dispersed. Appears the lever got broken but they’ve got it working again and the rats are gathering anxiously. No matter the dead rats lying around who overdosed…just step over the corpses and get moving.
History repeats itself. I didn’t think it would happen so fast.
Does this guy pay to have his items shown in this blog?
Put that equity to work. Wow, it has been awhile since I heard that one. Here is my slogan: put yourself to work and live in your house since it is a passive inanimate object that appreciates at the rate of inflation, required lots of maintenance, taxes, insurance, etc… and will NEVER love you back.
Time to surrender?
If they remade the Graduate the one word would be Leverage instead of plastic.
You should make a decision about renting based on the capitalization rate, the risk, and the opportunity cost of the capital. The answer to the first question is unfortunate, because it is all about means (if you can borrow, you should - ‘put the equity to work’) but not about ends (what is your risk adjusted rate of return?)
If you intend to approach rental properties as an investment (and I don’t know another reason to own one), you should not base your investment decision on advice from a mortgage broker. You should base it on your own knowledge of sound investment principles. If you don’t already know the basis criteria for financial decision making, I’d make a visit to the library.
Furthermore, it is unlikely that the highest cap rate will be found with the house you already own. If you want to maximize your cap rate, you are likely to want to sell that house and buy a multi-unit property. Again, the advice above is so irrelevant that it is just embarrassing.
Nice job articulating a comment that will actually help the questioner.
Wait last time I checked there are so many home rentals out there is it really a good idea to buy a home and rent it out.
The price of rent have been going down. All these modern day Donald Trumps are having a heck of a time finding tenets.
Mortgage insider or mortgage idiot?