Looking for advice on buying a new house and renting my current

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Looking for advice on buying a new house and renting my current

Trey R.
NC · Member since 2014 · 23 posts · 8 votes

Looking for some suggestions on how I can best utilize my money in this situation.

Current House: Appraised at $141,000 in October of 2014 (Purchased for $122,000 in 2010) - Currently owe approximately $98,000 on the mortgage which is a 5/1 ARM. (It was refinanced last year to the ARM because I was going to pay it off in less than five years).

We are going to be purchasing a new house in the next month or so (baby on the way).

Price: Approx $200k (3.5% for 30 years using an FHA loan with a 3.5% down payment).

I have approx $22,000 in savings.


I'm planning on refinancing the current house after the new house is purchased.  I'm going to do a 30 year loan on it so that the payment is lower in preparation of having renters.  I would like for the payment to be low so that if I go any time without a renter than I won't be paying a bunch of money.

At this point I am just going to do the 3.5% down payment and be done with it.  Is there any reason why I should spend more money now and pay myself back by doing a cash out refinance on the current home I own after I close on the new one?  Ideally I would like to get the best deal without having to spend any of my own money.


I still have a good amount of research to do before renting the house out but I wanted to try and make the best financial decisions in purchasing the new house and refinancing the old one.

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Account Closed
Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
11y
Originally posted by @Trey R.:

 Makes sense!  Definitely not wanting to deplete my savings..  I've already talked to the lender and got approved for the new place despite not having a tenant lined up so I'm good there.

Good for you.  You must have strong income and top credit.

But why do you want to keep the current home?  It has appreciated only about 3% a year in what could be argued as the period of the best rebound in real estate values.  I would imagine rents haven't grown that much either.  So,  what is your plan to make money with this property?

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  • Jonathan Towell
    Investor · Lubbock, TX · Member since 2015 · 308 posts · 106 votes
    11y
    I think your income and other debt and expenses play into this. But I'll assume you make plenty to pay the mortgage and have no consumer debt. The 30 year FHA loan is the cheapest debt we might ever see. If you want to buy and hold for long term, it is the best tool for the job. I want as much of that debt as possible on good rental houses. The only problem with only putting down 3.5% is the PMI. That said I think PMI is 1% (give or take a few basis points). Even with the PMI, the FHA loan is ridiculously cheap.
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  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    11y

    Probably better to refi current house now while it is owner occupied.

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  • Trey R.
    OP
    NC · Member since 2014 · 23 posts · 8 votes
    11y
    Originally posted by @Jonathan Towell:
    I think your income and other debt and expenses play into this. But I'll assume you make plenty to pay the mortgage and have no consumer debt.

    The 30 year FHA loan is the cheapest debt we might ever see. If you want to buy and hold for long term, it is the best tool for the job. I want as much of that debt as possible on good rental houses. The only problem with only putting down 3.5% is the PMI. That said I think PMI is 1% (give or take a few basis points). Even with the PMI, the FHA loan is ridiculously cheap.

    It's actually .85% now so not too shabby!

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  • Trey R.
    OP
    NC · Member since 2014 · 23 posts · 8 votes
    11y
    Originally posted by @Account Closed:

    Probably better to refi current house now while it is owner occupied.

     Ideally that would be the thing to do but I'm in the middle of doing some renovations and would like to get them completed first.  I'm buying the new house from someone I know who is moving out of state so we are trying to close ASAP.  In a perfect scenario I would pay them rent for a few months but they need to sell the house now. 

    Financing it as an investment property would knock the interest rate to 4% which isn't terrible.

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  • Trey R.
    OP
    NC · Member since 2014 · 23 posts · 8 votes
    11y

    Would doing a cash out refinance on my current house and getting enough to money to do 20% down on the new place be worth it to avoid PMI? I would have a higher monthly payment on the current place but at least the money would be going towards the mortgage and not being wasted like PMI.

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  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    11y

    141 x 80% = $112.8 minus $98 loan balance only gives you $14,800 plus your $22,000 so you're still shy of $40,000 for new property plus that is not counting any expenses and leaves you cash poor with a new rental. 

    Since you seem to not be worrying about qualifying for the new mortgage with the old mortgage and no rental income I would think there are some possibilities for creative financing. But I would factor in keeping $30,000 cash in my pocket by doing the FHA instead of a conventional mortgage. The PMI may not look so bad.

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  • Trey R.
    OP
    NC · Member since 2014 · 23 posts · 8 votes
    11y
    Originally posted by @Account Closed:

    141 x 80% = $112.8 minus $98 loan balance only gives you $14,800 plus your $22,000 so you're still shy of $40,000 for new property plus that is not counting any expenses and leaves you cash poor with a new rental. 

    Since you seem to not be worrying about qualifying for the new mortgage with the old mortgage and no rental income I would think there are some possibilities for creative financing. But I would factor in keeping $30,000 cash in my pocket by doing the FHA instead of a conventional mortgage. The PMI may not look so bad.

     Makes sense!  Definitely not wanting to deplete my savings..  I've already talked to the lender and got approved for the new place despite not having a tenant lined up so I'm good there.

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  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    11y
    Originally posted by @Trey R.:

     Makes sense!  Definitely not wanting to deplete my savings..  I've already talked to the lender and got approved for the new place despite not having a tenant lined up so I'm good there.

    Good for you.  You must have strong income and top credit.

    But why do you want to keep the current home?  It has appreciated only about 3% a year in what could be argued as the period of the best rebound in real estate values.  I would imagine rents haven't grown that much either.  So,  what is your plan to make money with this property?

    1Reply
  • Trey R.
    OP
    NC · Member since 2014 · 23 posts · 8 votes
    11y
    Originally posted by @Account Closed:
    Originally posted by @Trey R.:

     Makes sense!  Definitely not wanting to deplete my savings..  I've already talked to the lender and got approved for the new place despite not having a tenant lined up so I'm good there.

    Good for you.  You must have strong income and top credit.

    But why do you want to keep the current home?  It has appreciated only about 3% a year in what could be argued as the period of the best rebound in real estate values.  I would imagine rents haven't grown that much either.  So,  what is your plan to make money with this property?

     Mainly for experience in having a rental property but also for investment purposes.  As long as someone else is making the mortgage payment and I'm getting a little extra on top of that I will be happy.

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