Q: I have a question about how I can go about financing a 1.45 acre piece of land that borders my property that my house is on. I live in a subdivision, so the land is zoned residential. I am currently considering refinancing my mortgage that I’ve had for one year. I currently am paying 8.875 percent.
What is the best way to finance buying the property that is next to me. I want it, but don’t have the cash. I expect that it will cost in the area of $45,000 to $50,000. My current mortgage is about $219,00, and the home is worth about $260,000.
Should I bundle the purchase in with the refinance?
A: Assuming you can afford to spend the extra money based on your debt-to-income ratio, you should talk to several neighborhood mortgage lenders about how to finance the property.
Let’s start with your refinance. If your numbers are correct, you don’t have enough equity in your home to do a cash-out refinance, though you could refinance for the balance only. Lenders require that you have at least 20 percent in equity for a cash-out refinance, so it’s unlikely you’d be able to tap your equity that way.
However, one possibility is to take out a home equity loan on your current residence and use that as the down payment on the lot. You could then get a mortgage to finance the rest of the purchase.
You may be able to get a lender to refinance your primary mortgage and include the balance of your lot. This way, you’d only need one large refinance package instead of the time and trouble of two loans.
Consult with your lender for details on programs available to you.