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I am currently in a home with a very favorable fixed rate with a LTV of around 76%. Me and my wife would like to move closer to our jobs and looking for another place as our primary residence while renting out the existing home. However, we do not have enough funds for the 20% down payment. Is there any loans out there that would let you slide with 10%, 15%? Also, would we also have to pay PMI? Also, would taking a second loan or a HELOC on our first home to put down the 20% be beneficial? Thank you.
Why would you want to take on the responsibility of being a landlord? Wouldnt it be easier to sell the current house and use the proceeds to get a 20% on the new home?
Dont stretch yourself too thin, think about this: if you get horrible tenants who dont pay and it takes 6 months to a year to get them out could u cover the cost of both homes and legal fees?
You are entering dangerous territory if you are doing this on a whim. Think about having two house payments, and having renters beat up your house and leave it a mess, needing thousands in repairs before you can put it on the market again. What is the worst case scenario, and do you have the funds to handle it?
You cannot "slide" on Mortgage Insurance, unless you have a 2nd mortgage that occupies the space between 20% and your cash down.
Can you do a 20% down payment if the seller pays all of your closing costs and prepaids?
Use care using the phrase "second home." As second home is a vacation home, one you do not lease out. You can cause a world of confusion with just a bit of lingo and not understand why. You don't meet the definition of a "second home." You are looking to change your primary residence and would like to lease out your former residence.
On a primary residence, you don't need 20% down, but can go with 3.5% or 5% down. Rental income on a primary residence turned rental is the trouble spot. If you do not have 30% equity for a conventional loan, you cannot use rental income to offset that mortgage payment and must qualify carrying both mortgage payments. Additionally, you must have 6 months reserves for each property.
Get with a mortgage professional and have them work up your situation........what you should do doesn't matter if you can't do anything........go find out your options, then decide what approach to take, whether now or in the future.
On a primary residence, you don't need 20% down, but can go with 3.5% or 5% down. Rental income on a primary residence turned rental is the trouble spot. If you do not have 30% equity for a conventional loan, you cannot use rental income to offset that mortgage payment and must qualify carrying both mortgage payments. Additionally, you must have 6 months reserves for each property.
Get with a mortgage professional and have them work up your situation........what you should do doesn't matter if you can't do anything........go find out your options, then decide what approach to take, whether now or in the future.
Hmmm ... I was in this position last year and for my bank at least, I did NOT have to have 30% equity in my previous house (the one I was turning into a rental). The lender for my new/current house did NOT require any kind of appraisal on the old house or anything like that. Instead, they required that I have a signed rental agreement on my old house, then they took 75% of that income and applied it to the old house's mortgage payment. If the 75% didn't completely cover my old mortgage payment, the difference was basically treated as another debt and counted against my debt-to-income ratio.
Example (keeping the numbers simple):
- Income = $8,000/month
- Maximum debt-to-income ratio = 42% = $3,360
- Old house's mortgage payment (PITI) = $1,200
- Old house rent from tenants = $1,200 but they only count 75% so it counts as $900
- The difference between my old mortgage payment and 75% of rental monies = $300
- The $300 was included as a debt in calculating my debt-to-income ratio
I had been afraid that they would simply add the rental funds to my income and add the old mortgage payment to my debts, but they didn't do that. That would have made it VERY hard to qualify.
Maybe it was just my new lender, but I don't think so -- they told me it was much harder to qualify for a mortgage loan now than it had been in the past, but even with the $300 extra "debt," I was way under the maximum debt-to-income ratio.
They also did NOT require that I have 6 months' reserve for BOTH properties -- only for my new house. Even for that, they counted 401(k) funds, which I thought was odd.
My lender is a small regional bank here in New England. I got a 5%-down-payment loan on my new house but I suspect that was because my credit was excellent and I had almost no debt other than the mortgages.
OP, SmartMoney is giving you good advice about meeting with a mortgage broker ... that should be your next move!
FHA doesn't require the reserves, just 25% equity to use the rent.......but going conventional with PMI, you will be required to have both the equity to count the rent and the reserves.
FHA doesn't require the reserves, just 25% equity to use the rent.......but going conventional with PMI, you will be required to have both the equity to count the rent and the reserves.
I didn't go FHA -- mine is a conventional loan (with PMI since I put only 5% down), and again, I did not have to have 30% equity in my old house (the one I was renting out) -- they would not have been able to calculate that since they didn't require any kind of appraisal on the old property. They also only asked for reserves for my new house's mortgage, although maybe that was just the way they phrased it and they really needed reserves for both places -- since they counted my 401(k) as "reserves," it was moot as that account was way more than enough to cover reserves on both places.
I didn't go FHA -- mine is a conventional loan (with PMI since I put only 5% down), and again, I did not have to have 30% equity in my old house (the one I was renting out) -- they would not have been able to calculate that since they didn't require any kind of appraisal on the old property. They also only asked for reserves for my new house's mortgage, although maybe that was just the way they phrased it and they really needed reserves for both places -- since they counted my 401(k) as "reserves," it was moot as that account was way more than enough to cover reserves on both places.
You obviously had a portfolio lender that self insured, which is truly the exception to what is available in the secondary market. If you will note, I am very careful to say who I am quoting: FHA, Fannie Mae and Freddie Mac, the source of the majority of mortgages today. Exceptions are rare and unless you can provide the poster with a specific place to inquire, I will continue to explain what the majority of mortgages require today.
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