Hi Mamas!
Wondered if anyone has experience renting a current home and purchasing another? For very good reasons, we need to rent our current home and purchase another home closer to our family. If we weren’t upside down on our home, we would prefer to sell our current home. However, we aren’t ready to take a hit on our credit to do a short sale or foreclosure. Need some advice as to where to start. Is it better to rent out our current home first and then apply for financing for a new home – to show the lender that we have income coming in to cover our first property? Or should we apply for financing for our second home first and then work on renting out our home? We have decent credit and enough income to cover our bills and all the food we want but not much more. Though, we will have at least a 5% down for our second home. We aren’t fortunate enough to not rent out our current property. We have to rent it out in order for us to comfortably be able to meet all our financial obligations. Finding a temporary place in the interim, if need be, is not a problem. And we’re not worried about renters that might bail on us and leave us stuck with 2 mortgage payments. We already have a plan in place for that. Just trying to figure out where to start with all this. Thanks moms!
The lender will have their conditions that you have to meet in order to qualify for a loan, they want to see that you can afford to carry both properties. Having a tenant in place will assist you in qualifying because it is actual income rather than projected income. Find an experienced lender to talk with as well as an experienced Realtor. Both will be able to provide valuable information and knowledge about the process. Bests!
I'd definitely talk to your mortgage lender and get their advice. They will know exactly what your credit and financial numbers need to look like when you go to really do this, so I definitely recommend getting their advice and working with them from step one :).
It may be best to rent the first home out right now while the housing market is down; that way you generate the income from renting to pay the mortgage payments in it. Then when the housing market goes up you can offer it for sale to the renter or put it on the market.
If both of your work then you should be fine. If one of you works outside the home and the other one does not; maybe a work from home job would suffice to help make ends meet. Shaklee offers a wonderful opportunity for stay at home moms, dads, grandparents etc. You may want to check that out and can do so at
http://choice-wellness.myshaklee.com
Hope this helps; have a blessed day!
I don't mean to be a Debbie Downer but it sounds like a recipe for disaster to me.
If, even wth the rent, you have enough to cover bills and "not much more" what are you going to do when there's an emergency/break down/replacement of something at either home. Also, with that tight of a margin, you'd need to make sure that first house was NEVER empty, as even a few months of sitting empty could put you thousands of dollars behind.
I'd say...not wise.
I think Dave Ramsay would advise you to take the loss on selling the first home.
Good luck!
Well...I see after a second reading that you seem determined to do this. Be advised--you will not get as good of a rate on the second home--only for a primary residence. And look into the tax repercussions, too.
If it were me I would rent a place and than start looking to buy.
Another question to ask your lender/broker is whether you are eligible to refi your current home (and how that would affect your ability to qualify for a new loan). There are a number of programs out there facilitating refis at today's good rates (and if you aren't underwater on a house in Mesa, I'm guessing your rate is from long enough ago that a refi would save you a lot). We learned the hard way that none of those programs apply in a situation where a former primary residence is now a rental in the same city. We could have saved a few hundred a month if we'd refi-ed before buying our new house.
Best thing to do is find a mortgage broker so they can give you detailed info on your situation.. My husband is a mortgage broker but in Seattle.. A good place to look is yelp for reviews on mortgage brokers and ask family and friends.
we are renting out our house cause we wanted to move to a different area and are renting now.. i miss being in our own home!! we want to also purchase a 2nd home but the "what if's" scare us more than anything... what if our tenants end up being scumbags.. what if something major breaks.. what if we all of a sudden lose a job and cant afford both... good luck :)
Sorry but I have two words for you "good luck". Just because you aren't worried about renters leaving you high and dry any lender in today's climate will not count that rent as dependable income. When is the last time you re-fied or got a loan? It is very different out there. You will never be able to secure a second loan if you are underwater on your first and only enough income to cover your bills and food. I do know a lot of people who are renting out there house and RENTING another house to get into a better school district and at this point it is probably your best bet. Why exactly would you want to buy again right now anyway? You should call a mortgage broker before moving forward.
I guess where I would start is to contact a mortgage broker, who represents many lenders (not just one), and apply for a pre-approval. They can answer all of these questions more honestly than the lender themselves since they do not get paid by the homebuyer (least ours didn't), but by the lenders they represent.
Once you have a pre-approval amount, you'll have a better idea what to look for pricewise (and we looked about $50k UNDER our pre-approved amount).
Maybe once you make an offer that is accepted on a NEW house, that generally gives you six weeks til closing, so you can advertise YOUR house rental available such and such a date (your close date on the new house). Still even after you HAVE a close date on your new house, you may not be able to line it up perfectly, you know?
:)
I did this with my Gilbert home a few years ago. My lender required that we have a rental contract in place before we could proceed with the loan for the second home. I would definitely recommend moving to a rental house and getting a renter in place in your home (with a signed contract) before attempting the purchase.
Also, the person who mentioned refinancing before you move out was very wise! We are stuck with an arm on our rental home, because if we try to do a refi now we will be forced to go with rental home rates, which are much higher.
Lastly, make sure that you have plenty extra put away in order to cover months in which your renter may stiff you or move out. We were stiffed, and the home sat empty for 6 months before we could get another renter. Ouch!
We are also doing this. Regardless of a renter, you will still need to qualify for both houses. I think most lenders require that you 6-12 months of rental history before you can claim it as income. So you will want to get preapproval to see what and if you qualify. The monthly rent on our rental is $1205. This covers mortgage, insurance, and taxes. We pay HOA's out of our pocket. We also require our renters to have renters ins. It's only about $10/mo.
The tax benefits are great at the end of the year. But keep in mind that you will need to have money set aside for repairs on this home. When funds are low, the rental repairs come before those in the home your are living in. It can be an investment in the long run if you can swing it. Careful though, it could get you in a lot of trouble.
I would speak with your lender, but from what I hear, it is SUPER hard to do that right now. You will probably have to rent it out first!
