Updated over 2 years ago on . Most recent reply
HE Loan to buy new primary residence
I’m looking at buying a new house. I currently own a 3/2 with approx 185k in equity and 115k left on the loan. My plan is to take out a home equity loan for the down payment of 20% on a 520k house.
Current mortgage is 1100/mo and HE Loan payment would be ~900/mo
My plan is to rent our current house out as a LTR.
My question is, should I consider the HE loan amount as a loan service in the cash flow equation on the rental, or consider it just as an expense on my new home?
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- Rental Property Investor / REALTOR® / Property Manager
- Gilbert, AZ
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Sam, you can buy your next house as a primary residence using a conventional loan and only need to put 5% down. But you are smart to take out a second position loan on the house you are in now before you turn it into a rental, just make sure your DTI will qualify. You want to count both loans on that house as loans on that house, but it's probably better to do a second rather than refi the 1st since the rate is probably super low on the 1st loan. This will probably mean your cash flow won't be very good if anything at all, but it's better to take it out as your primary residence now rather than wait until it's a rental because it's harder and higher rate to get a second loan on a rental, even if you don't need all of the available money, might be smart to have extra reserves, so you can buy another one next year too. Just make sure you will still qualify with DTI. When you qualifying for the new primary residence you can put a lease on the current house and count 75% of the rent against your mortgages, so that will help your DTI.