One house hack to the next and how to fund
Hello everyone,
It has been almost 1 year since purchasing my first deal and I'm planning on looking for the next one middle of 2023.
I am curious on how the lending works if I have my townhouse fully rented, does my debt to income ratio go back to 0 if the rent covers all the running costs of the property?
The property has ~30% equity in it and I plan on keeping the equity in the property. I will have ~$90k for a down payment on the next property if I buy by middle of 2023.
Looking around I am hoping I can find a SFH around $500-550k. The question would be should I continue to save until I reach the 20% down payment and push my purchase out one year, put a 5% down payment for an owner occupied loan, or pull equity out of my townhouse to make up the missing down payment amount to get the 20%?
In the perfect world I would be able to qualify for a loan that is 4x my income ($460k) plus my $90k down payment allowing me to purchase a home around $550k price point.
I am looking for homes in central BC, not Vancouver BC.
@Erwin Li your best bet is to connect with a mortgage broker. Assuming your TH is on a residential mortgage, any future lending will likely only allow you to count 50% of the income on that property. Also, if the property has 30% equity, it likely has no equity from a lender's perspective as you can likely only refinance up to 75% LTV.
Quote from @Erwin Li:
Hello everyone,
It has been almost 1 year since purchasing my first deal and I'm planning on looking for the next one middle of 2023.
I am curious on how the lending works if I have my townhouse fully rented, does my debt to income ratio go back to 0 if the rent covers all the running costs of the property?
The property has ~30% equity in it and I plan on keeping the equity in the property. I will have ~$90k for a down payment on the next property if I buy by middle of 2023.
Looking around I am hoping I can find a SFH around $500-550k. The question would be should I continue to save until I reach the 20% down payment and push my purchase out one year, put a 5% down payment for an owner occupied loan, or pull equity out of my townhouse to make up the missing down payment amount to get the 20%?
In the perfect world I would be able to qualify for a loan that is 4x my income ($460k) plus my $90k down payment allowing me to purchase a home around $550k price point.I am looking for homes in central BC, not Vancouver BC.
Hi Erwin,
Unfortunately, your debt-to-income ratio won't go back to 0, lenders have different offsets and different ways to calculate your rental income but for most they only count 50% of the income. A mortgage broker would be able to do the calculation for you. If you would like some recommendations of investor-focused mortgage broker let me know.
Hey it all depends on the lender. Some lenders have actually changed their policies to be more favourable of this. You may be able to get back to net zero for your next purchase.
Most of my clients own a rental property and do this exactly, I’ll PM you to connect I can help you plan your next mortgage moves.
Tyler.
Quote from @Tyler Stiller:I would love to know which lenders changed the policy not to have the 50% or so offset as well! Please share!
Hey it all depends on the lender. Some lenders have actually changed their policies to be more favourable of this. You may be able to get back to net zero for your next purchase.
Most of my clients own a rental property and do this exactly, I’ll PM you to connect I can help you plan your next mortgage moves.
Tyler.
@Erwin Li Sounds to me that you need a mortgage strategy, is it a ridiculous idea to develop a relationship with a mortgage broker?
The rental mortgage guidelines vary from lender to lender. Generally Lenders use the addback and offset calculations for subject and non-subject rentals respectively. Which lender's rental calculation is more favourable for the borrower? A mortgage broker can help you find the right lender for your situation.
Thanks for all the great input everyone. I've gone ahead and reached out to some mortgage brokers to see what I might be able to do with my current situation.
Looks like I wont be able to refinance (isnt the preferable options anyways) so I will see if it is possible to get into a deal with my reserves. If not I will need to put off my idea of purchasing my second property and continue to save up some capital.