You need to know some things about obtaining financing with the townhome (if it's not paid off). I will assume it is not paid off.
You will need to qualify for the new property using your current income against your current debts that are found on your credit report. You will also need to add to your debts, the new house payment and your old house payment. If you divide your monthly income by your total debts, your percentage cannot exceed 41% for Conventional loans and 55% for FHA.
If you already have an FHA loan on your current home, you cannot obtain a second FHA loan (except for very few situations). Conventional programs will not allow you to use the rental income on your town home to offset the mortgage payment unless you have been renting the home for at least 1 year AND the home has at least 30% equity in it. FHA will allow you to use the rental income against the mortgage payment if you have been renting it for a year. The 30% equity rule does not apply to FHA guidelines.
Once that's cleared, make sure that you can afford to make the mortgage payment on the town home in case your renter skips out on you and you have to make the monthly payment. It's best to find a management company to rent your property. This avoids you the hassle of collecting rent, evicting a resident etc.
If you find a lender that tells you that they can use the rental income against your townhome mortgage payment, be prepared to testify in court. Just kidding. The guidelines changed over the last few years and few Loan Officers read guidelines.
There's a lot to know. The first thing I would do is check the rules and regulations of your Home Owner's Association to make sure you can rent out your townhouse. After that, I would call a Realtor and a lender to figure out the best way to approach it.
Let me know if I can help.
Patrick Howard- Edina Realty
This could be a good idea if:
1. You recognize that being a landlord / property manager is a business and are ready for any contingencies. Do you have plans for how the plumbing gets fixed, who answers the service call when your tenant says there is no hot water, etc.
2. Your HOA allows rentals.
3. You qualify for financing for another home.
Owning my first rental property was a real education for me!
I'm also sitting on about $30k for a down payment. But that FHA issue (my first IS an FHA loan) could be the most cumbersome problem to circumvent. Basically, the market value of my TH is so dismal, that I would write my $30k savings off at the closing table to get out of this house and into a SFH. It's terribly disheartening. All I want is to be rewarded with a new home with the savings my husband and I have worked hard to save. And not spend it trying to get out of a great little TH that just isn't worth crap anymore.
Thanks again, Rachelsch
Although the numbers might work where it makes more sense for you to try and Refi your TH to conventional so you CAN go FHA route. I can do a market analysis to see what type of appraisal might come in before you go ahead and pay for one.
Maybe another little nugget is maybe where you plan on moving? If you go outside of the metro you might be able to qualify for an RD aka rural development loan which would be very good for your situation.
So, this is primarily a financing issue instead of real estate issue. Hope it helps and feel free to contact me if you decide to interview a couple of agents to help you on the sell side.
First off you need to know the right people to help you with all of the steps necessary to accomplish your goal.
1) you will need to know a well respected and reasonably price property manager
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All good answers below. You need to answer the question as to why you want to do this. Will you have a positive cash flow from renting out the TH? I have investment calculatiors that I use to see if the property works as a rental property or as a hedge against personal income. Do you want to be a landlord? Who keep things repaired at the TH? Who will check to see that your renters are taking care of the property? How will you make sure all utilities are paid (some unpaid bills stay with the house not the renter)?
Can you qualify for financing on the second home? If yes and you want to use the TH as an investment property go ahead. Make sure your accountant or tax preparer is up to speed on rental properties (multiple depreciation schedules, etc.).
I would also suggest talking to a lender about getting qualified to purchase a house while renting your current home. I have 3 townhouses myself in Dakota County that I use as rentals so I'd be happy to work with you on how the rental process goes as a landlord. Working through leases, qualifying potential tenants and the paperwork involved would save you a ton of time by having someone walk you through the process. Feel free to reach out if I can be of further assistance.
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