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How can I use a house fully paid in New Orleans as collateral to purchase a house in Washington state? Do I need to have the New Orleans house appraised?

  • In 2010 my dad died leaving me the house he bought from my grandparents in the early 90’s.
  • My Husband and I live in Washington state and the house my dad left
    me is in the New Orleans metro area.
  • My dad had paid off the house, borrowed against it, paid that loan off.

I have to go to New Orleans May 2018 to remove my dad’s name off of the deed etc. While I am there I want to get everything together before getting there.

I can’t sell the property as my mom lives in it as my dad and I agreed upon. Mom can stay in the house as long as she would like or until her passing.

My parents divorced when I was 12 but in 1999 my mom had a psychotic break down. She was diagnosed with bi-polar schizophrenic in 2012 but had been ill my whole life. After my moms first hospitalization in 2000 my dad opened his home to her as I was unable to take her in. They lived as housemates until my dad’s passing in 2010. I am an only child from their union (I was adopted) and I was left everything.

SO, MY QUESTIONS ARE:

  1. Can I use the property in Louisiana as collateral to purchase property/a house in Washington state?

  2. Do I need to have the property appraised and/or inspected while I am in New Orleans?

  3. Since it is paid for how does equity work since there’s no mortgage on it?

Thank you for your time reading this and I appreciate the help in answering my questions.

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    Why do you want to use the property in Louisiana as collateral instead of the property you are buying? – prl Apr 8 '18 at 19:53
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Yes, you can get a “home equity” loan on a property with no mortgage. You can then buy another property with cash in an “unrelated” transaction. I have done exactly this, although both properties were in the same state in my case.

When I did this, both transactions were handled at a single closing, which simplified applying the proceeds of the mortgage to the purchase, but in your case, they would have to be done separately, as they are in different states. You will probably want to pay for a wire transfer to forward the mortgage proceeds to the escrow agent in Washington.

You do not have to complete the mortgage process while you are in Louisiana—-all of the steps can be handled remotely—-but you may find it easier to deal with some things while you are there. If your mother can act as your agent, for example providing access to the property for the appraiser, that would help.

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    Yes. Your answer is correct. But OP needs to be aware there is no tax deduction on HELOC interest. As you commented, she should just buy a house the normal way. – JoeTaxpayer Apr 8 '18 at 20:47
  • @Joe, good point. When did that change? When I did it, I was able to deduct the interest on up to $100,000 loan amount, as I recall. – prl Apr 8 '18 at 21:05
  • The new tax code for 2018. There were a number of changes that will catch people by surprise. – JoeTaxpayer Apr 8 '18 at 21:07
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You have two options: (1) get a typical loan on the house you want to purchase, (2) refinance the house in New Orleans and use the proceeds to purchase the house you want to purchase.

I would recommend investigating both possibilities and see which is more advantageous. You are going to end up with a pretty standard loan either way.

If you are considering option 2, make sure that it doesn't lead to overpaying for the house you want -- make sure that your offer is in line with the appraisal. Probably the best reason to pursue option 2 is it would put you in a good bargining position when making the offer. You would be able to make a cash offer and close faster.

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