Mortgage questions

[stateofmind]

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.

 

[CycloneDaddy]

If you need the rent money to qualify for the 2nd house I think you need to show 6 or 12 months rental history. Also I don't think you can carry 2 primary home loans. 1 would have to be a 2nd home or investment property which means a higher rate.

 

[stateofmind]

We can afford both notes, so we should qualify without having a renter lined up? I did forget about the higher rate on the investment property. We would move out of the current primary residence and rent it eventually.

 

[CycloneDaddy]

Now that I think about it if both homes are in the same town they will probably make one be in investment home. All my comments are in regards to if the bank is selling the loan to one of the agencies. If bank or Credit Union are going to keep the loan on their books then they can probably do whatever they want.

 

[The_Architect]

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.

I've been doing this for almost 3 years now and IIRC there wasn't a whole lot to it. The lender just wanted to make sure we could make both mortgage payments if we had too. BTW, I'd try to rent it out as long as you can (if your property is in a desirable location.)

It's an unbelievable investment right now, our rental has been a major major investment win for us so far after only a few years. Rent covers mortgage, association dues and still puts a little in my pocket. Was even able to refi down to a 15 year over a year ago and the payment only went up around $50.

TBH, if I had the cash I'd buy more.

Edit. Also, you will have to declare the rental as investment property but rates are so low it shouldn't make much of a difference. Our rental is a little under 4% APR IIRC. We were able to refinance using the HARP program.

 

[CycloneDaddy]

I've been doing this for almost 3 years now and IIRC there wasn't a whole lot to it. The lender just wanted to make sure we could make both mortgage payments if we had too. BTW, I'd try to rent it out as long as you can (if your property is in a desirable location.)

It's an unbelievable investment right now, our rental has been a major major investment win for us so far after only a few years. Rent covers mortgage, association dues and still puts a little in my pocket. Was even able to refi down to a 15 year over a year ago and the payment only went up around $50.

TBH, if I had the cash I'd buy more.

Edit. Also, you will have to declare the rental as investment property but rates are so low it shouldn't make much of a difference. Our rental is a little under 4% APR IIRC. We were able to refinance using the HARP program.

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.

 

[Cyclonesince78]

We can afford both notes, so we should qualify without having a renter lined up? I did forget about the higher rate on the investment property. We would move out of the current primary residence and rent it eventually.

If the house that you are going to rent is currently your primary residence, then there is no higher rate, you just keep the loan and the rate that you currently have. Then I assume you would just purchase your new home and future primary residence when you're ready to buy. To qualify, assuming that you're looking at a conventional mortgage, the lender is going to take the minimum monthly payments on all of your debt that repots to your credit report, will include the new and old mortgage (And include taxes and insurance on both houses) and take that monthly payment, divided by your monthly income. If that number is less than 45% than you're good to go. Also you're going to need to show assets, enough to cover not only your down payment, but on top of that you're going to need to take what your new mortgage payment is going to be and multiply that times 6. So if your payment is $1000, you'll need to show $6000 in assets on top of your down payment to qualify for having 2 mortgages. (The 6 months of reserves does not need to be liquid assets, so a retirement statement would take care of that)

 

[Cyclonesince78]

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.

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.

 

[stateofmind]

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.

Well plus the house that we are moving to is more expensive, so I don't want higher interest on the larger note.

 

[CycloneDaddy]

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.

Probably won't pass as a 2nd home as they are located in the same town.

 

[00clone]

Probably won't pass as a 2nd home as they are located in the same town.

Maybe his wife snores like a M-F'er.

 

[CycloneDaddy]

Maybe his wife snores like a M-F'er.

Dang ... Never thought of that

 

[Mr Janny]

I've been doing this for almost 3 years now and IIRC there wasn't a whole lot to it. The lender just wanted to make sure we could make both mortgage payments if we had too. BTW, I'd try to rent it out as long as you can (if your property is in a desirable location.)

It's an unbelievable investment right now, our rental has been a major major investment win for us so far after only a few years. Rent covers mortgage, association dues and still puts a little in my pocket. Was even able to refi down to a 15 year over a year ago and the payment only went up around $50.

TBH, if I had the cash I'd buy more.

Edit. Also, you will have to declare the rental as investment property but rates are so low it shouldn't make much of a difference. Our rental is a little under 4% APR IIRC. We were able to refinance using the HARP program.

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.

 

[KnappShack]

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.

Good to know old fashioned misrepresentation is alive and well in the mortgage industry.

 

[Cyclonesince78]

Probably won't pass as a 2nd home as they are located in the same town.

It wouldn't if he was purchasing another home, but on the mortgage that he currently has he'll need to switch is mailing address so it doesn't really matter what excuse he gives them, 2nd home would work. Or like another poster mentioned his wife might snore like a M-F'er

 

[clone4life82]

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?

 

[Cyclonesince78]

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.

 

[wartknight]

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.

 

[cycloneworld]

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.

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.

 

[clone4life82]

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?