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We are hoping we'll find a house to buy that we can pay cash for, but if we find the perfect place and it's $50,000 or $75,000 over, we would certainly be fine with taking a mortgage for that amount and paying it off as quickly as possible. Is a mortgage that small difficult to get? Are the interest rates higher? Any other downsides of a small mortgage? Would another type of loan be better? Thanks.
You should have no issues whatsoever. Should you run into a problem, please reach out to me and I will point you in several directions, depending on your location.
There are some cases where local banks can charge you higher rates if the cost of business warrants, however many do not have that markup. But, on a 50K mortgage, the difference over 15 or 30 years can be minor - but do not spend money you need not. Assuming all else is well with your qualifications, there should be no problems at all
Would it be more cost effective to close a Heloc at house closing?
This could very well be a good option. HELOCs can be a 2nd lien or a 1st lien. Some lenders pay all the closing costs on HELOCs. (I'm quoting our terms, but most are the same). Your line would actually be open for 10 years for use, then it will go into a 20 year payback. If you pay down the Line, you can access it again, before the 10 year draw period ends. Pay it off = no payments, but keep it open in case you need the funds. In this very strange world, the rate for a HELOC is comparable to a fixed.
You could actually get a line for 75K and have room for future use (suggestion - if you do not draw it, you won't pay on it).
The only caution is if you get a line where the lender pays closing, you likely need to keep the line open (not to be confused with paying it to $0) for 3 years to avoid the closing costs being added to the payoff.
Thank you, that's encouraging. I had read that small mortgages can be a challenge to get and they're seen as not worth it for lenders.
This is true. My son has been looking and has spoken to several mortgage brokers. The banks may do it but then they will only let you put down 5% or 10% and then you end up with PMI. He has excellent credit with no debt but is still has been a challenge. He was basically directed to look into a HELOC, personal loan or a hard lender.
Don't you have to own a home in order to get a HELOC? I don't own a home right now.
You close on the HELOC at your closing for the purchase. The lender provides the purchase money as a HELOC.
SO.... Yes, you have to own a house to get a HELOC, but it all happens more or less simultaneously.
No house, no HELOC. No HELOC, no house.
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