Considering purchasing new home and renting current. Best financing stragety?

[Jonathan T.]

Hello,

New to REI here and I am considering purchasing a new primary residence while renting out my current home. I am hoping to get some direction on the best strategy for my situation.

Current home in a LA suburb- $700k rough appraisal with 5 years and $116k left on the mortgage @ 3.375%. Other comps rent for about $3500.  If I were to rent this now I would cashflow about $300/mo.

I have been looking for a new primary residence around the 1M range but only have 5% down at the moment but would be able to save the full 20% down in about 3 years. I am afraid of missing out on an appreciating market but also apprehensive of PMI (probably from my Dave Ramsay-esk upbringing on finance)

Gross income $330k, 800+ credit, 0 debt outside of mortgage

Am I better off just waiting until I have full 20% down? Get in with 5% down and eat the PMI? Heloc / Heloan options?

I find myself in an analysis paralysis and would love some perspective. Thanks for your help!

[Joe Homs]

@Jonathan T. you should SELL the primary and take advantage of the $500K (if married) exclusion on capital gains taxes.  Then use that to buy another primary.  If you have money left, then find an investment property if you wish.

Good Investing...

[Michelle Crochet]

Hi Jonathan, Congratulations on your journey into REI! Here are a few considerations that could help guide your decision:

-Appreciation potential: While it's important to consider the potential for property appreciation in your desired market, it's also important to not let the fear of missing out push you into making a hasty decision. Take the time to thoroughly research the market, analyze the property's potential for appreciation.

-PMI vs. waiting for 20% down: While PMI does add an additional expense to your monthly mortgage payments, it may still be worth considering if you're confident in your ability to manage the property and generate rental income. You may also be able to offset the cost of PMI by increasing rent or implementing cost-cutting measures.

-HELOC or HELOAN options: These options may be worth exploring, especially if you have a significant amount of equity in your current home. However, it's important to weigh the risks and benefits of taking on additional debt and to carefully consider your ability to make payments.

Ultimately, the best strategy for your situation will depend on your unique financial situation, investment goals, and risk tolerance. I would recommend consulting with a financial advisor who can provide personalized guidance based on your specific circumstances. Good luck, Joshua! Hope this helps :)

[Erik Estrada]

Quote from @Jonathan T.:

Hello,

New to REI here and I am considering purchasing a new primary residence while renting out my current home. I am hoping to get some direction on the best strategy for my situation.

Current home in a LA suburb- $700k rough appraisal with 5 years and $116k left on the mortgage @ 3.375%. Other comps rent for about $3500.  If I were to rent this now I would cashflow about $300/mo.

I have been looking for a new primary residence around the 1M range but only have 5% down at the moment but would be able to save the full 20% down in about 3 years. I am afraid of missing out on an appreciating market but also apprehensive of PMI (probably from my Dave Ramsay-esk upbringing on finance)

Gross income $330k, 800+ credit, 0 debt outside of mortgage

Am I better off just waiting until I have full 20% down? Get in with 5% down and eat the PMI? Heloc / Heloan options?

I find myself in an analysis paralysis and would love some perspective. Thanks for your help!

With the new Loan Level Pricing Adjustments, you might be better off putting less than 20% down. Loan pricing would be favorable. Also with an FHA loan, you can have your MI rate at .55 and rate in the high 5s/low 6s, depending on the loan amount and FICO.

You could get a HELOC, but be advised that the interest rate is variable and pretty high at the moment, so unless you plan on paying off what you draw ASAP, it may or may not make sense in your situation.

What is the end goal? Is this going to be your forever primary? Or are you also going to make this a rental in the future? 

I would advise to speak with a mortgage professional, take a complete loan application, and see what your options are. 

[Stephanie P.]

Quote from @Jonathan T.:

Hello,

New to REI here and I am considering purchasing a new primary residence while renting out my current home. I am hoping to get some direction on the best strategy for my situation.

Current home in a LA suburb- $700k rough appraisal with 5 years and $116k left on the mortgage @ 3.375%. Other comps rent for about $3500.  If I were to rent this now I would cashflow about $300/mo.

I have been looking for a new primary residence around the 1M range but only have 5% down at the moment but would be able to save the full 20% down in about 3 years. I am afraid of missing out on an appreciating market but also apprehensive of PMI (probably from my Dave Ramsay-esk upbringing on finance)

Gross income $330k, 800+ credit, 0 debt outside of mortgage

Am I better off just waiting until I have full 20% down? Get in with 5% down and eat the PMI? Heloc / Heloan options?

I find myself in an analysis paralysis and would love some perspective. Thanks for your help!

 $300 cash flow per month at that loan amount would be wiped out with one month of missed rent.  Sell the property and buy something else with the proceeds.  Also, $300 isn't worth the hassle of being a landlord in a non landlord friendly state.