2 house mortgages

**Darly2004** · 08-05-2013, 05:03 PM

I am not an expert at this, but thought I might share our experience since we do have 2 mortgages. We bought our previous house (AZ) in 2005 as the market was starting to going up. Our plan had been that we would move back to CA in 3 years. Well, the market turned upside down and we were stuck with the house. That made our 3 year plan into an 8 year plan. House is still upside down, but we are hoping to sell in 1-2 years. We has since decided to stay where we are since we didn't really know if we could make the mortgages work in CA. The houses we were looking at were in 600-700k range for the school district we want.

Where does the 2nd mortgage come in? Last year, we decided to stay here and looked for our forever home. Our first mortgage was under my husband's name only, so I was able to qualify on my own. We are renting out our other home, but it's a pain to own a rental IMO. Our rent does not even cover the mortgage. Luckily for us, we have enough income to cover the expense, but it is not fun to be losing money each month.

My advice, if you want to go through with a home purchase, make sure you only qualify under one person's name, preferably the one who makes less money since CA mortgage would be higher. Make sure that for the area you are looking at, the rent will cover the mortgage you'll be owing. Even better, if you only plan to stay there for 3 years, it may be better to just rent a small place and save up money for down payment for house in CA later. You really won't know how the market will do in 3 years. That way, you won't need to worry about if you can sell that house, if you are able to rent it, if the rent will cover the mortgage, or whether you can qualify for another mortgage in CA.

**disneysteve** · 08-05-2013, 05:43 PM

Let me make sure I have this right. You plan to move from CA to TX where you will buy a house that you only intend to live in for 3 years at which time you'll move back to CA and buy another house, renting out the TX house.

Are you nuts?

Using your numbers, let's say you buy at the low end of the ranges you gave, so 100K in TX and 300K in CA. You shouldn't spend more than 3 times income on your home. You earn $5,400/month which is $64,800/year. How exactly are you going to manage to buy 400K worth of homes? That's more than 6 times your income. I doubt you will qualify for the CA loan if you still own the TX house.

Next question is why you would want to be a landlord in TX when you live in CA?

If you only plan to be in TX for 3 years, why would you consider buying a house? That's exactly what rentals are for.

Obviously, I'd say this is a bad plan all around for lots of reasons.

**HappySaver** · 08-05-2013, 06:03 PM

Yes, you're overcomplicating your life for no good reason, into what could be a very risky situation. It makes NO SENSE to buy in TX if you're not planning to stay for 7-10 years. And why would you want the headache of owning in TX once you go back to CA?

We own two homes but they are in the same area. I can't imagine being a landlord in separate areas. Even so, it's a PIA. You're not around to maintain the place/manage repairs. You WILL need a management company, which will eat into profits (if you even have any). Being a landlord is not cheap, and you need MAJOR equity in the house before you turn a profit, equity which will divert you from your CA downpayment.

You don't make nearly enough income to consider this crazy plan. Geez, is it 2007 again?

Just rent and save, save, save until you can comfortably buy in the area you want to stay in.

**Wino** · 08-05-2013, 06:43 PM

I have some experience in this area, so maybe you can learn from what I did.

I own a house in Houston, TX. When I came to Dubai about 1.5 years ago, I allowed DD and her husband to move in. The requirements for their greatly-reduced rent was that they keep the lawn mowed, do the fertilizer schedule (Randy Lemmon's schedule is correct if you're in Houston), and let us know if anything needed to be fixed.

We paid everything except utilities, including all the costs for the lawn care. We also told them we'd pay any amount of water over $50/month, and even that was negotiable. Basically, we just wanted someone to maintain the condition of the house.

They were not handyman type people in the least. When I went back in June/July, all I did for the month was repair things. The lawn needed parts of it re-sodded. We started watering almost the minute we got there. There were several minor repairs needed throughout the house. All in all, I spent about $2K putting the house back into A1 shape. That does not count the sweat equity I put in to it doing the lion's share of the work myself. (I am a handyman type of person.)

So, if you plan to have a house, and you get random renters, do you expect them to be any better than my relatives? Note that DD did NOT abuse the house. She did NOT throw wild parties or otherwise misbehave. It is just that the deterioration without continual, nearly constant, upkeep was very noticeable.

I would not recommend that you become a long-distance landlord.

**97guns** · 08-05-2013, 07:52 PM

consider a duplex, my mother and brother own duplexes in austin and get 8-900 in rents for each side. i think they are in the 150K range, with 20% down your looking at a payment of under $600, you could pretty much live for free with the scenario of renting 1 side out.

**97guns** · 08-05-2013, 07:57 PM

also i am against renting even with your time frame, 3 years or 36 months of rents would be no less than 28K. under my duplex plan you would need the 20% down of 150K which works out to 30K, you own the property and the tenant grows your equity by paying your mortgage

**Jerry91** · 08-05-2013, 10:47 PM

Two mortgages can turn out to be a difficult financial deal. If your financial situation goes haywire or if you lose your tenants and do not find any new tenants, then the house in Texas can become a burden for you. As you will be living in Texas for around 3 years, you can rent a property for the time being. You can directly buy a property in CA when you once shift base here.

**HappySaver** · 08-06-2013, 03:59 AM

Originally posted by 97guns View Post

also i am against renting even with your time frame, 3 years or 36 months of rents would be no less than 28K. under my duplex plan you would need the 20% down of 150K which works out to 30K, you own the property and the tenant grows your equity by paying your mortgage

This logic is flawed. First, it assumes you already have the $30k ready to go. Second, it ignores other costs you would have as a homeowner that you don't have as a renter: Mortgage interest, real estate taxes, homeowner's insurance, maintenance, repairs, all utilities. Plus the extra money you would spend fixing it up/furnishing it because you "own" it. All this added up is much much more than you'll build in principal - principal which you can't access until you sell. Finally, don't forget closing costs when you purchase, and more significantly, closing costs if you decide you want to sell. First time homeowners almost always underestimate the true cost of owning.

**bjl584** · 08-06-2013, 04:22 AM

As others have said, rent in TX if you plan to be there only 3 years.

**riverwed070707** · 08-06-2013, 05:35 AM

Since others have already pointed out the logic flaw, I'll stick to the numbers part. We have two mortgages on two houses. I know a pp mentioned having one spouse qualify, then the other. It doesn't really matter if one or both of you qualify, what its going to come down to is that you have to be able to afford (by the banks standards, not your own) both mortgages + tax, insurance and other estimated expenses. They don't care if thats one income or two (as I mentioned, we have two and I'm the sole income in the house), but the total has to come in at a certain percentage of your pay. You cannot count rental income as income until you've been receiving it consistently for 2 years and can show documentation. While I agree with the others that your plan isn't really a good one, if you're determined to do it, you'll likely need to rent the house in Texas for 2 years before you can even apply for a mortgage in CA because on your income you won't qualify for both.

Another note on rentals, in my experience, smaller houses rent better than bigger houses. Most renters in LCOL areas want cheap rent close to amenities, they aren't looking to rent a 4 br house in the suburbs. Are you planning to buy a starter house in TX? If not, I'd strongly suggest reconsidering. Bottom line is that in a place where mortgage prices are cheap, if you buy anything more than a starter at $80-100k most people who are going to want to rent your bigger, nicer, more expensive home are people who can't qualify for a mortgage on their own. Why would they spend $900 on rent to cover your mortgage and expenses when they can buy for less? Obviously all renters don't fit into a single demographic, but you will have a much harder time with a specific one in mind. Something to think about.

**ktmarvels** · 08-06-2013, 06:41 AM

So we essentially ended up in the same situation you will be in. We bought a house in Jacksonville, lived there for almost 2 years, then got stationed somewhere else and bought another house. We are currently renting out our property in Jacksonville (at a loss $30/month + whatever other repairs). My biggest regret so far is that we didn't refinance while it was still our primary property. We rented it out to friends the first year and now have a property management company to handle things. Long distance landlords need propery managers!

We just found out we have to move again, this time MUCH further away. Our plan was to always keep both of these houses and rent them out because it was likely we'd be stationed back at one or the other. Our Jax house has lost so much value, we'll probably have that thing forever. Our current house I'm not quite sure what to do. It has at least maintained it's price if not gone up, so I'm tempted to sell it.

Just so people don't think we are crazy, we had a downpayment saved, but we got a VA loan for the 1st house which required no downpayment. Then we got an FHA loan which only required like 3% down. We still have most of that original downpayment money in the bank as our "house fund" which is now used for repairs and maintenance, not downpayments.

**Darly2004** · 08-06-2013, 11:09 AM

Originally posted by riverwed070707 View Post

I know a pp mentioned having one spouse qualify, then the other. It doesn't really matter if one or both of you qualify, what its going to come down to is that you have to be able to afford (by the banks standards, not your own) both mortgages + tax, insurance and other estimated expenses. They don't care if thats one income or two (as I mentioned, we have two and I'm the sole income in the house), but the total has to come in at a certain percentage of your pay.

I guess what I had meant that based on their income, if 2 people needs to qualify for house in TX, most likely they won't qualify for house in CA as well. So, they need to make sure that whatever amount for the house they buy in TX is based on one person's income alone. Most homes in Southern CA, for a decent neighborhood, runs 400-500k. The mortgage on our new house is $2250 on a $410k mortgage. You said your take home (I am assuming net not gross) is $5400. That is 50% of your take-home pay. So even if you qualify for that much, you'll probably need to decide if you can afford that much. Also, think about if you're not able to rent the TX home out. Our place was vacant for 5 months before being able to rent it out. We were paying for 2 mortgages at one time. That is something else to consider, if you can afford both mortgages at once.

**siggy_freud** · 08-06-2013, 04:34 PM

Originally posted by HappySaver View Post

This logic is flawed. Second, it ignores other costs you would have as a homeowner that you don't have as a renter: Mortgage interest, real estate taxes, homeowner's insurance, maintenance, repairs, all utilities.

In nearly all cases, unless the rental market is overwhelmed with available rentals and you are very limited in what you can charge, a renter is paying for all of that anyways. In cases where the renter isn't paying for it all, it's still largely offset by the equity being gained by having someone pay the lions share of the mortgage.

Look at it this way: I have a home that costs me $602 a month, and I rent it out for $735 per month. Let's say with maintenance and repairs I'm actually losing $100 a month overall (I'm not, but let's say I am). Wouldn't you still invest $100 per month to gain 200-600 in equity (depending on what year of the loan you're in)? Isn't that still a better return that you'd traditionally expect from other conventional ventures?

OP, I'm all for buying the home in TX, but you do need to consider a few things.

1. The rental marker where you're buying. Is it over-saturated, standard, or in need of more rentals.

2. Can you rent it for enough money to break even/make a profit, or at least enough to be okay with the monthly loss to gain the investment over time?

3. Are you comfortable letting a company manage the property since you'll be at quite the distance?

4. Can you afford to get a second mortgage, especially one of a significantly higher value in CA, still owning the TX property? Keep in mind that the TX home will count against you in terms of debt until you've shown at least two years work of income from it on your taxes.

5. Would it be an option to rent again in CA if you couldn't immediately buy after moving back?

**thomasdan** · 08-08-2013, 07:54 AM

thanks for everyones advice.

so i think what my wife and i are gonna do is just rent until we can save up what we need to stay in CA. With intrest going up, houses price going up or lack of inventory.. its easy to get cuaght up in that. But i think we're leaning towards saving right now and not letting us fall in that trap. Thanks guys

btw, in texas. My father wouldve watched over the house if we did move to TX and then moved back to CA. He also has a great knowlegde of house repairs.

2 house mortgages