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  1. #16
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    Re: Mortgage questions

    Quote Originally Posted by Mr Janny View Post
    We went through this about a year ago. The lender for our 2nd home, (the one we currently live in) just told us to indicate at the time of the purchase that we were planning on selling our first home. He said we didn't actually have to sell it, but indicating that we were trying at the time of the new purchase was necessary. A year later, we still own both homes, and yes the rental market is booming right now.

    That makes sense but what do you do to insure it then? I assume you probably have to have some hefty liability insurance in case something were to happen.

    Also, what if the house that you want to buy is multifamily property? Then can you still treat it as your primary residence and get the lower rate for it? I've been curious about owning some rental properties for awhile now and was wondering how you could pass that off as a primary residence if it was a multi-family unit. I assume if you want to keep purchasing income/rental properties it'd be in your best interest to form an LLC at some point to cover your back end in case something were to happen. Does anyone else have any experience with this?



  2. #17
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    Re: Mortgage questions

    Quote Originally Posted by clone4life82 View Post
    That makes sense but what do you do to insure it then? I assume you probably have to have some hefty liability insurance in case something were to happen.

    Also, what if the house that you want to buy is multifamily property? Then can you still treat it as your primary residence and get the lower rate for it? I've been curious about owning some rental properties for awhile now and was wondering how you could pass that off as a primary residence if it was a multi-family unit. I assume if you want to keep purchasing income/rental properties it'd be in your best interest to form an LLC at some point to cover your back end in case something were to happen. Does anyone else have any experience with this?
    You just have a normal homeowner's insurance policy that is for an rental. (I think it's called a fire policy) It is actually cheaper because it doesn't cover any of the personal property. The renter should be getting insurance to cover their own personal property.

    As far as a multi-family unit, as long as you are residing in one of the units underwriting will consider that your primary residence. But it has to make sense for an underwriter. If you live in a $300,000 house, and you're buying a $200,000 multi family residence, and claim to want to rentt out your $300,000 house, and live in one of the units in the $200k house, that might be tough to pass the sniff test with underwriting. When you are actually purchasing a house that is a rental, you want to really be careful about lying, because that is mortgage fraud, and you obviously don't want to do that. If you were to purchase the $200k house as a primary residence that is actually a rental, I would at least move in for a month, change your address to the rental, so you can show a papertrail that it was actually your primary residence, and then you "changed" your mind and decided to rent it out at a later date.



  3. #18
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    Re: Mortgage questions

    We've used our old home as a rental now for 4 years. Didn't have to misrepresent anything. Lived in it for 9 years. Had a mortgage. Told the mortgage company what we were doing and never had to do a thing with the old company. The 30 year mortgage we originally signed up for is a contract between us and them that as long as we pay we hold up our end of the deal. Ankeny rental market is booming. We make about $500/month each month on ours and we don't charge as much as we could but have had good renters for 3 years and would much rather they stay than have to look for someone else.


    Exaggeration is a BILLION times worse than understating.

  4. #19
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    Re: Mortgage questions

    Quote Originally Posted by CycloneDaddy View Post
    He wld have to refi his current house as an investment property and the house he purchases wld be his primary, correct? I guess the house he purchases cld be the investment but since he will live in that one i doubt he wants to commit mortgage fraud.
    Quote Originally Posted by Cyclonesince78 View Post
    No he definitely does not need to refinance the investment property. Technically he is "supposed" to declare it as a rental, but efff that. As long as you make your payments, no one will ever know. Once you buy the new house, call them and give them a new mailing address for your bills, etc.... You can tell them: Your kids live in the house or it's a 2nd home, or a million other things.
    Yes and no. I'd tell your mortgage company that you plan to rent out your first house. 9 times out of 10 as long as you make your payments, nothing will happen. No need to lie to them because if you do and they find out, they can call the loan and put you in a bad situation.

    As someone who owns multiple rentals, be careful jumping into the rental market. Make sure you have an additional liability policy in case someone gets hurt at your rental. You don't want to lose your primary residence and any other assets because someone sued you for an accident at your property (doesn't matter if it was your fault or not many times). Secondly, assuming you keep it in your name you may have difficulty buying other things on credit (car, furniture, etc) in the short term as your debt-to-income ratio will be pretty high (unless you make a ton of money). Typically after 12-24 months, you can use your rental income to offset the debt load and you'll be fine.

    I ended up creating a separate LLC and used a quit claim deed to transfer the property into the LLC's name for liability separation.



  5. #20
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    Re: Mortgage questions

    Quote Originally Posted by cycloneworld View Post
    Yes and no. I'd tell your mortgage company that you plan to rent out your first house. 9 times out of 10 as long as you make your payments, nothing will happen. No need to lie to them because if you do and they find out, they can call the loan and put you in a bad situation.

    As someone who owns multiple rentals, be careful jumping into the rental market. Make sure you have an additional liability policy in case someone gets hurt at your rental. You don't want to lose your primary residence and any other assets because someone sued you for an accident at your property (doesn't matter if it was your fault or not many times). Secondly, assuming you keep it in your name you may have difficulty buying other things on credit (car, furniture, etc) in the short term as your debt-to-income ratio will be pretty high (unless you make a ton of money). Typically after 12-24 months, you can use your rental income to offset the debt load and you'll be fine.

    I ended up creating a separate LLC and used a quit claim deed to transfer the property into the LLC's name for liability separation.

    This is what I was asking about in my post above... So when did you decide to move from owning the units as a personal property to creating an LLC and transferring them to that?



  6. #21
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    Re: Mortgage questions

    Quote Originally Posted by cycloneworld View Post
    Yes and no. I'd tell your mortgage company that you plan to rent out your first house. 9 times out of 10 as long as you make your payments, nothing will happen. No need to lie to them because if you do and they find out, they can call the loan and put you in a bad situation.

    As someone who owns multiple rentals, be careful jumping into the rental market. Make sure you have an additional liability policy in case someone gets hurt at your rental. You don't want to lose your primary residence and any other assets because someone sued you for an accident at your property (doesn't matter if it was your fault or not many times). Secondly, assuming you keep it in your name you may have difficulty buying other things on credit (car, furniture, etc) in the short term as your debt-to-income ratio will be pretty high (unless you make a ton of money). Typically after 12-24 months, you can use your rental income to offset the debt load and you'll be fine.

    I ended up creating a separate LLC and used a quit claim deed to transfer the property into the LLC's name for liability separation.
    I have a rental and also put it in an LLC. Saves you a ton of headaches in case **** hits the fan, protects your personal assets from any law suits or liability.



  7. #22
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    Re: Mortgage questions

    Quote Originally Posted by KnappShack View Post
    Good to know old fashioned misrepresentation is alive and well in the mortgage industry.
    It doesn't have to be misrepresentation. Just put it on the market without signage at 160% of value. If it sells so be it. If it doesn't focus on renting it. No mis-representation what so ever. You may not even have to technically list it. Check with a lawyer. If you let people know that you will let it go for a price, you are trying to sell it, right? Offer it as a option of rent to own at 160% of value. If there's a taker, then its a win/win.



  8. #23
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    Re: Mortgage questions

    Quote Originally Posted by clone4life82 View Post
    This is what I was asking about in my post above... So when did you decide to move from owning the units as a personal property to creating an LLC and transferring them to that?
    For me, it was when I owned more than one. For the OP, I wouldn't recommend creating an LLC and transferring his first property as it will create more headaches than its worth. Once you transfer the property to the LLC, your lender will get notification that you no longer own the property and may call the loan. So you would need to be prepared to refinance the house in the LLC's name and not your personal name. That can be tricky for a new company unless you have a relationship with your bank/lender. Basically you need to fully jump in with an LLC or you may not be afforded the protections offered by LLCs (separate bank accounts, etc). Just get an umbrella liability policy (you can get $1 million fairly inexpensively) and you'll have similar protections to what an LLC will provide you.

    Another benefit is that its much easier acquiring more rental properties thru the company than my personal credit. Although it does cost more (higher interest rates).

    I'm no attorney and this isn't advice, just stating what my personal experience is.



  9. #24
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    Re: Mortgage questions

    Quote Originally Posted by Cyclonesince78 View Post
    I have a rental and also put it in an LLC. Saves you a ton of headaches in case **** hits the fan, protects your personal assets from any law suits or liability.
    Exactly. But you need to operate it as a separate company to get those protections. Ie. you can't cash your renters checks into your personal accounts, you need to have a separate account for the LLC. Basically if it appears you setup the LLC solely for the protections it can provide but don't operate it like a separate entity, your personal assets could be at risk if you do have to go to court.



  10. #25
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    Re: Mortgage questions

    I own a house in Des Moines that I used to live in and now rent to my Dad. My wife owned a house in Ames and when we got married we refinanced her house to get a better rate in both of our names and I didn't have to change anything related to the Des Moines house mortgage.



  11. #26
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    Re: Mortgage questions

    Quote Originally Posted by cycloneworld View Post
    Exactly. But you need to operate it as a separate company to get those protections. Ie. you can't cash your renters checks into your personal accounts, you need to have a separate account for the LLC. Basically if it appears you setup the LLC solely for the protections it can provide but don't operate it like a separate entity, your personal assets could be at risk if you do have to go to court.
    True. If you want the protections of being a business you need to run it so it has the appearance of a business.



  12. #27
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    Re: Mortgage questions

    I would recommend not renting to relatives if at all possible. We bought a new house about a year and a half ago. Right about the same time my sister in law was splitting with her husband and needed a place for her and the 2 kids. We ended up renting to her for about $300 per month less than market because she couldn't afford more and "we can't profit at my sister's expense"
    She is 3 months behind on rent and some utilities are still in my name.
    I learned the hard way when I did my taxes that the type of rental that I'm doing is considered a passive income and any losses can only be deducted on that passive income. So I didn't even get a tax write off for my loss. This whole thing is a rather sore subject in my house.



  13. #28
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    Re: Mortgage questions

    Thanks for all of the advice! We put an offer in on this house, with a pre-qualification letter from First American here in Ankeny. We are really hoping this goes through. We know there is another offer on this house and the house just posted on Saturday. The same house sold a month ago in a day, but the buyer fell through 10 days prior to closing. So we figured that going in with no contingencies, and a $3,000 earnest payment will really work in our favor. We are pretty sure that the other offer has a contingency of sale. Hopefully they haven't got any other offers. It's amazing that we had to jump on this house like this. I'm used to being the only bidder and can work some deals. Not this time.

    Anyway, some things I've learned from two mortgage bankers today:
    -Since I've lived in this house for 8 years +, I have no need to let my current mortgage holder know of my doings.
    -If I want to refinance from 15 to 30 or whatever, then I will have to declare it as income property and take the higher interest rate.
    -Along with this, I can only take the equity from the remaining 75% of the value of the home. So let's say the value of the home is 200. 75% is 150. If I owe 130, then I can take out $20. (I believe this is correct)
    -One thing I am going to research tomorrow with the holder of the current note is if I can open a HELOC to have access to the equity, just in case, without refinancing after vacating the home.
    -Because I don't want to affect my credit by taking any new loans right now, I'm kinda **** outta luck to use the equity I've built in this house as my 20% down payment for the new home. So I'm going to have to "borrow" from my checking account to at least put down 5% and carry that hated mortgage insurance.

    All-in-all, I'm willing to pay MIP to get this house and keep my old one. My current home is worth 250+, so it's not exactly the norm for the rental community, but I know there is a need for this kind of home around here. So we're taking a shot. If it doesn't work out we will just list it.

    Again, thanks for the help and hope my experience can help others. Now, if we don't get this house, I'm more knowledgeable about my options and will refi my current home next week to a 30 year, and take my equity out for use in the future.



  14. #29
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    Re: Mortgage questions

    To bump an older thread... I want to tack on a question to any of you that own an income property. I'm looking at buying a duplex and am trying to come up with enough cash to make a down payment on the property. Banks are requiring 20% down. I have the cash in my bank account but would rather not touch that as that's used for everyday items and emergency. I don't believe I have enough equity in my house to pull out a loan on that. I have enough in other retirement accounts however will get dinged pretty a hefty percentage (I believe 25%) on anything I take out of those so I'd like to avoid those if possible. Is there a better way to go about financing the down payment on this? Any advice you all could give would be appreciated! Thanks!



  15. #30
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    Re: Mortgage questions

    Quote Originally Posted by stateofmind View Post
    Does anybody know what you have to qualify for to hold a loan on two homes with the thought of renting the one? We currently have enough to carry both houses on 30-year notes without much problem, but would obviously hope to have it rented right away. Several Realtors that I've spoke with say that houses around here rent very fast, and our neighbor is renting his out.
    If you don't mind giving up 7-10% of the monthly rental income--hire a property management company

    You won't have to field ph calls from renters at all hours. The mgmt company arranges for lawn care, maintenance, repairs, and typically call you first if a repair would exceed a certain threshold $$ amount

    You won't have the headaches



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