If you are not a first-time home buyer, how much do you have to put down on a house? Is there any way around putting down a huge down payment? We own this home (which has no equity because we bought it when the market was high so we are "upside down" by about 30k) but we want to rent this out and get into something a little larger while the homes are still cheap. I have no knowledge of how everything works because when we bought this home it was from my mom so we didn't have to go through the usual drill. Thanks!
5, 10, 20% are all common. 20% means no PMI.
BTW, Do you have a money tree out back or something? LOL
Because I would never "do" a rental that wasn't paid off much less O. with no equity that I'm 30K upside down on!
A.:
Contact a Realtor as well as a mortgage lending bank.
If you are renting out your home and need to include that as income - I believe the new rules are that you must be land lords for two full years prior to being able to include that as "income".
I don't know if you have a military service background - if you do and were honorable discharged or retired - you can use your DD214 to get a VA backed loan which requires no down payment (to the best of my knowledge - that could have changed).
With all the changes in the mortgage industry - it's best to ask THEM - and feel free to ask several companies as each may have different specifications to loan requirements - some may require 20% down if you have bad credit....I don't know. I don't know your situation, finances or anything like that. The average is usually 20% down.
We put 20% down on the home we are in now... we were very lucky and able to sell our first home for about $20,000 more than we paid for it.. plus we had 7 years of equity.
We did not HAVE to put 20% down, but wanted to so that we could avoid paying the monthly PMI which would have added over $100 to our monthly payment.
Go talk to a mortgage person, get pre-approved, run all the numbers and see what you can afford.
I wil tell you my experience when we tried to buy a house last year. We currently own a 2 flat with my husband's cousin (BTW, huge mistake!). The mortgage is in my name only as they would not refinance with him on the mortgage since he is not a citizen and they stopped doing the ITIN for mortgages. My husband and I got a large amount of money and paid off a lot of bills. That actually dinged our credit. Who knew paying off bills would temporarily lower your credit score? The bank did not liek it becauase then it freed up a lot of credit for us to use so consider what you have available and how you have used it. We had a problem getting a mortgage because I already have one. They do not like to do that. Some will, just was my experience. They will want to know what you will charge for rent, will look into what the going rates are, will want to know that the house you are buying will be your promary residence. A low down payment can be done with an FHA loan but then you have the mortgage insurance to deal with. This can add hundreds to your monthly payment. Also, they will want reserves. If a tenant does not pay the rent, you still have to pay the mortgage. In my area, the expected time frame to not have a tenant is 3 months so that is 3 months that you wil not have tenant payments to pay the mortgage. Also, you will need to have reserves to pay for repairs. And like Jackie says, no matter how great or thorough a back ground check you do, tenants lie and don't pay. Talk to a realtor and mortgage person to see what you qualify for and recommendations. A realtor can tell you what you would expect in renting the home. Also could give tips.
Most banks want a minimum of 5% down. The only problem with considering your current home as income is that it is not rented yet and the banks want to see it on your tax returns, if it is not there they WILL consider it money that you are paying out (this will hurt your chances of getting a second mortgage). If you and hubby make enough money to cover both mortgages then you shouldn’t have a problem. I should also tell you as a landlord myself to make your budget as if the house is not rented, DO NOT depend on that money always being there. Not all tenants are perfect no matter how many background checks you do.
Depending on the bank they may consider another home purchase to be the second home and then they require 20% down. I know this from the experience we had buying our current home. Please go through a reputable mortgage broker and/or bank, there are still quite a few out there that are only looking to make a buck and will screw you the first chance they get. We dropped the mortgage broker and went directly through the bank. It was faster and less bulls**t to put up with. The broker gave us the biggest run around and kept changing the closing date to the point that the sellers were about to back out of the sale.
Your best bet is to speak with a mortgage loan officer from a bank or mortgage service. We bought another home, keeping our first as a rental as well. I wasn't upside down on that house, had the 5% down for our new primary home, and still barely qualified. With so many people upside down on their mortgages, many end up walking away. This has caused the banks to be extra cautious with new loans. Again, that was my experience in CA. Good luck.
My first home is in my name only and is worth 30 thousand less then what we owe. We bought our 2nd house 2 years ago and it was relayed to us by our bank that the “income” from our rental would not count until we had be renting it out for a year consistently so with that being said we HAD TO be able to afford both mortgages on our income. The only money we brought to the closing table was literally ½ the closing cost which was agreed upon during negotiation. Your credit is key-look at your debt to income ratio and ensure you have at least 3 months worth of mortgage in savings “just in case”
It depends on the state and the lender, but in most cases you have to have a decent down payment to take out a second mortgage. Most lenders would want to see that you have some equity in your home as well b/c that will be considered a "debt" on your credit and you have no collateral.
Renting in this market is risky as well. Unless you can cover your mortgage AND the upkeep on a rental property AND the change in your insurance rates AND cover another mortgage payment, then probably not a good plan. If your current home sits "empty" for 6 months, would you be okay financially?
Do you actually need a bigger home or are you trying to capitalize on the market? My sister and BIL tried this and it failed miserably. They ended-up having to short-sell their original condo at a HUGE LOSS (had to borrow from my parents and take out a personal loan) which tanked his credit (condo was in his name only). They had a renter who bailed after 6 months, so they were left covering the costs of two homes with the same incomes. They came damn close to foreclosure on the condo- if my parents hadn't loaned them money they would be in worse shape.
Really, really think about this. Call around and speak with different lending officers. They have formulas that will predict ballpark "what" you can afford based on your income, your debts and potential rental income. That should give you a decent idea as to whether or not you can afford to do this.
A lot of people would say this is NOT a situation you want to get into, but in the end, the decision is yours.
We were in a similar situation with our condo. We weren't (aren't) underwater with it, but if we had been able to sell it we would've just broken even (based on current sales of similar condos). Of course, we couldn't sell because apparently it's getting very difficult to get financing for condos (at least in our area) and there were some foreclosed properties that were competing at much lower prices.
But, we really wanted to take advantage of the housing market and we were starting to feel really cramped in the condo... So, we moved in with family and turned the condo into a rental property. In our area we can charge rent that just covers the condo bills (mortgage, HOA, insurance), so we're okay with not "making money" on it. We stayed with family for 6 months while we saved up our money (what we had been spending on the condo bills) and looked for a house. First step was to get pre-approved (I would always suggest that a person get pre-approved so they know EXACTLY what they qualify for--and are comfortable paying). Since the condo was a new (not established) rental property, that mortgage payment was counted against us as a debt. We did not get to claim the rent as income, either. Our broker said it needs to be "established" as a rental for 1-2 years before the rent income cancels out the mortgage "debt" as far as debt-to-income ratios go.
Anyways, we both also have excellent credit and had paid off several major bills recently (car note, student loans, credit card, etc), so we were able to get pre-approved for an amount that seemed reasonable (as far as finding a house that we'd like AND having a mortgage payment we could comfortably afford).
In the end, we paid 3.5% down and had 3.5% applied towards closing (and part of the down payment) through an FHA loan on a house that qualified for the Fannie Mae HomePath program. Fortunately, the condo was a conventional mortgage, so we were able to get the FHA for the house (lower down payment and better interest rate). So, yes, it can be done. There are a lot of factors that weigh in, and I must say, being a landlord is NOT fun. It's frustrating, nerve-wracking, and can be very scary (our 1st tenant was a vet with PTSD and we later found out dealing drugs from the house)!
First step is to find a mortgage broker who you feel comfortable talking with and start crunching some numbers. Look at what you need to pay to cover the house (if you were to turn it into a rental) and browse your area classifieds to see if the rent rates are up to par.
Either way, good luck.
I don't think you will find a bank that will give you a second mortgage, even with a good down payment. You could walk away from the first after purchasing the second, even though that isn't your plan, and that is too risky for them. I have thought about doing this as well, so I have looked into it a bit.
20% or more to avoid mortgage insurance costs.
FHA loans require 3.5% down, regardless of whether you own another home.
Hi there.
In this market, you pretty much have to put down 20% unless you get an FHA loan...which are good, but do come with extra fees. You'll also pay PMI if you are under the 20%. FHA loans require 3.5% down presently.
Your bigger issue will be getting the loan while also carrying the note on the first home. If you owe on the first house, you'll likely have to show that you can afford to cover both mortgages in order to qualify for the new loan. Most banks right now want to see that or show a history of rental income on it...which you obvisouly don't have since you live there! Good times, huh?
Anyway, my recommendation is you find a good mortgage broker and talk it out with them. I'm a realtor and can recommend one if you need one! Good luck!
-M
