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Old 06-23-2014, 06:40 AM
 
1,903 posts, read 3,203,081 times
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I currently own my primary residence in a very desirable location with rapidly appreciating property values. I will be relocating away for 4 years on a developmental assignment. In the new location the property values are relatively cheap but are stagnant at best.

Even though I could make a handsome profit on my current place, I am seriously considering renting it out as an investment property for those 4 years. Why? I have a 30 fixed of 3.3% on that, and the neighborhood is perfect for our family long-term. It would be devastating to be away for 4 years, work really hard, and not be able to afford what I have right now.

What I'm wondering is how to get a mortgage on a property in the new location that will be our primary residence for the next 4 years. I am 20% Debt to income on first mortgage, no other debt, and have 20% down for the new property. Property in the new location is substantially cheaper.
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Old 06-23-2014, 07:37 AM
 
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Why would you even purchase? In your situation, where you know you will only be away for 4 years, it makes much more sense to rent; even moreso because you state that property values are stagnant at best. Even if you were to break even price-wise at the end of 4 years, you'd still lose money due to the transaction costs. You seem to have a good property in a place you love at an interest rate you will never see again; keep that, rent it out and rent at your new residence for the next 4 years.

If you insist upon purchasing, a few things to keep in mind: most lenders will consider the new home a secondary or vacation home, so your interest rate will be higher than the norm; they will most likely require a higher down payment, at least 25% down; and your income will need to show that it's sufficient to carry both properties and still stay within the normal DTI guidelines as a lender won't consider any rental income from your old home until/unless you have two year's worth of rental income to show.
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Old 06-23-2014, 08:18 AM
 
Location: MID ATLANTIC
8,643 posts, read 22,794,272 times
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Quote:
Originally Posted by berniekosar19 View Post
Why would you even purchase? In your situation, where you know you will only be away for 4 years, it makes much more sense to rent; even moreso because you state that property values are stagnant at best. Even if you were to break even price-wise at the end of 4 years, you'd still lose money due to the transaction costs. You seem to have a good property in a place you love at an interest rate you will never see again; keep that, rent it out and rent at your new residence for the next 4 years.

If you insist upon purchasing, a few things to keep in mind: most lenders will consider the new home a secondary or vacation home, so your interest rate will be higher than the norm; they will most likely require a higher down payment, at least 25% down; and your income will need to show that it's sufficient to carry both properties and still stay within the normal DTI guidelines as a lender won't consider any rental income from your old home until/unless you have two year's worth of rental income to show.
I'm sorry, but this information is incorrect.

OP, in your new location, the home you purchase will be considered your primary residence as long as you intend to occupy the property for a one year period. You would have the full benefits of being able to put as little as 5% down and get the rates offered to primary occupants.

As for your qualifications, counting the mortgage on your current home depends upon your equity position in the property. If you have 30% equity, you may use 75% of the proposed rental income to offset the current payment.

Hope that helps!
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Old 06-23-2014, 09:15 AM
 
1,903 posts, read 3,203,081 times
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Quote:
Originally Posted by berniekosar19 View Post
Why would you even purchase? In your situation, where you know you will only be away for 4 years, it makes much more sense to rent; even moreso because you state that property values are stagnant at best. Even if you were to break even price-wise at the end of 4 years, you'd still lose money due to the transaction costs. You seem to have a good property in a place you love at an interest rate you will never see again; keep that, rent it out and rent at your new residence for the next 4 years.

If you insist upon purchasing, a few things to keep in mind: most lenders will consider the new home a secondary or vacation home, so your interest rate will be higher than the norm; they will most likely require a higher down payment, at least 25% down; and your income will need to show that it's sufficient to carry both properties and still stay within the normal DTI guidelines as a lender won't consider any rental income from your old home until/unless you have two year's worth of rental income to show.
New property will be used as primary residence for 4 years. Why purchase? Well, I can put 20, even 25% down on property in new location if needed. Company will pay all closing costs & commissions, including a loss on sale up to a certain amount, when I leave the future location. Plus, I hate renting. I like my space.

The current property only has 23% equity from original purchase price, but 35% equity at current market value, due to substantial appreciation. I will have been just under 2 years, so I will get hit with capital gains tax if I were to sell now. I really don't want to get priced out of that neighborhood, as there is none better for my family in the current location. I have a separate post about that in the Houston forum.

I'm just trying to figure out what I could qualify for in the new location? Will I be limited to 36% D/I for both properties? I have no other debt.
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Old 06-23-2014, 09:57 AM
 
5,339 posts, read 14,075,967 times
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Quote:
Originally Posted by Htown2013 View Post
New property will be used as primary residence for 4 years. Why purchase? Well, I can put 20, even 25% down on property in new location if needed. Company will pay all closing costs & commissions, including a loss on sale up to a certain amount, when I leave the future location. Plus, I hate renting. I like my space.

The current property only has 23% equity from original purchase price, but 35% equity at current market value, due to substantial appreciation. I will have been just under 2 years, so I will get hit with capital gains tax if I were to sell now. I really don't want to get priced out of that neighborhood, as there is none better for my family in the current location. I have a separate post about that in the Houston forum.

I'm just trying to figure out what I could qualify for in the new location? Will I be limited to 36% D/I for both properties? I have no other debt.
You will be probably be able to go up to 45% DTI from the sounds of it.
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Old 06-24-2014, 10:57 AM
 
Location: Southern California
4,453 posts, read 6,763,974 times
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You have 35% equity. Ask a lender if they will count partial rent from your departing residences, if they say no, move on to the next lender. If required to pay down more of the existing loan balance, (highly doubtful), and you are short on cash, just do less down on the new one. If you know you are going to be at the new place for just 4 years and will sell it, consider getting an ARM, rates were 2.5% a couple of weeks ago.

If you actually get a signed lease, save copies of all documents, including copies of the checks and deposit and deposit slips of the security deposit. Also don't forget to contact your insurance company.
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Old 06-24-2014, 10:43 PM
 
Location: MID ATLANTIC
8,643 posts, read 22,794,272 times
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You are fine. Do expect to pay for two appraisals, one on the new home, one on the old. Find out the market rent and 75% of that can be used to offset the payment. Since you DO need the rent to qualify, be prepared to lease the home, subject to purchasing and closing on a home of your choice in Anytown, USA. On the departing residence appraisal, the lender will need some extra schedules (routine for investment properties) which will add another $150-200 to the cost of the report (depends upon location).

It sounds like you will be fine.
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Old 06-25-2014, 01:53 AM
 
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We have an investment property. It was our primary residence, and then we relocated for 3 years, and decided to keep it and rent it out. It was no problem buying a new home. Actually we've bought 2 more homes since then. All we had to do was show the mortgage company a copy of the signed lease. They didn't consider the investment property to be part of our DTI ratio. We did consider it to be part of our DTI ratio, so when we bought homes since then, we made sure we could easily afford both homes if the rental wasn't rented. It has been rented continually since then, but I like to hedge our bets.
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Old 06-25-2014, 09:41 AM
 
Location: Raleigh, NC
19,361 posts, read 27,580,268 times
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Quote:
Originally Posted by charlie_paige View Post
We have an investment property. It was our primary residence, and then we relocated for 3 years, and decided to keep it and rent it out. It was no problem buying a new home. Actually we've bought 2 more homes since then. All we had to do was show the mortgage company a copy of the signed lease. They didn't consider the investment property to be part of our DTI ratio. We did consider it to be part of our DTI ratio, so when we bought homes since then, we made sure we could easily afford both homes if the rental wasn't rented. It has been rented continually since then, but I like to hedge our bets.
Others here are more knowledgable than I, but I'm betting this occurred in the 'good old days' when mortgages were handed out like candy with no doc and stated income loans.
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Old 06-25-2014, 11:28 PM
 
Location: Southern New Hampshire
10,009 posts, read 17,922,959 times
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OP, I did what you are thinking of doing, EXCEPT that I never expect to go back to living in my former house (which I still own but rent out). I bought my current house just over 2 years ago, so it was pretty recent.

I bought the first house back in 2003 in a very nice neighborhood. When I wanted to buy my current house but didn't want to sell the old house, I called several lenders to find out what I needed to do, and it wasn't too difficult. The biggest thing was that I had to have a signed lease for the old house, then they took 75% of rental income and basically applied that to the old house's mortgage. Whatever wasn't covered by the 75% was counted as a "debt" in my DTI ratio, but I had very little other debt, so my ratios were fine.

Example: house rents for $1,200, 75% of that is $900, the mortgage is $1,100, so the $200 gets counted as a debt (just like a car payment or something!). This works fine for someone with very little other debt (my ratio ended up being something like 21%). I had feared that they would add the rental income to my "regular" income, then count the entire other mortgage as a debt, in which case my DTI ratio would have been 1-2 percentage points too high. It didn't make sense to me that they would do that, but I'd heard that some lenders do the calculations that way.

BTW, I've heard some lenders won't count rental income (even with a signed lease) unless you have 2 years of rental history. Obviously that would not have worked for my situation. I went with a local lender, not a national "chain."

Will you be having a property management company manage the rental? I live only a few miles from my old house, so I do everything myself, which is also good for tax purposes (I can deduct the paper loss from my "regular" income, but you can only do this if you have "substantial involvement" in managing the property -- that's not the exact wording but hopefully the meaning is there).

Best of luck to you ... I hope you find a lender like mine!
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