What are some financing options?

Question

Hello,

We purchased our first home in Milwaukee, WI a few years ago using a FHA loan but we are looking into moving to the DFW Texas area possibly next year. I considered keeping our current house in Milwaukee to turn into a rental to generate cash flow and obtaining another loan for a house in Texas.

1. What kind of loan options would be available already having an outstanding FHA loan?

2. How would my first loan affect obtaining the second loan for my primary residence? I’m assuming I would not qualify for the same amount on a second loan based off the debt of my original loan?

Sorry I do not have a great understanding yet but I am learning as I go. I’m interested in finding out if this is even a reasonable idea or if I should wait on obtaining a rental until I am settled in my primary residence.

Thanks for any input!

Marcus Auerbach · Answer

@Justin Coleman - your most likely limitiation will be your debt to income ratio, because you have to swing to mortgages before you have rental income from the old one. Most loans will go up to low 40% range.

Another tip: if TX is as competitive as Milwaukee, I would recommend a low down conventional loan over FHA. Seller's don't like the FHA inspection which often brings up exterior paint and you can't do that until spring!

I have a lender here in Milwaukee who can do 5% down no PMI on a 5 year adjustable. We use that a lot for house hacking or for buyers who want to improve and refi anyway. Thats another problem with FHA: PMI will never go away, no matter how much equity you have.

Justin Coleman · Answer

@Nick Riccio my current home is a single family and the next home would be a single as well. It would be over 100 miles away.

That was the main question, how would it affect the purchase of my new home. I would not want to keep it if I was unable to buy a new home in Dallas around my price range. Debt to income will play a role but I was not sure how much of a hindering It would be or if the rental income would reflect positively and offset it to a certain degree. Thanks for taking the time!

Elise Marquette · Answer

@Justin Coleman Since you’re moving more than 100 miles away from your home in Milwaukee you can buy your next home FHA and you do not need to refinance into a conventional loan. You are probably looking 3.5% to 5% down for your next home in Texas. You will need to income to qualify to support the mortgage on your Milwaukee home and the home you intend on purchasing. How much you qualify for depends on how much you make and what percentage of your gross monthly income all your monthly liabilities take up.

Justin Coleman · Answer

@Elise Marquette thank you so much

Justin Coleman · Answer

@Marcus Auerbach good Information and very helpful. Thank you

Justin Coleman · Answer

@Mark Thomas thank you for the input. Talking with a lender seems like a good place to start then.

Dawn Anastasi · Answer

@Justin Coleman Your question comes in at good timing. The AASEW is featuring a presentation called "Financing Investment Real Estate in 2021". Check out the Events page on Bigger Pockets or simply visit the AASEW website.

Mark Thomas · Answer

1st response on here, excited to be able to have some input!

@Justin Coleman These are all really great responses, you do have options. I'm not sure how familiar you are with the market here in DFW, but it is really competitive for the most part and a lot of realtors/buyers are running into multiple offers and over asking prices. I'm sure @Alex Grosvenor can elaborate on this as well.

Having said that, it will all depend on where and what price range you are hoping to buy for your primary. There are many programs that could work for you including up to 50% DTI on conventional with 3% down for a primary. So you can avoid fees FHA charges and have low down/cash to close. If you are comfortable with your tenant/management situation in WI, then its definitely do-able for you to have it as a rental, given you can locate a suitable primary here that works for your budget.

Nick Riccio · Answer

@Justin Coleman you would be able to get a conventional loan - or you could refinance out of your FHA into conventional, and do another FHA.

Your current residence would be on your DTI as a debt. Is it a single family? Are you looking to move more than 100 miles? You might be able to use the rental income from your departing residence. Also, if you're looking to purchase a multi family on your new home, you can use the future rents to help you qualify!

Justin Coleman · Answer

@Alex Grosvenor I will reach out to a lender and get some feedback. Thanks for your response

What are some financing options?

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