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Purchase 2nd Home (convert 1st home to rental) - Advice needed


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2 replies to this topic

#1 clemsig

clemsig
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  • 9 posts

Posted 14 February 2012 - 03:00 PM

Newbie here - searched the boards for this answer but all situations vary somewhat so any advice on my specific situation would be greatly appreciated.

I live in Florida and have a home currently that is significantly underwater. In a very desirable neighborhood however and I have low fixed interest rates so I could rent the house out and cover my payments or come pretty close. My current house does not have any Fannie/Freddie/FHA loans attached to it and I dont have any loan with these agencies period.

I have read up on FHA loans and am trying to understand a few things.

Without even including the future rental income I would receive I am lucky enough that I would be able to show two mortgage payments and be under the 29% DTI threshold. I would also be under the 41% fixed payment threshold.

That being said and considering I have a credit score of around 720 currently - are there any barriers that would make me unable to qualify for an FHA loan? I would immediately make this new house my homestead and I think I read also that you can state the home will be your primary residence in your loan application. What type of down payment would I be looking at would be my main question? Also if 30 year interest rates are close to or under 4% today would my situation as described above prevent me from getting close to the best rate available?

Thank you in advance for any and all advice.



#2 Brian B The Loan Professor

Brian B The Loan Professor
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  • 9,806 posts

Posted 14 February 2012 - 03:41 PM

Newbie here - searched the boards for this answer but all situations vary somewhat so any advice on my specific situation would be greatly appreciated.

I live in Florida and have a home currently that is significantly underwater. In a very desirable neighborhood however and I have low fixed interest rates so I could rent the house out and cover my payments or come pretty close. My current house does not have any Fannie/Freddie/FHA loans attached to it and I dont have any loan with these agencies period.

I have read up on FHA loans and am trying to understand a few things.

Without even including the future rental income I would receive I am lucky enough that I would be able to show two mortgage payments and be under the 29% DTI threshold. I would also be under the 41% fixed payment threshold.

That being said and considering I have a credit score of around 720 currently - are there any barriers that would make me unable to qualify for an FHA loan? I would immediately make this new house my homestead and I think I read also that you can state the home will be your primary residence in your loan application. What type of down payment would I be looking at would be my main question? Also if 30 year interest rates are close to or under 4% today would my situation as described above prevent me from getting close to the best rate available?

Thank you in advance for any and all advice.

You would have to qualify without using the rental income if you do you have a chance.
The hurdle is convincing the bank you wont buy and bail on the old home. It is difficult to do especially if you are buying in the same area - there is no official guideline on this but it is kind of an unwritten rule between the lenders since they all suffer when it happens..... things that underwriters like to see to allow this -
relocation
change in family size and need for larger home
better neighborhoods -
two story to one story with a need (bad knees etc)
the more you can think of the better your chances - here in CA the answer even with many of these is almost always NO
the more down payment you come in with the better

Good Luck
B

#3 clemsig

clemsig
  • Members
  • 9 posts

Posted 14 February 2012 - 04:46 PM


Newbie here - searched the boards for this answer but all situations vary somewhat so any advice on my specific situation would be greatly appreciated.

I live in Florida and have a home currently that is significantly underwater. In a very desirable neighborhood however and I have low fixed interest rates so I could rent the house out and cover my payments or come pretty close. My current house does not have any Fannie/Freddie/FHA loans attached to it and I dont have any loan with these agencies period.

I have read up on FHA loans and am trying to understand a few things.

Without even including the future rental income I would receive I am lucky enough that I would be able to show two mortgage payments and be under the 29% DTI threshold. I would also be under the 41% fixed payment threshold.

That being said and considering I have a credit score of around 720 currently - are there any barriers that would make me unable to qualify for an FHA loan? I would immediately make this new house my homestead and I think I read also that you can state the home will be your primary residence in your loan application. What type of down payment would I be looking at would be my main question? Also if 30 year interest rates are close to or under 4% today would my situation as described above prevent me from getting close to the best rate available?

Thank you in advance for any and all advice.

You would have to qualify without using the rental income if you do you have a chance.
The hurdle is convincing the bank you wont buy and bail on the old home. It is difficult to do especially if you are buying in the same area - there is no official guideline on this but it is kind of an unwritten rule between the lenders since they all suffer when it happens..... things that underwriters like to see to allow this -
relocation
change in family size and need for larger home
better neighborhoods -
two story to one story with a need (bad knees etc)
the more you can think of the better your chances - here in CA the answer even with many of these is almost always NO
the more down payment you come in with the better

Good Luck
B


Brian - thanks for the reply. I would meet all DTI ratio's without including any rental income. I know you probably cant predict the interest rate but because of my situation with a 1st home am I looking at something signficantly higher than what the current 30 mtg rate is or if I could make a 10% down payment or so would I be able to get a good rate with a good credit score regardless of my other home?

Thanks




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