Auto Refinance/House Upside Down

[disneysteve]

Can you afford 2 mortgage payments without a renter?

We have qualified to carry both with a renter

OP, you didn't answer the question that JPG asked. The question was if you could afford to carry both mortgages without a renter? It doesn't matter what you qualified for. The banks will always tell you you can afford a lot more than you actually can. And you can't base the decision on the numbers with a renter. You've got to look at the worst case scenario. What happens if the renters move out or don't pay on time or don't pay at all? Can you afford to pay the mortgages and expenses (taxes, insurance, maintenance, etc.) on both homes even if the current home is not rented or is rented by someone who isn't making the scheduled payments?

[ChandlerHeel]

Sorry yes - cardinal error - my bad.Thanks for the reminder. The bank will say one thing, it is up to us to know our budget. Yes, WE CAN afford both. We can make both payments, save 15%, tithe 10%, pay into the 401k, etc. We do plan to keep a rental property account with several months rent to cover all the things you suggested.

[littleroc02us]

Alright, everyone, simple question...we are about 40K upside down on our house. We are very anxious to move to a bigger house right now. Would rather not walk away or do a short sale. Don't want the credit hit and don't want to do it for ethical reasons.

It's interesting how you use the word "ethical" and short sale in the same paragraph just because you want a bigger house and your under water. I would say tough! As for selling the car, may be able to bring the house back to value, but it drives me nuts to hear people say they don't want to meet their obligations on a contract they signed in trust to the bank.. Good luck!

[disneysteve]

It's interesting how you use the word "ethical" and short sale in the same paragraph just because you want a bigger house and your under water. I would say tough! As for selling the car, may be able to bring the house back to value, but it drives me nuts to hear people say they don't want to meet their obligations on a contract they signed in trust to the bank.. Good luck!

I think you misread the post. OP said he DOES NOT want to do a short sale. That's why he is looking for another way to do this. He is taking the ethical route.

[jpg7n16]

Yes, WE CAN afford both. We can make both payments, save 15%, tithe 10%, pay into the 401k, etc. We do plan to keep a rental property account with several months rent to cover all the things you suggested.

hmmmmmm.

then that significantly limits the downside risk - which is my main concern about the whole ordeal. If the worst case scenario is you're still able to save 15% and cover both payments, that's not as big of a downside.

so you move into new home with home much downpayment? 10%? 20%?

Given that your income is enough to support both payments, plus a large amount of savings - I may be in favor of it: IF you can get 20% down on the new home. And IF you'll be working towards paying down the $40k negative equity. Not just letting the renter cover the current payments, but actively paying above and beyond to get that $40k knocked out.

Then it'd just be like you're in a current home with a separate rental property that fell in value below what you owed on it. not ideal, but manageable.


And I'd likely try and make both mortgage payments from my own income, plus the renter's income goes to the first mortgage.

[littleroc02us]

I think you misread the post. OP said he DOES NOT want to do a short sale. That's why he is looking for another way to do this. He is taking the ethical route.

Whoops! Sorry, I guess I need to take my own advice "What's the first thing you do when you wake up in the morning? Open your eyes."

[ChandlerHeel]

I like the way you think. Yes - it is like owning a rental that fell in value and we are caught holding the bag so to speak. We plan to pay an additional $6000 minimum over the year to the other house, not just taking the rental income only. It sucks, really, to know we are feeding a sinking ship, but we own it and are owning up to it. That takes guts and so many people around here aren't willing to do that. I just know that if we had sold this home high 4 years ago like we considered we would have bought high as well and would have ended up $150,000+ upside down like many people we know. The rental market is booming here because so many have jacked their credit. Those renters will become the buyers in a few years. We love this house. It just isn;t meeting our needs. Last year we put about $3000 into kitchen upgrades (granite, appliances, etc.) but stopped with further renovations when we realized that nothing we did made our house better meet our needs. Looks prettier but rooms and size are still the same.

[disneysteve]

WE CAN afford both. We can make both payments, save 15%, tithe 10%, pay into the 401k, etc. We do plan to keep a rental property account with several months rent to cover all the things you suggested.

How much of a down payment can you make on the new house? It seems that you've got the income to support doing this. As long as you don't mind becoming landlords to friends and possibly losing that friendship in the process if things don't go perfectly (do they ever?), this doesn't sound so bad now. You need to be prepared to deal with your friends not paying rent on time, not paying rent at all, doing harm to the property, etc. It is hard enough dealing with those issues when you are renting to strangers. I'm sure it is even harder when you know the people. And just because they are friends, don't skip doing your homework, checking their credit, taking a security deposit, having a written lease, etc.

[ChandlerHeel]

The thing is that we know who they are, their personal and professional ethics, how they take care of their current home, etc. We know they will love our house like we love our house. We have a dear friend in the neighborhood who is a contractor who does rental maintenance on the side for several properties. He is our go to guy. He has been out go-to guy for repairs on this house anyway. We DO plan to cross all our t's and dot all our i's with checks and contracts and deposits and everything. Our realtor will see to doing all of that with us. That is part of her services.

Like I said before, we are trying to make lemonade out of lemons. It isn't the perfect situation but we are trying to make it the best we can.

[Slug]

Based on reading all of the above, I'd say do it (i.e. carry both houses). I'd also say don't be in a hurry to sell home #1 when your original renters move out. You may find you enjoy landlording to people who want to live in the same house that was good enough for you to live in for a decade.