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SoManyQuestions | How can I get financing to buy a larger home and keep my current as a rental? |
I'm having a hard time ignoring the free fall in housing prices and mortgage rates. Ideally, I would like to purchase a new home and keep my current home as a rental. Am I crazy? Could I never get financing for this? Here's the situation:
Current home, worth appx 275k, loan balance 220k. Financed with a 30 yr fixed at 5.25. Have successfully found tenants previously at $1550/mo, which cover P&I, Insurance and Property taxes with about $100 to spare.
Household income, appx 120k. Little debt outstanding, other than car payment at 431/mo and mortgage on vacation property at 625/mo.
Our target price for a new place is 300-250k. What we want is a larger home in the suburbs. I'm thinking we could reasonably put up to 10% down.
Am I crazy to think we'd ever get financing for this? |
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Landlord
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You did not state your balance on your second home, but you basically need to qualify for about 520k in mortgage debt. I do not think your income will cover that. You can not count income you do not have, but even with the additional 18,600 in yearly income the rental I do not think you are going to qualify, your income is simply not high enough for that much debt. |
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loanmasterone
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You are on target to what the American dream is about and that is leverage buying. Those that never take risk are forever in the same predicament they started in.
You should apply for a mortgage loan for you new home, you will need to qualify for the mortgage and your debt ratios have to be good, some where between 35% and 38%, but then your mortgage broker will explain that to you. Your debt will include all the debt on your credit report to include the second home you are paying.
Your credit score will also play an important role in your qualifying for a new mortgage loan as well as how you are paying your current debts as outlined on your credit report.
Most lenders will only take 75% of the rental for you to use as income. The other 25% they take will be for maintenance, taxes, insurance and other incidentals that might come up.
You might consider a FHA mortgage loan as the loan limit did not change on the cut off date. The cost range in which you are looking is within the FHA guidelines. The reason for FHA is their requirements are not as stringent as a conventional mortgage loan.
With a FHA loan you might be able to put down as little as 3%-20% depending on your financial situation at this time.
In qualifying for your mortgage loan you should have a written lease agreement that indicate you have a renter already. Call a local mortgage broker that does FHA loans so he can complete a mortgage loan application, after which he can run a credit report getting your credit report.
Once this is done he will be able to explain any and all options available to you for your new purchase. Listen carefully to your options, select the one that best suit your financial condition at this time. He will also be able to pre-approve you for your new mortgage loan.
You might not qualify for as much house as you want, but your mortgage broker will be able to tell you the loan amount you are qualified for. Keep your eye on your objective.
You are not crazy in thinking you can get a mortgage under the circumstances you outlined.
If you are showing a positive cash flow of $100 per month if you rent out your current home, then you should immediately put that overage in a separate account each month as you should be preparing for a reserve for when the property will not be rented, repairs and maintenance, as well as taxes and insurance. You have to treat your rental as if it is a business in itself.
I hope this has been of some use to you, good luck.
"FIGHT ON" |
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dulcrayon
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you're going to have a really, really hard time getting financing for the following reasons.
1. the lending institution will consider all indebtedness against your income
2. they will NOT consider rental income unless you can provide a long term lease ( multi year)
the above terms have been in place for decades. now consider the following. lending institutions will require your income and credit to be superb before they will lend, this coming from the bankers. |
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chatsplas
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You don't have a lot of equity in your current property, but have a great fixed rate. You would need Excellent Credit, low debt, and lease to make this work. However lender will give you credit for 50-65% of rental income, not 100%. You seem to be overextending yourself, if not already overextended, so be careful. Ten percent down is probably minimum you'll need to make this work, and then there are closing fees. Go to lender for Pre-Approval to see if it will work--I doubt it--too much debt. |
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Singh21
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get a loan secured on your current property.
get the second with the loan
rent the first.
spread out the mortgage, make sure you have interest in the first property Befor proceeding.
some companies offer 120% mortgages, in order for you to have some cash to spend on the property.
you will need to consider the nesesity of having the vacation property, and up the rent by 20%. ask to extent the car payments. |
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Tim
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It will be tough, but possible.
One thing to think about is what happens when the tenant vacates? Supposed it takes 2 to 3 month to get another tenant in (possibly longer). Can you afford to make the payments without the rental income? What about repairs that maybe needed to the home? Remember tenants are not as kind as home owners and more things tend to break. |
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I Buy And Sell Houses
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It may be difficult.
Assuming your calculations are correct, you're saying you'd have $100 a month positive cash flow on your current home. When you're applying for a new one, retaining the current one as a rental, the lender will only credit you with 75% of the rent you're charging. (It figures you'll have maintenance expenses, vacancies, etc.) So, from an income standpoint, the lender will assume about a $300 negative cash flow.
You don't say whether you rent out the vacation property. That's a pretty big monthly expense. Your car payment is a bit high, but not too bad.
You don't say how much extra cash you currently have at the end of every month. But you appear to be talking about increasing your mortgage by about 40%--up from $220,000 to $310,000. Leaving aside the question of whether you'd get approved, could you handle that jump in the mortgage (even recognizing that you might get an interest rate slightly lower than your current 5.25%?
My gut reaction is that you probably shouldn't do it. At least not with the structure you're considering.
You also don't explain exactly why you're looking for another house. Is it to invest due to "the free fall in housing prices and mortgage rates"? Or is it because you want "a larger home in the suburbs"? Or a combination?
I'd suggest you at least consider a lease-option or a land trust to acquire your new home. In neither case would you have to go out and get a new mortgage. In the case of a lease-option, your monthly payments would be pretty similar to what it'd cost to rent the new place. In the case of a land trust, your monthly payments would probably be the higher of: (1) what it would cost to rent the new place, or (2) the PITI on the underlying property.
In either case, you're keeping your new housing expenses low, yet you're essentially locking in today's low prices. (You would be locking in with a lease-option; it's slightly more complicated with a land trust.) The only thing you wouldn't be locking in are today's mortgage rates.
Hope that helps. |
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Noneya
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Not at all. It will depend on the type of financing you want. Fannie and Freddie recently changed their guide lines for this type of transaction because too many people let their new "rental" property go straight in to foreclosure as soon as they closed on the new home.
You may be able to qualify for an FHA loan on the purchase but you would really need to apply for loan to find out. |
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Phuk Ewe
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If you can get a bank/mortgage company that does manual underwriting you have a chance. Your low down payment will definitely hinder you, though. |
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LoVe iS aLL tHaT CoUnTs
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I think you are lucky you already have a home.... Sell your old one and buy a new one, why do you need two homes???? |
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