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Advice: Obtaining 2nd mortgage with little equity in 1st

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  • Advice: Obtaining 2nd mortgage with little equity in 1st

    Hey folks. I realize very similar types of questions have been proposed, but as you know each person's situation is somewhat unique. I currently reside at my residency home that I financed without a down payment (broke coming out of medical school) and will put on the market after moving. We are looking to buy a home to move into when I finish residency in June. Currently we have a house that we are interested in (which will require some renovation). The bank obviously won't give me a loan for the new home for much more than what it appraises for, despite having pretty excellent credit. That leaves us with about a 50-75k renovation without the capital to cover it.

    In terms of financing the cost of renovations before moving, a HELOC in the current mortgage won't quite cover the renovation expenses. We have every intention to sell the house we are currently in, but it also needs some minor work done (painting, floors redone, deck replaced), and we cannot feasibly do that with the family and several dogs still living here. As stated, the current house has very minor things it needs, and honestly would probably sell as is above what we payed.

    The big problem is, if we used a HELOC to try to cover the renovation for the new property, we won't be able to put much down on the new mortgage. Probably not a huge issue, but I do not know how the banks will stratify their risk when we have one decent sized mortgage without a ton of equity and want to add another without having the capital to make a decent down payment. Is the most realistic option here to take a HELOC out to put a down payment on the second mortgage, and just bite the bullet on renovating until we have sold the current property, delaying the renovation until we've moved and have the current mortgage off the books? Thanks in advance!!

  • #2
    I would not buy the 2nd house if I were in your shoes. Too stressful. It’s only October and you don’t finish residency until June. When does your attending salary start? How sure are you about your attending job?

    I’d focus on finishing residency, getting your current house ready for sale, and finding a place to rent for a few months at least while the dust settles.

    Why take the unnecessary risk of buying a 2nd house when you are strapped for cash? Are you maxing out your Roth IRA now? 2022 is your only year to max out your 401k and make HUGE Roth conversions at a ‘discounted’ tax bracket. This is your ‘once in a lifetime opportunity’ to do this (which I missed, argh, wish I followed the forum when I finished training like you are!)

    There will always be more (and better) houses to buy later when you figure out if you actually like your job. Invest elsewhere for now.


    • #3
      You already violated the first rule of WCI Club and bought in residency. Don’t violate the second by buying a home straight out of residency.


      • #4
        What is your student loan situation? very bad idea to buy a house right after residency....the potential cost is even greater if we're talking california


        • #5
          Well, I guess you deserve congratulations on your first post. and welcome to the forum.

          “Hey folks. I realize very similar types of questions have been proposed, but as you know each person's situation is somewhat unique”.

          Let’s start with your intro. It seems you have read some posts here. Just focusing on financial, what you have done and what you are planning on doing for housing actually seems irresponsible and self destructive. So my first reaction was negative. But I realized there were zero facts, With no facts, the default answer has to be “Stop.. Don’t do this. Danger flags all over.” That is based on assumptions, not facts.

          You need to go back to the beginning. What is different about your situation? Is your question how to get a personal loan or making good financial decisions?
          Two zero down mortgages and a remodel loan on top at first glance seems unlikely.


          • #6
            I definitely would not buy another property at this point especially in consideration of minimal equity in first and the need for renovation. At best a huge pita at worst two costly mistakes.


            • #7
              You are starting a new job as a new attending. First, there is a big learning curve to being an attending. You want to be fixing up your current place and renovating a new house and starting a new job? That is a lot to take on.

              Second, a job may or may not be what you were led to believe. Imagine you are able to extend your finances to buy this place and renovate but it turns out your job is awful. It happens all too often that you are sold a bill of good with regards to the job. You want the flexibility to pack your bags and leave; you do not want to be tied down to a renovation that is going over time and over budget.

              Could everything work out great? Sure. But you are taking on a lot of risk. Renting is your friend.


              • #8
                How many more red flags do you need when a bank won't lend you the money? Banks aren't typically known for being such tightwads with mortgages and such.


                • #9
                  Fill out a personal financial profile. and post it. Have no idea the values (assets & liabilities) or the income or the budgets. It sounds snarky, but it is possible that your own personal capital is not important for this move.
                  Jennifer Gates bought and expensive apartment in NYC her first year of med school. I am sure the suburban stable works out well too. I doubt she considers remodeling as a problem.