View Full Version : Mortgage/renting/new home questions
Wife and I are looking at moving up to a bigger home and a little land next year.
we wouldn't be moving far away and I have a good friend who has several homes he has as rental properties who would help me out, so I would like to rent our current home out.
potential issues:
current home has FHA loan. We can refi this into a conventional but would probably need to do the next house as a FHA. Is that possible? If not, we would be running pretty thin after putting 20% down on the next one having to do it as a conventional.
are you able to have two FHA loans?
any idea what rates are at for us to refi right now from FHA to conventional. I'd like to get rid of the MIP as it is $208 a month and I'd prefer that $$ to be profit in my pocket or repair fund money than to protect banks from people not paying their bills. Our current interest rate is 3.25%
As far as renting goes, my friend has given me a lot of advice and has a very very solid rental agreement, but any advice on what to watch out for, who to rent to, what to make sure I have in the contract etc would be appreciated.
Thanks for the help.
Not sure if you can do this with a FHA loan, but on a conventional loan you can remove PMI without a refi. You just pay the mortgage company to order an appraisal. Since values have gone up in CO, it's pretty much guarantee you're over the 75/25 or 80/20 loan to value
I believe I read the same thing, basically FHA is no matter what the house is appraised for and no matter if you pay 20% of the loan in cash now, the pmi doesn't come off until a set date where it is 80% of the loan to original loan value ratio.
that is why I am considering refi the rental home to a conventional and pay the 20% of it now to get rid of the PMI and lower the payment as well, then get then get an FHA with the new home. I'm just curious if this is even possible and worth my time to refi right now and spend that $$ out of pocket when I would just end up having to sell the house anyways and the equity would be applied to the new home.
Don't rent to someone on HUD vouchers without doing a thorough background.
Be sure to do a thorough background on potential renters- don't pay for one of those online backgrounds.
Make sure your rental contract is iron-clad, and don't be a softie. If you don't stick to your guns, you chance renting to someone that will end up costing you money. If you have a 'no pets' clause, the moment you allow them to have pets means you lose any control over your home: 15 cats, or a pack of pit bulls or beagles that will eat the bottoms of every door in the house. Give an inch, and they will take a mile. Sob stories tend to leave landlord$ de$titute and without recour$e for monetary recompen$e.
I realize there are very fine renters out there in the world, but being completely cynical can save you money and heartache.
Any changes to your rental contract needs to be in writing, signed and dated by both renters and landlord.
Be aware that you can put in anything you like in your contract- so DO. My parents were landlords, and learned the hard way. There are some powerfully stupid people out there. My folks had to put the following into the rental agreement:
That the renters:
-use trash bags in the trash cans
-that trash bags must be tied and contained in covered trash cans, and may only be set out the night before trash pick-up
-if pets are allowed, any animal waste must be picked up X number of times per week
-emergency repairs must be reported to you immediately (or specific contractors must be called, etc)
-any damage must be reported to you within X hours
- the landlord will give X hours notice before walk-throughs
- don't allow smoking (of anything)
- put in a clause about forbidding any "marijuana grow operations" inside or outside of the house; you may forbid the presence of pot plants altogether
- anything that makes your job as a landlord harder. If you don't want them to put nails into your walls, you can add that. If you don't want them to paint the walls, you can add that.
It's definitely a landlord's market. You can be as picky as you like. This is your home; make sure you rent to someone that doesn't have a habit of burning landlords and trashing the homes they use. Make sure that they don't have a ton of judgments following them, and make sure they don't have a criminal record.
Sorry for the long post; you probably knew all of this anyhow. :) Good luck!
What's wrong with a pack of pits?
Sent by a free-range electronic weasel, with no sense of personal space.
All good advice. One thing that hasn't been mentioned is the mental switch from this being your house to it's just an investment property. You need to seperate that mentally so you dont take it personally when they knock a hole in something.
Great-Kazoo
08-18-2015, 21:49
IMO. I'd refi the house with enough $$ for a down payment on #2. If you do that, you avoid another FHA loan, plus all the added expenses.
gnihcraes
08-18-2015, 21:50
When letting a potential renter look at the property, go outside and look through the windows of their car. If it's a mess, they will treat your rental the same way.
not sure how much advice this guy would have for free, but I like what they cover on the tv show.
http://scottmcgillivray.com/
HoneyBadger
08-18-2015, 21:51
All good advice. One thing that hasn't been mentioned is the mental switch from this being your house to it's just an investment property. You need to seperate that mentally so you dont take it personally when they knock a hole in something.
This is the hardest part, IMO
I don't believe the Mortgage Insurance falls off of an FHA loan anymore. Depending on how long you've had your loan, it may or may not, so call and ask. I had to refinance my loan into a conventional to get it to come off.
If you do plan to refinance and use as a rental, are you going to refinance for the current value and use the equity to pay for the down on the new house? If so, make sure the rent you can get from the rental will cover the new mortgage amount.
hurley842002
08-18-2015, 21:57
When letting a potential renter look at the property, go outside and look through the windows of their car. If it's a mess, they will treat your rental the same way.
Yeah, okay.... You have kids? More often than not my place and my car is what most would consider a "mess", but I don't go out of my way to be destructive or disrespectful to the property, nor are we "unsanitary" or "filthy", yes there are toys all over the place.
Sorry OP, back on topic. I could be interested if we haven't found a decent place by then, as we postponed our home buying endeavor until the market settles. That is if you don't mind my 2 year olds toys all over the place from time to time.
gnihcraes
08-18-2015, 22:10
Yep, got kids. Difference of toys all over than filled with fast food bags and stuff. You know what I mean. :)
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Yeah, okay.... You have kids? More often than not my place and my car is what most would consider a "mess", but I don't go out of my way to be destructive or disrespectful to the property, nor are we "unsanitary" or "filthy", yes there are toys all over the place.
Sorry OP, back on topic. I could be interested if we haven't found a decent place by then, as we postponed our home buying endeavor until the market settles. That is if you don't mind my 2 year olds toys all over the place from time to time.
I don't know about anyone else, but I don't think of "car clutter" when considering this advice. I think of those cars that have cigarette burns, tears, and layers of evil-looking stains.
Yeah, okay.... You have kids? More often than not my place and my car is what most would consider a "mess", but I don't go out of my way to be destructive or disrespectful to the property, nor are we "unsanitary" or "filthy", yes there are toys all over the place.
Sorry OP, back on topic. I could be interested if we haven't found a decent place by then, as we postponed our home buying endeavor until the market settles. That is if you don't mind my 2 year olds toys all over the place from time to time.
Toys are no problem, my 3 year old leaves me barefoot land mines all over the place. No wonder things went to plastic....it's better than a steel dump truck going through the side of your foot!
if it works out that way where we are renting it out, I'll post it up here first. Probably be next summer or a little later depending on if we are building a new home or finding one already done. I'll be ready to buy around March.
I don't believe the Mortgage Insurance falls off of an FHA loan anymore. Depending on how long you've had your loan, it may or may not, so call and ask. I had to refinance my loan into a conventional to get it to come off.
If you do plan to refinance and use as a rental, are you going to refinance for the current value and use the equity to pay for the down on the new house? If so, make sure the rent you can get from the rental will cover the new mortgage amount.
I haven't thought about that, I guess it depends on if I can toss the equity at the new house, but then I'd have to use my down payment cash on the refi so I think I'd be better off to just refi the amount owed now. The rent would cover the refi at the current value with a little extra $$ to play with, but if I keep the current value of the loan and refi I would be much more comfortable when things break.
Personally, my advice is to think about this backward. START with an exit strategy. If this doesn't work out, what are you going to do? How many months can you go paying two mortgages if needed? If something unforseen happens and all of a sudden you can't get your house rented, how sick can you dump it and mitigate financial damage? That is where you start.
Don't take this as trying to scare you away, I'm not at all. If you start with figuring out a solid plan to exit a complete failure with as little damage as possible, everything else will come together better. Exit strategy first, then everything else.
Next is deciding what you want out of this rental. Of course you'll feel more comfortable streamlining your mortgage as it will give you a bigger safety net, but that also leaves money on the table. As I'm pretty fiscally timid, I'd probably do exactly what you are planning for the first year or two just to get my feet wet and feel everything out, with the plan to refinance to value in a few years and invest that equity else where.
Sorry if that sounds like jibberish, it's getting late.
Makes perfect sense, I could have both mortgages covered and still pay the rest of the bills okay, it would just not leave me with much wiggle room at the end of the month for drunken eBay purchases or the like. Getting someone else to pay the mortgage on the rental would just be gravy, and I'd probably pay even more on principal each month just to knock down that mortgage faster and get it paid off.
There are tax consequences to converting your house to a rental. Check with your accountant. I have managed properties before, and have a tight lease. PM me and we can discuss.
My partner used to say tenants are scum, and that is true. It can work you have to be tough. Leasing in the summer much better than winter.
PMI now stays on forever with FHA loans.
There are tax consequences to converting your house to a rental. Check with your accountant. I have managed properties before, and have a tight lease. PM me and we can discuss.
My partner used to say tenants are scum, and that is true. It can work you have to be tough. Leasing in the summer much better than winter.
Okay I'll give you a shout when I get back or can PM, will be out of country the next few days
PMI now stays on forever with FHA loans.
Any idea when that changed? We did a refi about 2 years ago, ill need to check the exact date
http://themortgagereports.com/12740/new-fha-mortgage-insurance-premium-cancellation-policy-effective-june-3-2013
Looks like it changed June 3, 2013 but I didn't think it was that long ago.
Here's what's changing.
Currently, the Federal Housing Administration requires homeowners to pay annual MIP so long as their loan-to-value is greater than 78%, where "value" is equal to the last known value of the home.
In addition, if the original mortgage term is greater than 15 years, at least 60 payments must have been made on the mortgage before FHA MIP can be automatically cancelled.
Beginning in June, though, the FHA moves away from an LTV-based system. The new cancellation policy will be as follows :
Loans beginning at 90% LTV or less will pay annual MIP for 11 years.
Loans beginning at 90% LTV or more will pay annual MIP for the complete loan term.
This means that home buyers using the Federal Housing Administration's 3.5 percent downpayment program will pay annual mortgage insurance for the loan's full 30 years, regardless of whether the home appreciates to the point of having 22 percent equity or more.
With the new FHA rules, MIP is forever.
Wow, I believe that would apply then, I'll have to dig into it. I sent my refi guy an email already so hopefully he knows for sure.
there is a way to get a second FHA, but the 2 homes have to be more than 50 miles apart, and other rules that have to be met, so prob not a feasible option.
If the house is in your name only, then just but the next house in your wife's name and you can do FHA again.
Unfortunately both of those won't apply, that would have been awesome though!
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