XP: Home Buying Question

[juliabug]

XP from the Home & Garden board

First of all, I'm sorry to post this here, but the Real Estate board is dead. If you guys hate these types of posts just let me know, I'll gladly DD.

Does anyone have any advice about buying a new home when you already have one and intend to rent that one out?

We built in 2006 at the height of the market here. We refinanced recently and our home appraised for $120k less than we paid for it, and $50k less than we owe. A few years ago, DH took a short term contract in another state, so we rented the home out for 18 months. It rented at full price within a week of listing. Now that we have refinanced, the rental price would cover our PITI.

We are expecting baby #2 soon and I would like to have a bit more space inside and DH really wants a 3 car garage. I have found some great buys in our area and think it might be a good idea financially, but I don't know if we could get another mortgage. The only info I have found about getting a mortgage for a new home was written several year ago and mentions that the old mortgage will count against our debt-to-income ration, though that ratio would still be well within the guidelines from the article. I can give you guys some hard numbers if you think that will help your answer.

[Pom]

Can you handle both mortgages without tenants? For how long? Do you have an emergency fund to cover sudden expenses for 2 homes. Probably, your question is best answered by talking to a couple of mortgage lenders in your area to see if you qualify for a new mortgage while still carrying your other property.

We own two homes and stopped renting the second one when it became more of a hassle than it was worth since we live in TX and the other home is in Michigan. We use it strictly as a vacation home.

[juliabug]

Yes. We have a 3 month emergency fund right now, though we could stretch it in case of a layoff. We could pay both mortgages if we had to, but we wouldn't be able to have much fun those months. We could still contribute to retirement, but not to savings for cars or vacations.

[gtkim]

I've read your post on both boards and it sounds like you could qualify for the loan. I'm not sure if your rental income will count though.

Do you have a down payment for the new house?

Do you want to be a landlord? We had ideal renters and hated it. It isn't for everyone. FWIW, we sold our second house earlier this year at a loss of $30K+ because we hated being landlords and were ready to be rid of the property.

Can you afford both mortgages if your old house doesn't rent? You will also need to keep a larger efund since you will have 2 properties to maintain.

ETA: I was writing this as you were responding to other posts. No way I'd consider this with only a 3 month efund. I'd want 6+ months at a minimum.

[juliabug]

We have about a 10% down payment now. I have no idea if that is sufficient.

We had great renters the first time we rented this place out. I didn't mind it, though being halfway across the country made me nervous. Our new home would be within a few miles so I think I would be comfortable being a landlord.

I totally agree that we would need a bigger e-fund before we buy. I would be comfortable with 6 months of expenses- including both mortgages.

[starlily]

The mortgage on your current place will count as part of your debt ratio, however, many lenders will consider your rental income in that equation too if you can show proof of 12 months of rental income.

[thegooser]

Ditto Starlily, but for our lenders it was 2 years of rental income before it is considered an investment property and therefore doesn't count in your equation.

[LoveTrains]

So I am in the process of buying a home and we have a rental property.

My mortgage broker told me the following things to keep in mind:
1. Old mortgage DOES count in debt to income ratio (it is debt)
2. Rental income DOES count in my income, but they require it be rented a minimum of 2 years with tax returns of rental income to back that up
3. My lender is also requiring six months of reserves that would cover BOTH mortgage payments. They will count 60% of your retirement savings towards the reserves.