Tips and tricks for getting a second conventional mortgage?

Question

Hello all,I am getting ready to start looking at lender for my second conventional mortgage to buy my second property. I plan to buy a new property in May by putting 5% down and renting out my current home. Any tips or advice before I dive into this process? Places to go for lending? Difficulty in getting a second loan?

My credit score is currently 807 if that changes anything.

Jeff Chisum · Answer

If you run into debt to income challenges you can get a lease in place prior to closing in order to offset the debt.  That would be identified through the pre approval process if done properly.  We do 90% of the work up front so there are no issues once a contract is executed.

Deven Ziertman · Answer

My recommendation would be to refinance your current home with a DSCR loan and put the property in an LLC. Then it will come off your personal credit score. Then it will be easy to get a loan on the new home personally.

Michael Smythe · Answer

@Nicholas Goerss start prepping your home to rent it out NOW:)

Perhaps you can negotiate the purchase offer for the new property to close in 60-days, which will give you more time to find tenant for your current home.

Then, as soon as your offer is accepted, list your property for rent!

OTHER THOUGHTS:

Have you confirmed how much your property taxes and home insurance (landlord policy) will increase on your current home when you convert to rental?

Ted V. · Answer

Hi Nicholas, some tricks and tips to note for your situation.

Your mortgage rate on the new place will likely be a bit higher than your first. Also, turning your current home into a rental isn’t just about collecting a rent check—you’ll have some upfront costs. Expect to spend a few grand on getting it tenant-ready (paint, small repairs, maybe appliances). Landlord insurance runs about 20-30% more than a standard policy, and if you hire a property manager, they’ll take ~10% of the rent. Factor in maintenance too—1-2% of the home’s value per year is a good estimate.Big Q: does the rental income more than cover these costs, or would selling free up enough equity to make a bigger down payment on your next home and lower your monthly costs? Either option could work, just depends on your goals. Also, keep in mind there’s some risk—vacancies, bad tenants, unexpected repairs—so make sure you’ve got a cushion. With an 807 credit score, you’ll get the best rates, but lenders will look at your debt-to-income ratio, and not all of your expected rental income will count toward qualifying for the second mortgage.

Jay Hurst · Answer

@Nicholas Goerss  There are not real tricks to it. Your debt to income will be calculated per conventional guidelines and if you qualify with both your current mortgage and the new mortgage plus all the rest of your debt you are good.

If you do not qualify, you would then look into if you would qualify with renting your departing residence. 75% of the lease will be used to offset that departing residence mortgage. as you mentioned the timing of renting the place can absolutely be tricky so you would hope you do not have to do this.

Finally, and I guess would be sorta of a trick, but we do bridge loans on occasion in this case IF you can qualify once you get the property rented at market value even if debt to income ratio is too high before it is rented. That allows the timing of the renting much easier as you can move into the new house, then rent the other, then refi the bridge loan into a perm loan.

Jeff Chisum · Answer

That can be market specific.  Maybe a good question for a local REALTOR or investor group in your area

Tips and tricks for getting a second conventional mortgage?

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