Should I try for a mortgage or continue to rent?

Asked by Lori, Boston, MA Thu Jun 30, 2011

I own a condo in another state (3 hour drive) and had to move to the Boston area for my job. I rent the condo out, as I am currently underwater on that mortgage (bought in 2007), and unable to sell, but I make more than enough in rent to cover mortgage payment, taxes, and upkeep expenses while still making a small profit.

I am currently living in an apartment here, and paying much more in rent than a mortgage payment would cost me for the size house I would like. I don't have the cash to pay my first mortgage to anywhere close to the 30% equity I've heard is required for a second mortgage, but thought there might be other options out there. I have enough cash to put about 10-15% down on a new home OR completely pay off all other debts (student loans and car). Should I keep renting and pay my debt off? It seems silly when I could be paying less per month and own a larger home. My credit score is very good. Any advice?

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Shane Milne, Mortgage Broker Or Lender, South Jordan, UT
Thu Jun 30, 2011
If you were relocating due to new employment in an area not within commuting distance of your old home (which 3 hours would not be), then you do not have to have the 30% equity in order to use the rental income from it to offset it's housing payment if you are using FHA financing. If you were planning on using conforming financing, then the 30% equity requirement you refer to is correct.

FHA guideline on that:…

If you had credit card debt at higher rates I'd recommend you pay that off first, but I assume your SL debt is at low interest rates, and your car payment if it's manageable is good for credit scores so if you don't find it making things unaffordable I wouldn't jump to pay it off without seeing if it'd prevent you from qualifying.

So if you don't mind FHA financing (or if you a Veteran than VA financing doesn't require the equity either), then that could be an option for you.

There may also be portfolio lenders who do not impose the equity requirement either, but they would not be normal Fannie Mae & Freddie Mac financing programs, but it's not to say their terms wouldn't still be attractive.

If you were interested in the FHA loan option I'd be happy to help figure out if you could qualify & what the numbers would be, I just helped someone buy a home in Salem (with FHA) and another in Millville (down by the RI border) (with conventional 97% financing).
1 vote
John P. King, Agent, Everett, MA
Thu Jun 30, 2011

Getting a motgage for a new home shouldn't be a problem but you will need to take a hard look at your current situation. What is the outlook for your job staying in the Boston area? Will it be for 5 or 6 years? Are you happy with the company or do you always have feelers out?

Home prices in some areas of Boston have been firming recently but I wouldn't anticipate much increase in value for several years. Real estate is a long term investment as you are learning on your condo. If you feel confident that you will be making this area your home for at least the next 5 years, I would definately recommend that you look at buying now. Although prices will stay fairly stable over the long term, I don't that can be said of the interest rates. When they start going up they will make buying more expensive and will also put upward pressure on rents.

This is just a quicl analysis based on the details you provided in your question. Please feel free to send me an e-mail or give me a call and we could go into your particular situation in more depth to help you make an informed decision. I have been helping people make good decision and real estate for over 25 years and would be happy to assist you.
0 votes
, ,
Thu Jun 30, 2011
Hi, Jenny. Is your current mortgage FHA? Typically a valid reason (buy ing larger and/or more expensive home) and a min of 25% equity is required in order for you to qualify for a 2nd FHA mortgage. However, since your move is job related and the job is 3 hrs away, you would be excluded from the 25% equity requirment.
0 votes
Julie, , Charlton, MA
Thu Jun 30, 2011
Hi Jenny,
I think the best option would be to see where the numbers stand as far as what a payment would be and what you would qualify for. Paying someone else's mortgage is always a difficult thing, and if Boston looks like a long term move, then prices and rates are very low right now, if you wait you could risk them increasing and properties values going up also.
I would be more than happy to have a conversation with you and analysis your situation currently, and if it does not make sense now, you will atleast have a game plan! Have a great weekend!

Julie Tremblay
Mortgage Dreams LLC
Charlton, MA 01507
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