Long-term planning for a first time buyer

1 Reply

Hello BiggerPockets users, this is my first post but I have been lurking the forums, listening to BP podcasts, and reading about real estate for a couple months. I have been trying to plan my best course of action for investing in real estate, but getting started with a solid long-term plan past my initial home purchase is not as straight-forward as I had hoped.

First, I would like to purchase my own home (first-time home buyer) through a MyCommunityMortgage with a small down payment (3%). As I live in this home for at least a year, I would be building equity in the home as I pay the mortgage every month. After a year or so of building up equity in my home and income from my regular job, I would like to purchase a second investment property. While I would be able to save up some cash from my job over this year while paying off my mortgage, it would not be enough for a conventional loan with a 20% down payment. Perhaps I am just being impatient, but it will take a long time to get a 20% down payment for my second home to begin investing. I would prefer to get started as soon as possible.

Now this is where my knowledge gets murky at best. If I needed to have a 20% down payment, would I be able to take out a home equity loan on my first house to help fund the down payment on the second (investment) property, even though I will only have about 7% equity in the home? I also would like to leave myself the option of leaving the first house, moving into the second house, and renting out the first house. I know that owner-occupancy is a requirement for an MCM mortgage, but I am not sure how long it lasts.

Finally, is there an option for someone who already has an MCM mortgage to take out a second loan without putting down 20% for an investment property?

Ideally, I would like to buy a home, live in it for a year, buy a second property, move to the second property, and rent out my first property. I would like to repeat this process until I feel comfortable enough to change up my investment strategy.

Perhaps I am going about this all wrong, but I believe that I atleast explained my overall goals sufficiently. Please, give me ANY advice, general or specific, that you think would help me to make a wise decision. I would be extremely grateful.

Normally a LOC that is backed by a property has to have more then 20% LTV. Also, in the beginning stages of an amortized loan your house will not be gaining much equity. Maybe $100 per month. You will have to count on appreciation. So, it will probably take years to build up enough to take out money.

I encourage you to think through your plan a little more before you move forward too fast. If you by a property with only 3% down it will be hard to make that property cash flow a year later due to the size of the payment on the mortgage. Yes, it is great to use OPM and leverage but over doing it is a death sentence to your cash flow. This is part of the reason so many investors got hit hard in 2007, they were over leverage with Zero down loans.

I would encourage you to either find a duplex (you can still qualify for a 3% down loan) and rent out one side while renting out a room in your house. This plus your job will allow you to save for your next property much faster. I would further encourage you to borrow money from friends and family to buy the next property and allow that property to be rented and pay your loans back.

Hope this helps

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