What kind of loan can I get to allow me to rent my current home (permanently) and buy new (not a swing loan)?

Question

I'm trying to get a loan to buy a new home and keep my old home as an investment property and rent it out. I haven't found any information about it (except swing loans which normally have to be paid in 6 months?).

Answer 1

You have to be able to qualify with both mortgage payments. Most lenders will take 75% of the rent charged for the investment property as income, thus reducing your overall debt to income ratio.

The reason for 75% is a lender assumes that 25% of the year you may not have a tenant or you may need 25% of the rental amount a year for repairs and maintenance to the property.

A good way of doing this if you don't qualify right off, it to get a tenant ready and have a lease agreement signed as part of your documentation for the new loan. However the requirements here vary from lender to lender.

Also, you could use a stated income-type loan where you can "state" your income high enough to qualify for the new loan as long as the amount of income stated is within national average for your profession. The bank will check this against the Wall Street Journal's data on income and jobs.

The second option will probably be the easiest since you will need to provide the least amount of documentation to obtain a loan for your new home.

Answer 2

You would get a regular loan on the new home.

When calculating your monthly income, the lender may or may not allow you to use the rental income. Many lenders do not allow you to use the income unless you have a one year history of renting out property. This is because many people think renting a home is a money-making endeavor, when, in fact, most people lose money monthly, only to make it up in the long run through tax write-off and later sale.

If you cannot use the rental income, when tabulating your monthly obligations, the lender will use the total costs of the present home as liabilities - the full principle, interest, taxes, and insurance payment.

If you can use the income, the lender will require a signed lease. The lender will calculate the income by mulitplying the annual rent by 65% or 75% (depends upon the lender) and subtracting the monthly payment outlined above. If the number is positive, it will count as income. If it is negative, it will count as debt. So if you are getting $1,000 a month in rent, and spending $700 on the mortgage, $60 on taxes and $40 on insurance, the lender would do the following: (1,000 x 0.65) - (700 + 60 + 40) = (-$150). You would have a $150/month debt included in your liabilities.

The reason the lender multiplies by 65-75% is the lender knows the property will be vacant a minimum of one or two months a year, there are upkeep costs that need to come out of the income, and there is a chance you'll get renters who do not pay and need to be evicted. The "vacancy factor" is meant to encompass that risk into the lending decision.

NOTE: Fleshy is incorrect in her answer above.

If you purchase the property, then take out a mortgage, you will pay a higher rate. Cash-out refinances are riskier than purchase money mortgages, so the rate is higher. Usually a quarter to half percent higher. And either way, purchase money or cash-out mortgage, the lender will analyze the income/loss from the rental property as outlined above.

So if you're going to get a mortgage, get it to purchase the home!!! And Fleshy, find another mortgage originator!

Answer 3

With the "purchase and bail" handbook lines you'll want to qualify for the recent loan without the great aspect about counting the lease out of your present day abode. lenders will now no longer take only a signed lease as evidence, they want tax returns to record that you obtain lease. the in user-friendly words way round that is once you've 20-25% fairness contained in the abode you'll lease. Please double verify your preapproval!

Answer 4

i was just looking into something like that and my mortg. person advised me the best way and the cost saving way to do that is to pay cash for the 2nd property with like a home quity loan. If you pay cash you will not have to pay closing cost fees, or any points, and usually an 2nd home the rates are high. I would look into this very carefully.