I Want To Rent My Existing Home and Buy Another
I Want To Rent My Existing Home and Buy Another Home
I am a big fan of people keeping their real estate if they can. Think about that, a guy that makes money selling houses would rather you keep it, it must be good advice. There is an expression that says, 'You sell real estate for cash, you keep real estate for wealth'
A lot of families buy 2-3 houses in their lifetime under normal circumstances, no divorce, transfers...
What if they never sold any? At the end of 30 years they would have accumulated a good nest egg and have had good cash flow during the process.
BUT (there is always a but), in today's lending climate things have changed. At the beginning of the Real Estate meltdown there was a thing called buy and bail, it started in CA of course. Let's suppose you bought a house for $400,000 and now a similar house was for sale across the street for $300,000. People would create a lease (usually on paper) apply for a loan and buy the one across the street. After which they give the first bank back the house, yes they would have damaged credit BUT they now own the same home for $100,000 less. From pure math it makes sense, from an ethics well it leaves a little to be desired. If you hear the phrase creative financing be leery. Banks are not creative in fact they are just the opposite and more so in today's climate.
The banks have come up with new guidelines to protect themselves from this technique. The bank would require you to have a certain amount of equity in the trailing property, 25% FHA and 30% conventional.
FHA requires either the borrower's income qualifies to pay both mortgages and is not considering the rental income, or has an equity position not likely to result in defaulting on the mortgage on the property being vacated. You can read HUD's Mortgagee Letter 2008-25
Because you can only have one FHA loan the trailing property would have to be a non FHA loan.
While I think it is a great idea to keep properties and rent them. You need to talk to a mortgage expert that understand these items. Of course you can always call me at 801-694-4762 and I will get you in touch with the right folks so you can make an informed decision.
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