Question about getting another mortgage for a second, larger home; want to keep first home as rental?

Question

My mortgage is $1611 and I could rent the house for $1800. But I do not have my property taxes rolled into my mortgage - and that is $3000 per year. If I get $1800 for rent - will the mortgage lender consider that I have a positive cash flow? Or do I have to incorporate property taxes - and therefore have about negative $100 cash flow?

Answer 1

Your cash flow will be more negative then that.   You are leaving out income tax on the 1800 a month and the fact that banks will not give you 100% occupancy with no repairs, it does not happen, and they know that.

Also, you rental income is not income until it is actually rented, the "I could rent it" does not fly.

Answer 2

I've done this many times and this is what a lender will do.

First, they will count your mortgage payment and they will add in the taxes and insurance if they are not already included in the payment. So right there they will consider your payment to be $1,861 plus one twelth of your annual insurance. Let's say your insurance is $480 a year they would count your total payment as $1,901.

It gets worse, however, because they also factor in vacancies. I've seen anywhere from 5% to 20% deducted for vacancies. Saying they deduct 10% for vacancies they'd only count your rent income as $1,620.

In your case that would add up to a $281 monthly loss.

Sorry to be the bearer of bad news but it may not disqualify you from buying the second home. It all depends if you have enough income to qualify for the new payment plus an additional $281.

Answer 3

It is the whole "package" that is considered; not just whether or not you are positive or negative in cash flow.  Even if you are positive, the AC will break and need to be replaced for $5,000.   The bank figures that in. You can do this.