Financing in Kernersville>Question Details

Cyndeewaters, Home Buyer in Kernersville, NC

In order to buy another, more expensive house... is it better to sell the one I own free and clear and use the money as a down payment on the more?

Asked by Cyndeewaters, Kernersville, NC Mon May 16, 2011

expensive home OR is it better to take a line of credit on the house I own and put that down and rent the house out to someone? Which one will allow me the greatest chance for a mortgage? The house I own would sell for about $120,000 easily and the one I want to buy would be around $300,000. (I have no debt and credit score in the mid 700's.)

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Cyndee,

I think the most important question has been brought up by many here - do you even want to be a landlord?

If you have no desire to be one, then your ultimate goal would be to sell, but you could still take out equity from your free & clear home for the down payment, but you would probably want to keep the costs to an absolute minimum (means a higher rate, but if it's only for a few months while it sells, not a big deal since you just saved thousands in closing costs).

If you have a desire to be a landlord and have a renter pay your mortgage for you, then if you were going to utilize the equity you'd want to compare different financing options (low cost & higher rate vs. lower rate & higher cost).

You also didn't say if you had enough of a down payment without utilizing the equity in your free & clear home, so it's possible that your income could qualify you for the new purchase, you have the down payment in the bank, and you wouldn't even need to do financing on your existing home in order to purchase the new home.

If you have the financial flexibility, and are at a point in your life where a little extra stress could do you some good, you could always do a test run of being a landlord for a little while, if it doesn't pan out, then sell the home and be done with it.

Bottom line is you have a lot of options to consider, and doing a gut check on if you want to be a landlord is going to be one of them.
0 votes Thank Flag Link Mon May 16, 2011
Excellent questions. The answer is: It depends! There are many variables to real estate investing. Knowing what your options are as far as financing goes would be something I would advise before settling in on an idea. What cash flow will you NEED for down payment to purchase the new home AND make any necessary repairs, as well as cover closing costs and moving costs.

Every lender is going to have a different way to look at making a loan on a 2nd home. Some may look at the new home as the 2nd home and require 20% down. Others may look at the current home as the 2nd home, but want to see 20% or more equity there. When was the last loan taken on this home? Lenders have seen people refinance their existing home, take the equity to purchase a new home, then dump the existing home on the market as a foreclosure. Therefore, they are looking at these scenarios closely.

Another thing to consider is do you want to be a landlord? Will you be financially able to cover both mortgages for 6 months if you don't have a renter? Or worse yet, you have a renter that isn't paying! It is not so easy to get a renter out. And by the time you spend to bring the home up par again, find another renter, etc..., is it more of a burden than you want to take on? If so, do you do the work yourself or hire an agency that specializes in rentals?

The best advice I can give is to discuss your options with a few agents, lenders and your accountant. There are different ways to approach this depending on what you decide.

I would welcome the opportunity to discuss more indepth with you.

Len Montgomery
Better Living Carolina Realty
336-812-8128
0 votes Thank Flag Link Mon May 16, 2011
Talk with an accountant for tax implications. Talk with other investors who have rental properties, especially those who manage their units themselves. That will give you a better idea of issues that come up as a landlord. I have several rental units and like cars, they always need work. In the long run, they will be good investments.

Owning rental property is like having a business and much of it is tax deductible. One question is if you are better off investing in mutual funds--that has to do with your attitude toward risk.

One of the most important questions is location--is your house in a desirable location so that you'll have no trouble renting it?

Enjoy the process.
Web Reference: http://CrazyVivHomes.com
0 votes Thank Flag Link Mon May 16, 2011
From an investor's perspective, you actually have several good options. Those options will depend upon your investing time horizon, tax strategy, risk tolerance, and other factors. If I were you, then I'd consider putting some of that equity and credit to work, and use the resulting income to buy that other property.

Please feel free to drop me a line.
0 votes Thank Flag Link Mon May 16, 2011
You are in charge, do you want to be in the rental business or not? Please give me a call to discuss.

Thanks, Furman Burt 336-768-1519.
0 votes Thank Flag Link Mon May 16, 2011
The best bet would be to speak with a lender. If you would like some recommendations I can send you those. The lender can show you what you qualify for without selling your current home and what you can qualify for if you were to sell. You can then weigh what the best decision is for your future. I'd love to assist you further if you would like. Give me at call, 336-402-2066 or email me at ncrafferty@yahoo.com. Good luck!
0 votes Thank Flag Link Mon May 16, 2011
Cyndee,
I would love to discuss this with you. I don't think you can ever own too much real estate, its a great investment even with the troubles of the past few years. If you have no debt, I would try to buy what you want without selling the one you own free and clear. That really depends on several differnt factors.
Income to support a new mortgage, etc.
If you would like to discuss, please give me a call sometime.
My cell is 336-480-7847!
Thanks for the question!
0 votes Thank Flag Link Mon May 16, 2011
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