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How hard is it to buy a second home and rent out first home? Castro Valley, CA

Hi,

I am pondering finding a second home to buy in a better school district area in Castro Valley, Ca.  We love our home now, (also in Castro Valley) and would like to hold on to it.  How hard is it to buy a second if we were to rent out our first?

Thanks in advance for your help.
Lisa
  • January 13 2014 - Castro Valley
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Answers (14)

Hi Lisa,

There are several factors in your scenario that a lender will need to evaluate in order to answer your question.  The primary concerns will be the percentage of equity that you have in your current home, as well as how the new home compares to your current home?  Is it bigger, more rooms, more square feet, better neighborhood, closer to work, etc.?  These answers will help your lender give you the most realistic answer up front, before putting together your loan file and evaluating your credit, income, etc.

I'd be happy to discuss your scenario in detail.  Please contact me to discuss further.
  • January 15 2014
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To answer your other question, if you are not married you certainly can plan to finance this purchase in the name of the person not currently obligated or on title for the current residence.  

If that person can qualify on their own income, that might turn out to be easier to qualify for than a joint application if the require equity doesn't exist in the departure residence and the result is the person titled and obligated on that property ends up "weighing down" the application.  
  • January 14 2014
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Profile picture for Brookstone Mortgage
Lisa, 

Before contacting a lender, make sure they are licensed as one. Just because they say they are a mortgage lender doesn't mean they are adequately licensed as one. 

Always check the NMLS consumer access site to verify the license status of whomever you work with.

As for your question, it's not only about your finances, it has to do with the equity you have in your current home. If you can afford the principal, interest, tax and insurance payments on both properties and stay within the debt to income ratio limit then you should be fine. If you need the rental income from the property you are vacating, then it gets a bit more involved with determining the value and equity you have. You stated you have $100K in equity, if that translates to 30% equity then you should be able to use up to 75% of the rental income to help qualify. You should get a detailed analysis from a good lender. 
  • January 14 2014
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Lisa,
I am a mortgage lender in the bay area, I would love to talk with you and get you qualified for this purchase.  Before you even start looking at the second house I can check for you to see if you qualify for a second house.  Would love to hear back from you.

Will Dancer
  • January 14 2014
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It depends on your finances. If you finances are strong enough to with stand two mortgages then there shouldn't be a problem. Although, lenders will be pickier when it comes to a second mortgage. It can be riskier for a lender to fund a second mortgage, so in order to balance out that risk they require higher standards, rates, and down payment. So like I said earlier, if your finances are able to support all the payments, then you should fine. So the best thing for you to do is to speak with a lender such as myself to see if you can get started on financing a new home. If you have any further questions or if you would like a loan, feel free to contact me.

Good Luck!
  • January 13 2014
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Lisa~
Good for you to have the desire for better education!!   Your first step is to interview a couple of lenders in person (never go online for a lender). See how they communicate with you because you'll need to understand what will be required for you to swing this. Debt to income ration, equity in present home, stability and time at present job etc...

People do it everyday, don't be afraid to get answers!  It's all about growth. No gamble? No gain!

Good luck!
  • January 13 2014
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Profile picture for wetdawgs
Find a good lender and run your financial scenario past him/her.     With equity, think of it as a percentage of market value.  So, if your current home is worth $200k (not likely in Castro value), you may have 50% equity but if it is worth $1,000,000, then you may have only 10% equity.

And, if buying a home with someone who isn't legally recognized as a partner, then make sure you work with an attorney for a legal agreement between the two of you about roles and responsibilities and what ifs (e.g. partnership breaks up, death or disability happen etc).
  • January 13 2014
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Hi Lisa;

Their are many factors involved with any real estate transaction.
But with good credit down payment & income . It should not be
to hard to accomplish. 

Sincerely,

Diana Huggins, Realtor
  • January 13 2014
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Wetdawgs, say we have under 100K in equity what happens? Another question to josh511. My "spouse" and I aren't married....can each of us take one house interest as a write off? Sorry but your answers opened up new questions.
  • January 13 2014
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An important factor on whether or not rental income will count is the amount of equity you have in your current home.
  • January 13 2014
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Profile picture for frmtgrl
Thank you, Another question...

Will the rental income from the first house help us in qualifiying for the second?
  • January 13 2014
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Hi Lisa,

This should not be a huge problem.  The biggest issue will be qualifying with both mortgage payments, if you are looking to finance.  Being closer to work should not come into play, as the purpose of your purchase is to be located in a better school district.  You just need a reason for the purchase and move to validate the occupancy.

Feel free to reach out via my profile if you have any further questions.

Best,

Bryan

  • January 13 2014
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Usually the only thing that changes in a second home purchase is the financing. Lenders will usually require A larger down payment and higher credit scores. Other than that the process is the same. I recommend contacting your financial institution and getting pre-qualified for a secondary home mortgage. Keep in mind you can only right off the interest from one of the mortgages so you may want to contact your tax professional to get a full understanding of how this can effect your tax status.

Best of luck!
  • January 13 2014
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The most difficult part that comes in to play is your debt to income ratio and whether the new home will be closer to your work. Other than that they are not that difficult.
  • January 13 2014
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