Thread: Buying a second home - questions/guidance

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Originally Posted by zugzug

I wanted to buy another home and rent out my current home. Here is some details about our situation

Gross pay - 9500 a month
Credit score - Mine -760 wife 720 FICO, never a late payment or any negative mark
years at job - both 5 years
current mortgage - house is worth 215k and we owe 250k - conventional loan. Could get 1500 a month rent. Our payments are 2k a month
50k in assets
Only 140 a month student loan as debt

So here are some questions I have

1) Can I get a FHA loan on the next house? If so what DTI limits can I get? Can I exceed the traditional 31/43 limits?
2) Can I count my current house rent as income even if I am under water?
3) Will I have trouble getting a loan for a 300-350k house?

I really just need some advice about getting a loan. I look around at DTI and people are saying you can exceed the limits. I really want to figure out how much house I can get. I will have the minimum down, 3 percent. You guys know more than me, so please help me!! I am really shooting for a 400k loan

If you use the rental income to qualify you move into the realm of investor which comes with a higher down payment and higher interest rate.

If you buy a second home close to your first home you also become an investor.

For the best advice on FHA loans contact a couple of lenders in your area who do FHA loans and see if you qualify.

I have heard that if you buy a second house, and move into it, it is not considered an investment property. If I were to buy a second and rent it out, that would be considered an investment property. Is this correct? Also some people say that you need 20 percent equity to use my first house as rental income. Thats whats hard about real estate. I hear different information on different sources.

Originally Posted by zugzug

I have heard that if you buy a second house, and move into it, it is not considered an investment property.

Well, that is true enough, as far as I am aware... But it is not where you are going to run into issues...

Originally Posted by zugzug

I wanted to buy another home and rent out my current home.

QUESTION #1: WHY? I mean it would make sense to me, if you were having a +CF on the rental, but you mention that you are going to be -$500CF... So, again, WHy are you looking to assume MORE DEBT, thus increase your debt/income ratio and monthly payments... Both which are negative attributes to the lender's POV.

Originally Posted by zugzug

current mortgage - house is worth 215k and we owe 250k - conventional loan. Could get 1500 a month rent. Our payments are 2k a month

Hurdle #1: You have more debt than the house is worth. Now that you are current with the note, the lender doesn't care too much. If the new lender catches wind of this -$35KEQ position, which you will need to disclose in your asset holdings (as they will see that you have this house, from the credit report.)

Hurdle #2: You will be trying to explain that you foresee a -$500/m CF in rents, on an over-leveraged house... (Has anyone heard of potential FC?)

Originally Posted by zugzug

50k in assets

Not really impressive to lenders. Now if you would add another zero, it might be... $50K is nothing, especially if that is retirement funds. Now if you are sitting on say $1.5M in retirement, the world is a different story.

Originally Posted by zugzug

1) Can I get a FHA loan on the next house? If so what DTI limits can I get? Can I exceed the traditional 31/43 limits?

Best talk with a mortgage broker on that question... I don't know... You might be fighting an uphill battle with what you have presented to us.

Originally Posted by zugzug

2) Can I count my current house rent as income even if I am under water?

Well, of course you can count CURRENT RENTS as income... Seeing that you don't have a lease/rental agreement and no current rents being collected, it is sort of hard to say that is income. And expected rents are as good as squeezing water out of rocks... But don't let me stop you... Let me know how many gallons you collect.

Originally Posted by zugzug

3) Will I have trouble getting a loan for a 300-350k house?

Again, you are going to need to ask your mortgage broker, but I think you will find it FAR simpler to sell your house, and move into another one, verse trying to hold an asset just waiting to go into FC (in the lender's eyes.)

Originally Posted by zugzug

I will have the minimum down, 3 percent.

You are really trying to push the limits here?? I think you'd be lucky to get a 80/20 note, with the situation you are in, but asking for a 97% LTV note... Where is Moses? I think water needs to be parted before that will happen... Maybe during 2005 or 2006, but not these days.

Well, that is MY OPINION, if you can prove me wrong, I will accept that, when I see the proof.

Later.

Thank you for your comments, I really appreciate it. Maybe things are different over here. I know people that are buying second homes and are in worse shape than we are.
I keep getting different opinions on the whole rental income topic. Some people say if I have a lease agreement I can use it as income. Some people say that if you are under water, they assume you are going to foreclose and don't want to count that as income. Thats the question I am not getting a good reading on. As for the additional 500 a month debt, thats not really a concern to me. I can guarantee that in ten years, that will be a postive number. I can assume the debt for now as 500 will not hurt me.
I wish I had 500k in reserves, but if i did I would not be asking questions here.
From what I read online, I think I am in a good position. We have good job history and gross income, excellent credit, and realtivly low debts. With a back end dti of 43%, we would qualify for a loan of 350-400

That's the problem with advice. It may or may not apply to your personal situation.

The only way to know for sure is to talk to some lenders in your area.