Refinancing Two Home Loans Into One

Refinancing these days can be hard, but trying to refinance or get financing for two adjacent properties used as one can be difficult.

Q: We have owned our home for about 23 years. About five years ago, with two young kids, we needed to expand our living space. We couldn’t add on to our home, so four years we decided to buy our neighbor’s home. It was a very small home on a half acre.

The new property’s larger land area provides for a playground for the children, a lawn to entertain, room for our vegetable garden and a home for our chickens and bee hive. The new property’s building provides for an office room for my wife’s business, play space for the children, a kitchen for entertaining, as well as storage. While they are two separate parcels, they both make up our “primary residence”.

We are having a hard time refinancing the new property at today’s low rates. It was acquired with an 80 percent first loan at 6 percent and a second loan (for 15 percent of the purchase price) at 8 percent. We’re told that the best we can do is to refinance the first loan, but at an “investment property” rate at 1 percent higher than normal.

We aren’t interested in getting money out, just lowering our payments to save some interest. Is there anything we can do here?

A: Whether you feel that the two houses taken together constitute one home or not would not matter for most lender and for most municipal law issues that affect your home. You could decide at a moment’s notice to sell one or either home. Each appears to stand on its own as a separate and distinct house on its own land.

Given your situation, you probably won’t find a lender willing to refinance both homes as one. You might have to remove the kitchen from the smaller home to create an accessory structure to your main home. A lender is willing to finance a home, even when that home is comprised of more than one building, when those homes can’t be separated or sold off separately.

You should talk to your local village or town hall building’s department to see what you can do to consolidate those two parcels of land. Ideally, you’d create a single parcel with a single tax identification number. Your local building department would be able to tell you what it would take to make the smaller home into an accessory building rather than a separate home.

If the expense is minimal to you in getting that done, you might then be able to go to a lender and apply to refinance your newly integrated home. But make sure you talk to a good mortgage lender or mortgage broker before you do anything. It’s possible to conform to local laws and ordinances, but fail to account for a lender requirement as well. You want to make sure that any lender requirements are satisfied and that you also meet all municipal code and zoning requirements as well.

Without those changes, you’ll have trouble obtaining financing for the two properties as a single primary residence.

If you can’t or don’t want to undertake those changes, you will have to decide whether you can or want to refinance the home that you’ve been in for 23 years and use that money to pay off or pay down the debt on the other home.

In any case, you should talk to a good mortgage broker and mortgage lender about your situation to understand fully what would be required of you or to go through alternative choices for your financing needs.


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