Can we use equity as down payment to buy a second home?

[Anonymous]

We owe $500k and house is worth at least 1.3 mil. Mortgage is $3500/month. It is a duplex and we can rent out for $5000. We want to move but don't want to sell. Do people do this? What percent of down payment could equity be? We don't have a much saved to add to a down payment

[Anonymous]

1) you can either refinance up to 80% value and take money out for the down payment
2) you can take out a HELOC (Home Equity Line of Credit) and use that as a downpayment

In both cases, the bank approving your second mortgage will look at if you can afford both mortgages on your current income.

Yes I know you plan to rent it out but it has no rental history, nothing to show you will be able to rent it or how much you can rent it for.

So can you afford both mortgages on your current income without considering rental income?

[Anonymous]

Also how do you plan on being a landlord when you have no savings as a downpayment for a new house?

You know how much shit can go wrong as a landlord? From stuff breaking to tenant not paying?

[Anonymous]

Maybr stay where you are at until you can figure out how to bettwr manage yiur money and save. Someone who can't manage to save should not e owing two homes.

[Anonymous]

Anonymous wrote:We owe $500k and house is worth at least 1.3 mil. Mortgage is $3500/month. It is a duplex and we can rent out for $5000. We want to move but don't want to sell. Do people do this? What percent of down payment could equity be? We don't have a much saved to add to a down payment

Are you so sure you could rent it out? And for $5,000/mo?

[Anonymous]

Without a rental history on your property, you would need to show the bank that you have the income to pay both mortgages at the same time (new house + old house).

In any event, this doesn't seem like a good rental property to me. Assuming no other expenses (which won't happen) you would clear $1,500 a month or $18,000 a year. That is a pretty poor return on the equity you have in the house of $800,000. It is on the order of 2%. This property just doesn't make sense as a rental., if you take the equity out of the house, you probably will actually lose money on it each month.

[Anonymous]

Yeah but if their house appreciated at just 2% / year (translates into a additional 3.25% return on top of the rent) then the return gets better. I would still just sell it though because it seems like being a landlord sucks.

[Anonymous]

I was in a similar situation. Own a house with 500k left that could sell for 800k. Wanted to buy another house in palisades. Turned down by numerous banks because i lack rental experience. They basically said if you can come up with 300k more cash to finance the new house loan we can finance you. With that said we decided to stay put in sw and go to private schools.
I know it sucks but thats reality

[Anonymous]

Anonymous wrote:Without a rental history on your property, you would need to show the bank that you have the income to pay both mortgages at the same time (new house + old house).

In any event, this doesn't seem like a good rental property to me. Assuming no other expenses (which won't happen) you would clear $1,500 a month or $18,000 a year. That is a pretty poor return on the equity you have in the house of $800,000. It is on the order of 2%. This property just doesn't make sense as a rental., if you take the equity out of the house, you probably will actually lose money on it each month.

I took this question differently than you did.. OP you may need to explain. I thought you live in a house worth 1.3 w/ 500K owed. Not sure why this is questioned as a bad rental if the $5000 per month or even less is attainable. If the renter is paying that amount you'd gain the $1500 and whatever amount goes to principal on the loan..sounds great to me

[Anonymous]

Anonymous wrote:

Anonymous wrote:Without a rental history on your property, you would need to show the bank that you have the income to pay both mortgages at the same time (new house + old house).

In any event, this doesn't seem like a good rental property to me. Assuming no other expenses (which won't happen) you would clear $1,500 a month or $18,000 a year. That is a pretty poor return on the equity you have in the house of $800,000. It is on the order of 2%. This property just doesn't make sense as a rental., if you take the equity out of the house, you probably will actually lose money on it each month.

I took this question differently than you did.. OP you may need to explain. I thought you live in a house worth 1.3 w/ 500K owed. Not sure why this is questioned as a bad rental if the $5000 per month or even less is attainable. If the renter is paying that amount you'd gain the $1500 and whatever amount goes to principal on the loan..sounds great to me

Return on investment would be ~2%, that is what that poster is saying. Making $18,000/year on a $800,000 investment comes to 2.25%.

And that amount would most likely be less since the OP would need to:
- either refinance and cash out to make a downpayment on new house . Unless maybe they had like 10 years left on the house and refinance it to a 30 years which may keep their payments to about the same.
- or take a HELOC and use it as a downpayment, again would need to repay that back.

Basically they need the equity in that house to move.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Without a rental history on your property, you would need to show the bank that you have the income to pay both mortgages at the same time (new house + old house).

In any event, this doesn't seem like a good rental property to me. Assuming no other expenses (which won't happen) you would clear $1,500 a month or $18,000 a year. That is a pretty poor return on the equity you have in the house of $800,000. It is on the order of 2%. This property just doesn't make sense as a rental., if you take the equity out of the house, you probably will actually lose money on it each month.

I took this question differently than you did.. OP you may need to explain. I thought you live in a house worth 1.3 w/ 500K owed. Not sure why this is questioned as a bad rental if the $5000 per month or even less is attainable. If the renter is paying that amount you'd gain the $1500 and whatever amount goes to principal on the loan..sounds great to me

OP owes $500k now, but wants to pull out another $200k-$300k (ish?) to make a down payment on the next house. So it would be $5k/month (again, not clear how correct OP is that they could "easily" rent their house for this) on $700-$800k of the OP's money, which could be potentially invested elsewhere. That adds about $1000 for a second mortgage, plus the $3500 original mortgage, and now you're looking at $500/month cash flow plus maybe $1500/month in increased equity. So, assuming full occupancy and no huge repairs, that's $24k/year.

A 7% return on that 700k in the market would be $49k/year, without the stress of being a first time landlord.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Without a rental history on your property, you would need to show the bank that you have the income to pay both mortgages at the same time (new house + old house).

In any event, this doesn't seem like a good rental property to me. Assuming no other expenses (which won't happen) you would clear $1,500 a month or $18,000 a year. That is a pretty poor return on the equity you have in the house of $800,000. It is on the order of 2%. This property just doesn't make sense as a rental., if you take the equity out of the house, you probably will actually lose money on it each month.

I took this question differently than you did.. OP you may need to explain. I thought you live in a house worth 1.3 w/ 500K owed. Not sure why this is questioned as a bad rental if the $5000 per month or even less is attainable. If the renter is paying that amount you'd gain the $1500 and whatever amount goes to principal on the loan..sounds great to me

OP owes $500k now, but wants to pull out another $200k-$300k (ish?) to make a down payment on the next house. So it would be $5k/month (again, not clear how correct OP is that they could "easily" rent their house for this) on $700-$800k of the OP's money, which could be potentially invested elsewhere. That adds about $1000 for a second mortgage, plus the $3500 original mortgage, and now you're looking at $500/month cash flow plus maybe $1500/month in increased equity. So, assuming full occupancy and no huge repairs, that's $24k/year.

A 7% return on that 700k in the market would be $49k/year, without the stress of being a first time landlord.

the loan is being paid down monthly by the renter that is another 18K in the OPs pocket. ( albeit not until the home is sold)

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Without a rental history on your property, you would need to show the bank that you have the income to pay both mortgages at the same time (new house + old house).

In any event, this doesn't seem like a good rental property to me. Assuming no other expenses (which won't happen) you would clear $1,500 a month or $18,000 a year. That is a pretty poor return on the equity you have in the house of $800,000. It is on the order of 2%. This property just doesn't make sense as a rental., if you take the equity out of the house, you probably will actually lose money on it each month.

I took this question differently than you did.. OP you may need to explain. I thought you live in a house worth 1.3 w/ 500K owed. Not sure why this is questioned as a bad rental if the $5000 per month or even less is attainable. If the renter is paying that amount you'd gain the $1500 and whatever amount goes to principal on the loan..sounds great to me

OP owes $500k now, but wants to pull out another $200k-$300k (ish?) to make a down payment on the next house. So it would be $5k/month (again, not clear how correct OP is that they could "easily" rent their house for this) on $700-$800k of the OP's money, which could be potentially invested elsewhere. That adds about $1000 for a second mortgage, plus the $3500 original mortgage, and now you're looking at $500/month cash flow plus maybe $1500/month in increased equity. So, assuming full occupancy and no huge repairs, that's $24k/year.

A 7% return on that 700k in the market would be $49k/year, without the stress of being a first time landlord.

the loan is being paid down monthly by the renter that is another 18K in the OPs pocket. ( albeit not until the home is sold)

No, that's the $1500/month equity that's already accounted for in the $24k/year, it's not another $18k.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Without a rental history on your property, you would need to show the bank that you have the income to pay both mortgages at the same time (new house + old house).

In any event, this doesn't seem like a good rental property to me. Assuming no other expenses (which won't happen) you would clear $1,500 a month or $18,000 a year. That is a pretty poor return on the equity you have in the house of $800,000. It is on the order of 2%. This property just doesn't make sense as a rental., if you take the equity out of the house, you probably will actually lose money on it each month.

I took this question differently than you did.. OP you may need to explain. I thought you live in a house worth 1.3 w/ 500K owed. Not sure why this is questioned as a bad rental if the $5000 per month or even less is attainable. If the renter is paying that amount you'd gain the $1500 and whatever amount goes to principal on the loan..sounds great to me

OP owes $500k now, but wants to pull out another $200k-$300k (ish?) to make a down payment on the next house. So it would be $5k/month (again, not clear how correct OP is that they could "easily" rent their house for this) on $700-$800k of the OP's money, which could be potentially invested elsewhere. That adds about $1000 for a second mortgage, plus the $3500 original mortgage, and now you're looking at $500/month cash flow plus maybe $1500/month in increased equity. So, assuming full occupancy and no huge repairs, that's $24k/year.

A 7% return on that 700k in the market would be $49k/year, without the stress of being a first time landlord.

And a 10% return would be 70k. What is your point! Unless and until CDs or treasuries get to 7% there is simply no way to assume a 7% return right now. And spare me your genius investment strategy. No one believes your BS.

[Anonymous]

You cannot get that equity out of the house unless you take a HELOC or refi your home. If you refi and take money out, your mortgage payment will go up. You don't get to keep the equity in the house and use it as a down payment for another house. Only one bank/loan can be using that equity at a time. If you have that equity in the first house, then it is just paper money and doesn't actually exist. If you take the money out of the first house to make the down payment on the second house, then your equity in the first house goes down and your mortgage payment goes up to compensate for less equity. But then you'll have the liquid equity assets to put down on the second house. But you'll have two mortgages. Most banks will not give you a second mortgage unless your income specifically allows you to pay both mortgages without rental income since you have no history of rental and no proof that you can rent the house.

The only alternative you have to do this is you have to temporarily rent another property (whether a condo, townhouse or SFH) and move into that property. Then you can move into the rental and rent out your first house. Once you have a renter in the first house with a lease for at least one year, then you can establish history and proof that you have guaranteed rental income on the property for at least one year and then they will allow you to refi the first house, take out equity, and apply that equity to another mortgage to buy a new house. But you'll have to be able to afford the first mortgage and the temporary rent until you actually close on the second house. If you are getting rent from the first house, you can apply that rent to your rent of the temporary place while you get the second house purchased and closed.