Buying A Home
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Best way to buy a 2nd home? Mortage or Home Equity Loans? Helocs?

So I didn't qualify for a home mortgage the first time BUT was able to purchase a rental property instead. 

A year from now, I would like to purchase a home to actually live in.

What is the best way to go about this?  I am self-employed and didn't even qualify fora $500k home with 50% down.  I did however qualify for a $800k loan on an investment property with 30% down. (funny right?).

Currently, I owe about 350k on the rental. I should have steady income from this 4 unit apartment. Let's say around 6k a month and the mortgage on this rental is 2k a month.

What would be the best way to purchase the 2nd property?  Would I qualify for a loan now?

Looking at a 450-550k property.

I can do 30% down.

Another option is to buy my sister's place.  What would be the best way to purchase her house? Have her add me to the title and refinance later?  Give her cash for the difference?

Re: Best way to buy a 2nd home? Mortage or Home Equity Loans? Helocs?

  • That is weird!  I'm a real estate investor myself and it is much easier to get a loan for an owner-occupied house as opposed to a rental investment.

    However, I do have a typical W-2 job, in addition to my rental income and other 1099 type work.

    Have you been self employed for the last 2-3 years?  I could see where, if you had just started working for yourself, banks might not have been too keen.  Depending on the bank, they will want to see your tax returns, as a self employed person, for the last 2-3 years.

    They'll typically also want to see the leases and the tax returns (if a separate business) for your investment property, as proof of that income.

    Is your credit okay?  If not, that would have previously been a factor also.

    Have you considered buying another investment property, where you could live in one unit and rent out the other?  Like a duplex, or even a larger house with a mother-in-law cottage type of configuration.  Since you were previously successful being approved for an investment property, maybe that strategy would work again for your own home.

    Lastly, it's more expensive, but you could also consider semi-hard money lenders.  They are more tailored for investment purchases but, as long as the Loan to Value ratio is there, I don't see why they wouldn't loan to anyone.  Many of those companies don't care about your income or where it comes from.  They look at the "deal" and your credit score.  That's it.  But they charge 3-4 points and interest rates in the 9-11% range.  However, you could always re-fi later.

    Bottom line, though.  Talk to some local banks again!  They better than anyone can tell you what they require for a self-employed person to buy a personal home and the steps you will need to take in the next year to make that happen.  You can also talk about buying your sister's place and if something with that could make things easier.

  • My credit is above average. In the 800 range.  I've been self-employed (1099 Misc) for over 4 years. 

    I think a lot of it has to do with my taking too many deductions. 

  • My credit is above average. In the 800 range.  I've been self-employed (1099 Misc) for over 4 years. 

    I think a lot of it has to do with my taking too many deductions. 

    Seriously jealous of your credit score! :)

    I feel your pain on the bolded.  It's a double-edged sword.  You want to take all the legal deductions you are entitled to, so your taxable income is less.  But then, with a lender, you want your income to look as high as possible.

    If you haven't discovered it already, I recommend checking out a website called Bigger Pockets.  They are a real estate investing website that has an enormous forum and lots of articles/podcasts.  There is no cost to sign up and read/post to most of the forums.  There are forums devoted just to financing and, even though the topics are more geared toward RE investments, there is a lot of good general information about it also.

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