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Refinance existing home, rent it out, and buy a new home?


I currently have a 7/1 ARM loan on my existing single family townhouse. I have about 80,000 in equity in the home. I do not wish to sell this home now due to the current state of the market. However, I do want to buy a new home at this time, since prices and mortgage rates are so low. My plan is to rent out my current home. By doing so, I would actually be making a profit on my exising home of a few hundred dollars a month, while waiting for the market to rebound. My question is whether I can get a new mortgage to buy a new home, if I can show a signed lease agreement on my current home? I don't have a great deal of money for another down payment, but I do have that 80,000 in equity in my current home. Also, I was thinking of re-financing the current home's loan, since it was a 7/1 ARM. I have about 3-4 more years of the 7 year period. Can you please help me with my options here? My credit is almost 800.
  • September 10 2010 - Columbia
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Answers (8)

White Picture,

The legal interpretation would be derived from judicial procedure. See Form 1003, page 4, Section VIII. (L & M) and Section IX. (1). 

To me, this would be a big risk, if the real intentions where to vacate the property as their primary residence and have the subject property become an investment property.... Happy funding, Rudi 
  • September 11 2010
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Rudi,
I don't see anywhere in the link that says "refinances the current home as the primary residential with the intention of it being an investment property" is the bank fraud, maybe it is but i don't see in the link.
My sister cash out from the primary residential with intended to buy 2nd house as the primary residential and rent out the 1st house, It is stated with the bank for the question "why do you borrow the money????", it is cash out refinancing rate for the primary residential.
  • September 11 2010
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Lacrosse,

As Andrew mentioned, refinancing your current home as owner-occupied with the intention of it being an investment property may not be a good idea, if caught. .... Happy funding, Rudi
http://www.criminaldefenselawyer.com/crime-penalties/federal/Mortgage-Fraud.htm
  • September 11 2010
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Yes this is doable, but I highly recommend speaking with a lender on the phone to see if you would qualify holding both properties, if you can refi your townhouse, and what is actually possible, as this is a complex transaction. Using rental income is more difficult if not currently rented out (you need 25% equity for an FHA loan on a new property, a copy of an executed lease, and a deposit for the property) - timing all of this with buying a new home is difficult.  Additionally, my bank is a small community bank that offers 80/10/10s which may help you with cash down for the new property.

  • September 11 2010
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If you intend to use the future rental income to qualify for the new loan, apply the loan with the small local mortgage offices, do not go with the big banks or the internet lenders. In add to the down payment for the new home, you need at least 25% in equity in your primary residential.

  • September 10 2010
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Refinance it but good luck getting a cash out refi. A rate/term refi (means getting a better rate and term) to a 30 year loan is a great idea if you are keeping the property. Rates are very low and you get the best and cheapest financing as an owner occupant. Try the credit unions - of course, good luck getting a cash out refi. It is possible these days, but tough to do. After you refi (you might have to sign a doc saying you will live there 12 months) and stay the required time, then move forward on buying something else - your loan will stay at that great rate forever.

Talk to a mortgage broker about a strategy for getting a loan for a new property - but it is going to be tough since you will have to qualify for both mortgages - so you don't "buy and bail" as they call it. But since you have no rental income on your tax returns, they probably won't accept the signed lease (my have times changed since 3 years ago!!!)...some lenders might, but most want it proven that it is on your tax returns...it's tough these days to get financing...so strategize with a couple of lenders on how to do it. Good luck!
  • September 10 2010
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Crestico...What about pointing out that if they refinance with the intention of renting the property out and buying a new home that they will need to refinance the property as an investment property.  If they refinance as a primary residence with the intention to rent the property out it could be considered bank fraud....Not such a great Idea!
  • September 10 2010
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Profile picture for Crestico Funding
Refinancing is a great idea while the rates are low, and you can most defiantly rent out your property to purchase a new one, IF you need the rental income to qualify for your new purchase, you must have 25% Equity in your existing property.
  • September 10 2010
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