Sandra asks…
Can you help us with some questions about refinancing a rental home?
We bought a new home 3 1/2 years ago for 260,000 dollars and improved it in many ways. We have significant equity in this home; we owe just 113,000 dollars on a 30 year conventional (fixed) mortgage at 6.25 percent. My wife and I have credit scores of 750-760 depending upon the bureau asked. Aside from our home loan (113k), we have no debt whatsoever. My wife & I are both teachers.
About six weeks ago, we decided to refinance the home at a much lower interest rate and pull out 15,000 dollars equity. Everything was going fine until, about three weeks later, I decided to relocate for a better-paying job out-of-state. Because property values have declined in my community, we chose to rent the home for 1,500 per month with the goal of selling it after a year or so when the housing market improves. The home will be rented tomorrow.
Unfortunately, the appraiser somehow got the idea that we were selling our home, and our bank initially declined to refinance because of this. When I explained the situation to my loan officer, she said they’d have to “start the process over again” and that we’d pay higher fees and have a higher interest rate if approved.
So I have a couple of questions.
First, how long is this approval process going to take on average? Will it take another month?
Second, what is the possibility of getting a second mortgage to buy an inexpensive home where I am now? In today’s market situation, is that difficult to accomplish?
Our income isn’t very high because my wife chooses to only work part-time these days and spend more time with the kids. We generally have a 55-60K income. We had planned on initially renting in our new community, which is a rural area, and then (after a year or so), selling our home and purchasing with mostly cash. But the rental market is outrageous due to the military base I think. It’s much cheaper to buy: a fairly nice home (15 years old) rents for 17-800, but can be purchased for 150k. So rents are high, but prices are pretty low.
answers:
It will NOT be a commercial loan at over 8%. I am not sure where mom gets her bad info. It will be investment property. I locked in an investment property today at 4.625%. No points. No origination. Yes, that is higher than a rate for primary residence, but not bad. You will have to qualify with both payments if you buy something else, plus if you go conventional you will need 6 months reserves on both properties. How about trying to go FHA on a new home, 3.5% down, you don’t need the reserves for FHA but the investment property payment may still be counted against you. You will have to explain in writing why you are renting out a cheaper home, but if you have relocated it should be OK. You will have to live in it as your primary residence for one year…you can sell, but not rent it out.
I still think you should be able to do a refi on your current home as investment. Don’t take money out unless your LTV is low enough that it doesn’t have a big impact on the rate. She has your paperwork. All she has to do is change occupancy & possibly get a few new cost analysis forms on the appraisal.
See if you can rent an apartment for 1 or 2 months before you buy a new house. That rent payment will be counted in your ratios for the refi.
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