Quote:
Originally Posted by domer2
Looking into what financing options are open to me on a home with an unfilled pool. It needs about $10k worth of work. Apparently it's a health hazard and can't be financed conventionally. The home has been on the market for about a year, and I asked why the seller didn't just fix/fill it himself, and was told he was cash poor.
The listing agent (I don't have a realtor yet) mentioned an "escrow hold back" but I called Chase and they said that was a niche type of loan that they don't do. I then spoke with a lender recommended by the agent, and the guy told me you can have the pool covered and basically just get a friendly appraiser in (lol) or else do an escrow holdback. But the caveat was that the most they'd do on an escrow holdback was $5k, and so I'd have to slip the other $5k (or whatever the exact amount ended up being) to the contractor on the side (lol). Neither of these options are all that appealing to me on a very large purchase!
The option I don't really want to do, but am exploring...is to buy it with cash, and then do an 80% cash out. That'd be done with perhaps a temporary loan (<2 months) from relatives. I'm not sure if there are tax implications there? I think I have to pay interest over a certain amount?
Anyone encountered anything like this with something needing a repair and being unfinancable as-is? Is cash/cash out the only viable option?
As far as the taxes goes, I think it depends on if this is a home / second home or if it's a rental.
If it's a rental, you can deduct 100% of any interest that you would pay when you do the 80% cash out, subject to passive activity rules.
If it's a secondary residence, I believe the 80% cash out would mean that your debt would technically be classified as home equity debt as opposed to home acquisition debt. The distinction is that if your debt is classified as home acquisition debt, you can deduct the interest on up to 1 million of a loan balance. If it's home equity debt, you can only deduct interest on $100,000 of debt.
One other option that you could consider (if your relatives are open to it) is have your relatives finance the loan themselves (i.e., your relatives would be the holders of your mortgage, and you'd make your monthly mortgage payments to them). You can still deduct the interest from this arrangement as long as its documented properly.