Ways to purchase second home for 5?

Question

Hi y'all, I purchased my first property last year and am up roughly 100K on it. I'm looking to pull equity from that and to buy a second home to rent out as an investment property. I'm a college student and want to buy another property to rent out to my fraternity brothers next year. What loan options would be best for me? So far the only option I can think of is 1.FHA 3.5%, I ideally want to purchase my second home at 5% down. Is it possible todo a second home conventional loan for 5%? What would be my best bet? Thanks Cody

Theresa Harris · Answer

You might be able to buy it for 5% if you move into it and use the first one as a rental. I'd be careful who you rent it out to. Often renting to friends is a bad idea-what if they stop paying the rent, are you willing to evict them? Also do you want it to be a party house? You could look at renting by the room.

You also have to know if the banks will lend you more money. Refinancing, they might not let you pull out all of the money. Often they will do 75% or 80% of the value of the home.

You also have to know if the banks will lend you more money.  Refinancing, they might not let you pull out all of the money. Often they will do 75% or 80% of the value of the home.

David M. · Answer

@Cody Cavenaugh

From your question I don't think you are getting it.  Lets say you wanted to purchase a property using 10% down.  It doesn't matter if you use a FHA or Conventional loan.  Its possible under both.  You could even do it with a VA loan for example.

The point is which one do you qualify.  Normally, a conventional loan is cheaper if you qualify.  How do you know?  You talk to a good lender that will pre-approve you.  If you have been entirely honest with your lender and faithfully provided all the documentation, then when you go to apply for the loan once you have the property under contract you will be approved.  Also, you haven't significantly changed your financial status (for the worse).

I'm pm info for lender since we arn't supposed to be refer/market anything on the public board.

Cody Cavenaugh · Answer

Thanks for the advice, I will definitely research the DSCR loan in depth. It seems like I would have to live at the house if I wanted to purchase another one unless the DSCR lets me do otherwise. If I live there would you recommend the FHA at 3.5% or conventional at 5%? I feel as if the FHA might be more easy to get approved for. For finding lenders would you just recommend a simple google search.

Theresa Harris · Answer

Usually the 5% is only an option if you plan to live in it.  I don't know of other cases when it applies, but perhaps someone else does.

Cody Cavenaugh · Answer

I currently rent to my fraternity brothers and have not had a problem collecting rent. I rent each room out by room, and it has done extremely well. We go to a private college, so I would say money is not a concern for most of my friends. I have a 2.49% interest rate on my property, so I don't want to cash out refi with current rates. Do you think the only way I will be able to purchase it for 5% down is if I move into it? Is there no way I could apply and buy it as a second home and rent it out that way for 5% down?

David M. · Answer

@Cody Cavenaugh

Well, first of all only the "investment" conventional loan start at 20% down is the only conforming loan without a owner occupied requirement.  So, if you aren't going to live there for a year, then the other products such as FHA or a conventional <20% are off the table.

Just to clarify, the FHA loan normally allow for as low as 3.5% down.  You can still use a FHA product and put more down...  Conventional loans normally go as low as 5% down.  If you can qualify, they will be generally cheaper than a FHA loan.

Otherwise, what's being used a lot apparently is a DSCR loan.  It doesn't care about your income, just what will the property pull in on rent.  Its a non-conforming loan so there will be slight variations in terms and conditions between lenders.  Also, this means all the "regular" consumer protections built into conforming loans may not, or will not for that matter, be there.

Honestly, the best thing to do is talk to your lender, or find a better one that will figure out the best option for you.  Good luck.

Ways to purchase second home for 5?

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