Posted by Atlanta_bob on June 05, 2005 at 19:54:35:
Hi Debbie:
If you buy property using conventional means (= mortgage loans), then MAYBE you can buy both properties. Just run the numbers to see. Let’s assume you have decent credit and you can obtain 95% financing on each property. Assume you pay 2.5% in closing costs and 2% in pre-paid escrow account. Total = 9.5% expense. For your primary residence, that 9.5% (of $180K) = $17,100. For your 2nd home, that 9.5% (of $250K) = $23.75K. Total cost to purchase = $41K. Available funds = $35K. Best ask your mortgage broker how much everything will cost to buy those properties, since you are fairly close to your available funds.
A main assumption in the above example is the condition of each property when you buy it - - good?, bad? or ugly? If each property is good, then you have minimal costs to fix-up. If ugly, then your funds are very, very thin and you might, perhaps, just have enough money for one house.
You can often get 100% financing on houses, especially your primary residence, with good credit. If possible, then you won’t have to pay the 5% downpayment on $180K (= $9K) and your total “cost to purchase” both properties approaches $32K. Again, ask your mortgage broker if they have loan programs to meet your needs, including their closing costs for each loan. However, best to make sure that rental property will cash flow each month with 95% financing, unless you have money to burn each month!
My husband and I have $35,000 we want to use to purchase, hopefully, 2 properties. The first would be our main residence which, in the area in Michigan we live in, would cost approx. $180,000. The 2nd would be mostly an investment property (we would stay there in the summer and rent it out during the academic year). The 2nd home/condo would be in New Hampshire and would cost anywhere from 200,000-300,000.
My question is…is this possible??? I really want to make this happen and would love advice/suggestions?
Here’s a basic outline on how to calculate if you can do it - using some rough figures:
Total to qualify for = $500k worth of property at two different rates
Home purchase = $200k, 5.25% owner occupied rate, $1100 PI, 1350 PITI /mo.
2nd Home purchase = $300k, 6% non-owner occupied rate, $1800 PI, 2150 PITI/mo .
Total monthly pmts for both properties to qualify for = $3,500/mo.
You got good credit so they allow 50% of your income to go towards mortgages.
That means you need $7,000 per month income to qualify for $3500/mo.PITI.
You can get $1500 per mo. in rent X 9 mos. = 13,500/yr =$1125/mo X .75=
$843/mo. qualifying income on the rental.
$7000 - $843 = $6,157/mo that you now have to make in personal income to qualify for both properties after subtracting the qualifying rental income. (assuming other things like good credit, little debt, time on the job, etc. -things an underwriter will look at, especially since you will not be putting 10-20% down)
If you don’t have enough income to qualify, then you need to lower the monthly payments. This means you need to find lower valued properties or find motivated sellers who will sell for less. If you have your pre-approval letter all ready, you can quickly pounce on a good deal you run across. By putting as little down as possible you can then use some funds for possible fix-up costs. Banks also love to see funds in savings. It will also be easier to qualify for the second loan if you have already established the rental income on the first property and can provide a rental agreement.
It’s possible if your income (personal & rental) will handle the payments.
Remember the bank will only count 75% of the rent as income.
If you put down 3% on 500k of property you only need 15k down.
If you do 0% down even better. Maybe use some of the $ for fixup on a great deal.
You can roll your closing costs and prepays into the loans.
Shop hard for the best deals and the best financing you can find.
Conserve your cash. Keep a decent emergency fund always.
