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I'm researching home equity loan/line of credit rates to do some home improvements. I have a rental property (paid off) in one state, and I would like to use equity from that property to make improvements on my primary residence in another state.
I assume that it doesn't matter where I use the funds, but the rates will rely on the city/county/state where the rental property is? Does the fact that it is a rental enter into the rate structures at all?
Absolutely it does enter into the rate structure. A loan on an investment property is riskier and higher risk = higher rates.
You can take out a 1st mortgage and don't need a home equity loan or line of credit. The rate on a 1st mortgage will be about .25- .5% higher than if it were your primary residence. Get referrals to a local mortgage broker who can do loans in other states so you can interview them and work with them face to face.
The status of "home equity loans" is almost always a second mortgage on a primary residence. What the OP is trying to do is tap the "equity" locked into an investment property. The easiest way to do that is going to be to get a mortgage on that property. Non-owner occupied properties always carry a higher rate than owner occupied properties, and there are far less lenders that offer financing on such properties. The approval process is also SLOWER and the lender can ask for a lot more documentation and refuse to fund for a much wider range of issues -- this sort of stuff is not subject to the "Fair Housing" provisions of lending to owner occupied.
The thing you should probably do is ask for a comparison of total costs for this kind of business loan to other types of loans that you could use to improve your residence -- it may be more advantageous to consider the total tax impact of refinancing your principal residence vs taking out an essentially new business loan...
I recently refinance my primary residence to 4.25%/15 years (from 5.75%/30 years), but since my house depreciated by $50K since I bought it 4 years ago, instead of having 35% of my house paid off, I now only have 25% of it paid off. That does not leave me with a lot of equity to tap for a fairly major addition to my primary residence(garage... going to cave, since I'm in New England), so I'm trying to figure out the best way to finance the improvement.
Ideally, I'd like to just sell the rental property (which would totally cover the improvements and then some), but a good friend and very dependable renter has been living there for several years and the markets currently are not the best, so that option is off the table for now.
I've got a year to do my planning, so I'll start more varied research into the best way to work this out. Thanks for your information.
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