Question about housing loans

[enron_by_the_sea]

I keep on thinking about buying a bigger house now that prices have fallen and interest rates are low.

I would like to keep my existing house as rental long term. I have some equity in it and I figure that rent will cover all the expenses that I can imagine. Furthermore I can afford to pay even 2 mortgages if I have to.

The question I have is how lenders would view this house when I go and apply for a loan for the new house, now that lending is tight.

(a) Do they typically insist having X% equity in the house? If yes what is X?

(b) Do they qualify assuming I need enough income to pay two mortgages or they subtract expected rent from the expected expenses for the first house?

(c) Anything else that I need to be aware of?

[Coronita]

After I get done with my chemo, I am going to definitely buy another home.

[an]

I don’t know if it matters if you have equity or not. I think it’s more important to know how much is your payment vs income. If this is your first rental, some lender would let you count the average rent for your house as income and some would not let you until you own the rental for 2+ years. Different lender have different rules regarding this. However, if you say you can afford both payment, then I assume you wouldn’t have problem qualifying if you can’t count the rent toward your income.

[outtamojo]

“(c) Anything else that I need to be aware of?”

Expect a ton of paperwork!

[sdrealtor]

It can be pretty complicated. More complicated than simply buying an investment property. Dont relie on us numbskulls. Talk to an experienced lender who can anticipate and work through all the issues with you in advance.

[an]

[quote=sdrealtor]It can be pretty complicated. More complicated than simply buying an investment property. Dont relie on us numbskulls. Talk to an experienced lender who can anticipate and work through all the issues with you in advance.[/quote]
+1. Talk to the pros for more details.

[SD Realtor]

I would agree with sdr to talk to some home loan people. However my advice would be that you worst case it. That is, presume that the lender will treat your purchase as an investment property purchase no matter how much you tell them it is not going to be that way. If this is the case you will not get the same rate as an owner occupied rate. You can even go so far as to literally put your home on the market for sale and many lenders still will not take the bait.

With regards to your ratios that the lender will use for your approval process, it doesn’t really matter how much equity you have in the home, they will more then likely count both mortgage payments, insurance and property taxes in the calculation because you do not have a tenant in place. Again, this is my speculative answer and it is a worst case answer. As sdr said talk to some lenders or mortgage brokers and see what they say.

If you had some time, then moving out, renting a place and getting some tenants in your home with s a little bit of seasoning would help mitigate the situation.

[sdrealtor]

Its possible as long as you have enough equity and can prove you have a tenant coming (lease and deposit check). You really need to to talk to an expert. Most lenders out there are “Sure, I can get it done guys”. They say they can but dont really understand what it will take and try to figure it out along the way. Its hard to find someone who isnt a “Sure, I can get it done guy”.

let me know if you need one. I have someone with 20 years experience who will take you what you need to know and if you are really serious he will take you through underwriting before you even write an offer. Thats what you really need to do.

[EconProf]

The bigger question is whether you want to become a landlord. There is a huge learning curve involved to do it right, and beginners too often quickly say…I can just rent it out. Are you handy with tenant-caused maintenance problems? Ready to get up to speed on all tenant-landlord laws? Can you list the red flags that should warn you away from certain applicants? Have you fully accounted for vacancy and fixup periods between tenants? Know how to interpret credit reports? Above all, have you considered ALL the costs involved over time, including the value of your own time?
Historically, owning a rental property is only worthwhile in those rare periods of rapid appreciation. From an operating standpoint you are up against the big rental or condo complexes that have economies of scale in purchasing, contracting, advertising, showing and on-site management. And prospective tenants are understandably suspicious of amateur landlords, which may lower your achievable rent.

[paramount]

I can speak from very recent experience that econprof is right on target. I hired a property management company, and thought my house would rent in 2 or 3 weeks.

It took 2 months.

[equalizer]

[quote=EconProf]The bigger question is whether you want to become a landlord. There is a huge learning curve involved to do it right, and beginners too often quickly say…I can just rent it out. Are you handy with tenant-caused maintenance problems? Ready to get up to speed on all tenant-landlord laws? Can you list the red flags that should warn you away from certain applicants? Have you fully accounted for vacancy and fixup periods between tenants? Know how to interpret credit reports? Above all, have you considered ALL the costs involved over time, including the value of your own time?
Historically, owning a rental property is only worthwhile in those rare periods of rapid appreciation. From an operating standpoint you are up against the big rental or condo complexes that have economies of scale in purchasing, contracting, advertising, showing and on-site management. And prospective tenants are understandably suspicious of amateur landlords, which may lower your achievable rent.[/quote]
Could be the best post of the year.

[equalizer]

[quote=sdrealtor]Its possible as long as you have enough equity and can prove you have a tenant coming (lease and deposit check). You really need to to talk to an expert. Most lenders out there are “Sure, I can get it done guys”. They say they can but dont really understand what it will take and try to figure it out along the way. Its hard to find someone who isnt a “Sure, I can get it done guy”.

let me know if you need one. I have someone with 20 years experience who will take you what you need to know and if you are really serious he will take you through underwriting before you even write an offer. Thats what you really need to do.[/quote]
It’s very tough now. I was told by experienced lender that for a newbie, the lenders pretty much want several months of rental history before they would even consider 50% of the rental income.

[paramount]

I had to show that I could ‘afford’ both houses…

[SD Realtor]

Agreed Paramount… The worst case (and probably most realistic) assumption that the poster should realize is that the lender will use BOTH homes (mortgages, property taxes and insurance) to calculate what the poster will be approved for.

As sdr said above, most mortgage brokers will promise the world but it is the underwriters who make the decisions so be prudent when seeking out advice on this.

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