...and I am not talking about putting it on your AMEX at 18% interest or using those catchy in store finance programs. What I am referring to is...finance it within your mortgage! Many are probably asking themselves...can I do this? The answer is YES, you can. Here is probelem #1, most if not all the loan officers you will ask will say that you can't and the reason being is, they dont know how to do it (and are probably too lazy to research it). Well below I will show you one out of the 3 ways you can do this according to Fannie/Freddie guidelines.
Scenario A - 5% down on a 500,000 purchase price
Jimmy (Buyer) enters into an agreement to purchase a $500,000 new condo / loft.
Jimmy has no time, no decorating talent, but is business minded smart and he knows that a properly upgraded and well designed condo or loft will have a higher re-sale value and he will most likely get out what he upgrades...or more.
Jimmy's sister Lina has a good eye for design so she decideds to help Jimmy.
Jimmy and Lina go out and pick out plasma TV's for living room and bedrooms, tables, chairs, couches and even art work and silverware. At the end of the Jimmy and Lina estimate about $12,000 in upgrades. (they went to those cool stores that dont cost a lot like IKEA)
Ok here we go...
Jimmy now needs to find a mortgage lender who will loan him $487,000 on his $500,000 new condo.
Well, before Jimmy was going to purchase the condo for $500,000 with 5% down...so he would need a loan for $475,000. Most likely he would have got a first mortgage for $400,000 and a second mortgage for $75,000 (to avoid PMI - private mortgage insurance).
To stay intune with Fannie and Freddie guidelines we are going to keep the first loan amount at $400,000 (or 80% of the real estate purchase price) and we are going to UP the second loan amount by $12,000, making it $87,000.
At the closing, when Jimmy goes to close on is $500,000 condo, he will have a first mortgage at $400,000 + his second mortgage of $87,000 of which he will only need $75,000 drawn on it that day + his $25,000 deposit he put down a month ago at Purchase & Sale.
He Closes, gets his keys and orders his stuff for delivery and pay's for it on his 2nd mortgage line in which he has $12,000 left to spend (as estimated)...yup...its that easy.
The Numbers ... why do this?
(Example, lets use 6% rate for 1st mortgage and 7% for 2nd mortgage both scenarios with 5% down on $500,000 purchase.)
Example 1 - Without furniture or upgrades
Purchase Price $500,000
1st Loan (80%) $400,000 - $2398.20
2nd Loan (15%) $75,000 - $498.98
Total Payment $2897.18 Per Month
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Example 2 - WITH furniture & upgrades
Purchase Price $500,000
1st Loan (80%) $400,000 - $2398.20
2nd Loan (15%) $87,000 - $578.81
Total Payment $2,977.01 Per Month
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GRAND DIFFERENCE IS - $79.83/MONTH...now would you rather scrape together another $12,000 after spending all your cash for your $25,000 down payment? We have done this time and time again and all of our clients have been so happy to have a completely brand new place for very little $...and when they go to sell in the next few years, its been completely decorated and has a much higher re-sale value.
PS - your 2nd mortage is tax deductable too :)
Contact Christina - clongo[at]nymc.com or visit Condo Mortgage Group for more tips and tricks to our finance program.
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