Financing a second home

Asked by Annalee123, Sacramento, CA Mon Jan 10, 2011

I bought my first home last month with FHA financing. My plan was to rent this house out once my one year of living here is up. My PITI payment is only $1,074 and the same floor plan in this neighborhood has renters paying $1200-1300 so it makes sense to rent it out. What are my options for financing a 2nd house in a year? I just read online that FHA will not count the rental income so I'd have to be able to afford both mortgage payments without that income. I pretty much went to the top of what I could afford for this current house so there's not a lot left for a second house. Are there any other options? I would not have enough saved for a 20% downpayment for a conventional loan.

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11
Jim Walker, Agent, Carmichael, CA
Tue Jan 11, 2011
Hi Annalee,

You asked me about the flooring I have in my rentals. Very timely subject: Our latest (4th) project is about the same size as yours. My handyman finished installing some low cost vinyl in the kitchen. Tomorrow he will sand down the original hardwood floor in living room, dining area and hallway (1940's construction - hardwood over a half inch thick. We had to take up the carpet because of cat odor in one corner. Re-carpeting would have been cheaper than refinishing, but we think the hardwood will look better, and have better resale value. We expect to sell or exchange some of our rentals in five to ten years. The rest of the house has laminate installed by previous owner in two bedrooms, carpet remains in a third bedroom, one bath is vinyl, the other is tile floor. A mix... In our first rental we simply steam cleaned the existing carpet in two bedrooms, polished and waxed the hardwood floors in the living and dining area. In our second rental we tore out the carpet due to odor, though it looked good. Regretted that, because the odor was in the window casings, not the carpet. Oh well... we then put down cheap laminate from IKEA... The tenants there now, over a year, have kept it in apparently good condition. Still looks as if it is new.

Third house we bought from a flipper, so it had new carpet and vinyl.

When I was young, I rented a house with beautiful thick white carpet. Though I was a renter, I had it steam cleaned by a professional truck mount steam cleaning company every 3 months to keep it nice. If I were you, I would not take out the white carpet until it gets ruined.

One rule of landlording. "Don't fix it, unless it is broken" Not really a rule, but generally you want to keep your capital improvements and expenses under control. Having the roof fixed and warranted was smart. Water intrusion can be very damaging and costly. When choosing flooring, fixtures, and appliances, we often settle for good enough, instead of what we would like most, since our tenants and prospective tenants prefer the reasonable rent over the latest style.

We buy a lot of home improvement product from the Habitat for Humanity "Re - store". Savings of up to 80% on some items..

I also sent this to your email.
0 votes
Sue Archer R…, Agent, Palm Harbor, FL
Tue Jan 11, 2011
While there are great prices and loam rates out there, I agree with the other respondents...take it slow and deliberate. You can possibly find other financing, such as a seller carry back etc. but there is no easy way to do this without some inconvenience as well as financial risk. Taking on a roommate first could be a first step, taking classes on property management....know what you're getting in to, learn the ropes of owning your own home that you're living in, before jumping in to leveraging yourself too far. Make sure you have 6 months cash reserves for emergencies, then save for the down payment while learning the ropes. Good plan, but good plans take time to execute if you want to be successful.
Web Reference:  http://www.suearcher.com
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Jim Walker, Agent, Carmichael, CA
Mon Jan 10, 2011
On top of PITI, We Sacramento landlords pay the basic city utilities of water, sewer, trash collection, street sweeping, which currently runs $117 per month.. That takes your positive cash flow down to $9 in a good month on a $1200 per month rent. My advice: Have a real solid emergency fund for any month (s) in which you have a vacancy, a repair, or a non paying tenant. (or all of the above)
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Ute Ferdig, Agent, Auburn, CA
Mon Jan 10, 2011
Hello Annalee123. First of all, congratulations on buying your first home. As for planning on buying another house is concerned. I would not worry about that right now because nobody knows what the underwriting guidelines will be a year from now. This is not to say that you can't prepare by saving as much money as you can and keeping your credit score in good shape. As you get closer to your 1-year mark, you can reassess the situation. Right now, there are too many unknown factors to make any meaningful predictions. Enjoy your new house.
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Annalee123, Home Buyer, Sacramento, CA
Mon Jan 10, 2011
I guess I wanted to rent this house out to pay for its own mortgage. My job does not offer retirement so my plan was to buy a 2nd home to live in while I rent this one out. Then once the mortgage is paid off, the income from rent will hopefully be enough to live on. I did not completely max myself out on this purchase so I am able to continue saving money.

I'm 23 years old now, so I know I'm young to own two houses, but I figure the quicker I can get one going as an income property, the better.
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Greg Hobiera, , Sacramento, CA
Mon Jan 10, 2011
Hi Annalee,

Good job! Sounds like you have done your homework. You are correct about FHA not allowing the rental income but I would recommend talking with a few different lenders to see if there is any other options out there. I know of one in particular that might be able to help you. Contact me if you like and I will refer someone to you.

http://www.916HomeSales.com
0 votes
Justin Ruzic…, Agent, Greenville, SC
Mon Jan 10, 2011
Annalee,
Sit tight, home ownership isn't about the first month, it about the 360 months in between that you have to make mortgage payments, fix the roof, replace the plumbing, put up a fence, repaint the exterior. Congrats on the purchase but in todays market for a 2nd home, you will need 20% down, plus have to cover both mortgages. Instead of trying to rent out the house completely could you rent a room out? PS, being a landlord is not just collecting rent, if you are as lucky as I am and have your property rented 100% of the time, you will also be as lucky to get the call on Christmas eve that the waterline broke. Guess what if i wanted to pay a plumber to replace the valve that broke, a $4 valve and a generally a $50 fix, I would have had to pay $250 for Christmas Eve.., yeah so i packed up my tools, took a quick trip 30 mins away to fix the leak. After paying for the water damage of my tenants personal property i was only out a $300 for the month after collecting rent of $1200...yeah, that is right $1500 of damage to my tenants property...Sit tight, learn to love this house in and out, rent out a room, start the 2 year clock of being a landlord so your mortgage company can consider you a landlord sooner if you do come into money, see how easy it is to collect rent from someone you see everyday, see how easy it is to manage people's lives. It is harder than you think. If you want I just write a blog about home ownership ,you might find it a good read, now and resource in future about buying investments or a second home. Become a follower of the Blog, I think you will like it.
Thank you. Justin Ruzicka – The House-Guy

PS. If you have found this information to be insight and helpful please mark it as best answer, thank you.
0 votes
The Roskelly…, Agent, Gambrills, MD
Mon Jan 10, 2011
Hi Annalee,

Prior to purchasing your next home you can rent this one out and with a 12 month lease or more many lending institutions will not count this as debt against you. Thus freeing up some or all of your buying power again.
0 votes
Keisha Mathe…, Agent, Elk Grove, CA
Mon Jan 10, 2011
That correct URL for Brian is http://www.fhaking.com

Brian Barnes
Paradise Financial
2281 Lava Ridge Court, Ste 140, Roseville, CA 95661
Direct: (916) 735-0300
bbarnes@paradisefinancial.com
0 votes
Keisha Mathe…, Agent, Elk Grove, CA
Mon Jan 10, 2011
Hi Annalee, contact my friend Brian Barnes, at Paradise Financial http://(www.FHAKing.com) to see what your financing options are. There may be a time period or there may be other financing alternatives. Programs are changing quite often in the mortgage industry.

My best, and congrats on house #1!
0 votes
Ryan Smith, Agent, Murrieta, CA
Mon Jan 10, 2011
Unfortunately you need the 20 percent down if it is an investment but if your going to upgrade to a larger primary residence you could go with a smaller downpayment program assuming you qualify. Good luck.
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