buying a 2nd home while underwater on 1st?

[Anonymous]

Every financial institution is getting more strict. You would REALLY be screwing YOURSELF if you default on anything now. It is VERY different than even just a few months ago. Don't be stupid, OP.

"Live within your means" is an understatement.

[Anonymous]

Anonymous wrote:

Anonymous wrote:We recently bought a second home without selling our first. In terms of mortgage requirements you have to be able to easily carry both mortgages on your current income. I believe the debt to income ratio to qualify for most mortgages was lowered in January of 2010. Also there are conditions in which the rental income of your first property will not count towards the "income" portion of your debt to income ratio....I believe one of those conditions is if you have less then 20% equity in your first home.

You got it! I was the other 2nd home pp in this thread. they would only qualify us if we could afford the mortgage on both. we couldn't get a heloc off of the rental property. We came up with cash for the 2nd home's downpayment...and there was an amount of equity required for first home.

We are A+++ credit wise...800+ credit scores, zero debt (other than remainder on first mortgage, etc)...and we jumped through hoops to get the approval. I can't imagine somebody with less than stellar finances/credit being able to do this.

OP here - this is what I figured would be necessary.... I have a feeling that they think they're going to be able to pull it off but will be sorely disappointed. To explain myself again to my critics in this post - we are NOT planning on bailing on our home. They mentioned this to us and the thought that crossed our minds was, "Huh. Wonder if we would qualify for that kind of loan..." but we were really confused as to whether that type of loan was even possible. It makes sense that they would need to qualify to cover both mortgages - I just didn't know that... I assumed that they would at least have to have a significant amount in savings in case their renters bailed.

Thanks for all the informative responses.

[Anonymous]

OP, even IF (big "if") you could somehow qualify for such a loan, it sounds like a very poor idea. Renting out a condo can turn into a nightmare--it's not just an easy way to pay a mortgage.

[Anonymous]

We own 3 properties and the credit union would not count the rental condo income at all. We are fortunately able to cover 3 mortgages on our income, though we did get gift money for the 20% down on the 3rd property which we plan to pay back with rental income on the first 2 properties. We are underwater on property #2 (we could afford to buy into the neighborhood, but apparently none of our neighbors could) and the renter in property #1 makes me crazy. Our credit union was strict and without the cash we had and our near perfect credit scores we never would have been able to buy the 3rd place.

[Anonymous]

Regarding credit unions: Having been a member of my credit union for most of my life, I've learned that you cannot f with them. When I was going through my divorce my ex defaulted on the car loan I had taken out for him. They wiped out my checking account, my savings account, and redirected funds I sent to make my car payment to his car since he was delinquent. Then they came to repo my car as cross collateral for his car since my car was worth more than his. Not a position I ever want to be in again. I can only imagine if they were taking away my home to recoup the loss of me trying to bail on my condo.

[Anonymous]

Anonymous wrote:OP, even IF (big "if") you could somehow qualify for such a loan, it sounds like a very poor idea. Renting out a condo can turn into a nightmare--it's not just an easy way to pay a mortgage.

It is not a poor idea, this is exactly what we did. It is called going from homeowner to smart investor.

We had a house we were underwater on. Instead of PAYING to get out of it, we now have someone pay our mortgage for us. We used the money we have saved for a 20% down on a new home instead of paying down our loss.

When you factor in ALL of our mortgage obligations, our debt to income ratio is still just under 25% and this does not include our rental income which is not allowed to be included. Again, you have to be a strong borrower with an excellent credit rating.

This can be done, but you have to be able to more than afford it.

[Anonymous]

Anonymous wrote:Regarding credit unions: Having been a member of my credit union for most of my life, I've learned that you cannot f with them. When I was going through my divorce my ex defaulted on the car loan I had taken out for him. They wiped out my checking account, my savings account, and redirected funds I sent to make my car payment to his car since he was delinquent. Then they came to repo my car as cross collateral for his car since my car was worth more than his. Not a position I ever want to be in again. I can only imagine if they were taking away my home to recoup the loss of me trying to bail on my condo.

Good Grief! Are you in the Big Louie credit union? Lucky they didn't break your thumbs.

[Anonymous]

Anonymous wrote:OP, even IF (big "if") you could somehow qualify for such a loan, it sounds like a very poor idea. Renting out a condo can turn into a nightmare--it's not just an easy way to pay a mortgage.

OP here -Trust me, I dread the very idea of even dealing with renters in our condo... we were just tossing the idea around.

[Anonymous]

Anonymous wrote:

Anonymous wrote:OP, even IF (big "if") you could somehow qualify for such a loan, it sounds like a very poor idea. Renting out a condo can turn into a nightmare--it's not just an easy way to pay a mortgage.

OP here -Trust me, I dread the very idea of even dealing with renters in our condo... we were just tossing the idea around.

I am the pp that just bought the second home...kept first home as someone else said "smart investment strategy".

We have never had a problem renting first home (almost immediately) or finding great tenants. We have rented it out consistently for the past 6 years...only 2 professional couples..both initially signed 2-year+ leases...and then extended one more year. We just listed it again last month on Craigslist...and had much competition among potential tenants..took the guy w/out pets that was willing to sign more than 1 year.

We haven't had to do anything. It's a 900 square foot tiny rowhouse in NW. We did do kitchen reno and bath before we started renting and that has paid off drastically. These ppl will pay our mortgage on the first home...and then we will have $3500/month pure income. It is not a dumb idea if place is a desirable rental.

We have only about a 1/4 left on the mortgage..and so if anything drastic (would have to be very drastic--we are well-invested, well-savings, huge insurance policies etc)...we could always sell it down the road. However, I like the idea of returning to it once the kids are off to college.

We toyed with a vacation home rental..but this is much more profitable as it is a year-round rental---1.5 miles away so convenient if any problems occur. Also--my DH is very handy and we have a great contractor that can fix anything cheap if something in the rental goes wrong and it's beyond his expertise.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:OP, even IF (big "if") you could somehow qualify for such a loan, it sounds like a very poor idea. Renting out a condo can turn into a nightmare--it's not just an easy way to pay a mortgage.

OP here -Trust me, I dread the very idea of even dealing with renters in our condo... we were just tossing the idea around.

I am the pp that just bought the second home...kept first home as someone else said "smart investment strategy".

We have never had a problem renting first home (almost immediately) or finding great tenants. We have rented it out consistently for the past 6 years...only 2 professional couples..both initially signed 2-year+ leases...and then extended one more year. We just listed it again last month on Craigslist...and had much competition among potential tenants..took the guy w/out pets that was willing to sign more than 1 year.

We haven't had to do anything. It's a 900 square foot tiny rowhouse in NW. We did do kitchen reno and bath before we started renting and that has paid off drastically. These ppl will pay our mortgage on the first home...and then we will have $3500/month pure income. It is not a dumb idea if place is a desirable rental.

We have only about a 1/4 left on the mortgage..and so if anything drastic (would have to be very drastic--we are well-invested, well-savings, huge insurance policies etc)...we could always sell it down the road. However, I like the idea of returning to it once the kids are off to college.

We toyed with a vacation home rental..but this is much more profitable as it is a year-round rental---1.5 miles away so convenient if any problems occur. Also--my DH is very handy and we have a great contractor that can fix anything cheap if something in the rental goes wrong and it's beyond his expertise.

I'm the other homeowner turned investor. We too have had excellent tenants, that we also found on Craigs List. I would NEVER leave it up to a management company. I screen everyone and make my bias decision. We have had 2 military families and they have been wonderful. I think these sort of things turn into nightmares when people don't screen their tenants properly.

[Anonymous]

I'm the PP who said I have a renter who makes me crazy. I would be in a better position if my condo didn't need a kitchen makeover (1970's kitchen) and I hadn't taken out an equity loan at the peak of the market to settle some outstanding debts. Plus, since my condo isn't convenient to metro I can't charge as much rent as someone with a unit convenient to metro would. Finally, I am renting to a friend of a friend, who as it turns out is horrible with money. Of course, once she moves out my former neighbor/owner of a unit across the courtyard from me is offering to let me have his tenants who have been great so he can sell his unit.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:OP, even IF (big "if") you could somehow qualify for such a loan, it sounds like a very poor idea. Renting out a condo can turn into a nightmare--it's not just an easy way to pay a mortgage.

OP here -Trust me, I dread the very idea of even dealing with renters in our condo... we were just tossing the idea around.

I am the pp that just bought the second home...kept first home as someone else said "smart investment strategy".

We have never had a problem renting first home (almost immediately) or finding great tenants. We have rented it out consistently for the past 6 years...only 2 professional couples..both initially signed 2-year+ leases...and then extended one more year. We just listed it again last month on Craigslist...and had much competition among potential tenants..took the guy w/out pets that was willing to sign more than 1 year.

We haven't had to do anything. It's a 900 square foot tiny rowhouse in NW. We did do kitchen reno and bath before we started renting and that has paid off drastically. These ppl will pay our mortgage on the first home...and then we will have $3500/month pure income. It is not a dumb idea if place is a desirable rental.

We have only about a 1/4 left on the mortgage..and so if anything drastic (would have to be very drastic--we are well-invested, well-savings, huge insurance policies etc)...we could always sell it down the road. However, I like the idea of returning to it once the kids are off to college.

We toyed with a vacation home rental..but this is much more profitable as it is a year-round rental---1.5 miles away so convenient if any problems occur. Also--my DH is very handy and we have a great contractor that can fix anything cheap if something in the rental goes wrong and it's beyond his expertise.

I'm the other homeowner turned investor. We too have had excellent tenants, that we also found on Craigs List. I would NEVER leave it up to a management company. I screen everyone and make my bias decision. We have had 2 military families and they have been wonderful. I think these sort of things turn into nightmares when people don't screen their tenants properly.

yep. . We do it all through craigslist too! i believe if you do the screening right in the beginning---and it can be tedious---it makes all the difference.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Regarding credit unions: Having been a member of my credit union for most of my life, I've learned that you cannot f with them. When I was going through my divorce my ex defaulted on the car loan I had taken out for him. They wiped out my checking account, my savings account, and redirected funds I sent to make my car payment to his car since he was delinquent. Then they came to repo my car as cross collateral for his car since my car was worth more than his. Not a position I ever want to be in again. I can only imagine if they were taking away my home to recoup the loss of me trying to bail on my condo.

Good Grief! Are you in the Big Louie credit union? Lucky they didn't break your thumbs.

Well of course they did these things...Not sure why that makes them bad- YOU took out the loan and he defaulted....

[Anonymous]

Anonymous wrote:

Anonymous wrote:OP, even IF (big "if") you could somehow qualify for such a loan, it sounds like a very poor idea. Renting out a condo can turn into a nightmare--it's not just an easy way to pay a mortgage.

OP here -Trust me, I dread the very idea of even dealing with renters in our condo... we were just tossing the idea around.

Our friend rents houses and said she has only had one bad tenant in 20 years. She said that everyone has a "story." You have to set financial requirements for renters and only rent to people who meet these requirements. Inevitably people will come to you with a story about something and why it should apply to them. She insists as long as you don't do stories, you are not likely to have issues.

I'm inclined to agree with her. A good friend of mine rented to tenants and was telling me of their story with a recent bankruptcy and why it made total sense, and all I could think was, I know where this is going. And it ended badly.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Live w/in your g-damn means.

basic, solid financial advice

Amen!

You should check with accountant/tax attorney but I believe a short sale can create a tax liability--if your condo is assessed at $250k and your short sale is $150k, you will have to pay taxes on the $100k.

Um, no. Common sense, please. If you never actually receive the 100k profit you can't be taxed on it-an assessment is not an actual profit, just an estimate of what your house could sell for.

climbing off soapbox, now.

You should not be giving tax advice. Forgiveness of debt can create significant tax consequences. Common sense, unfortunately, does not equal tax advice.