Hi,

My wife and I are buying a new home in Austin, TX. We've lived in out current house for 4 years. During that time the value has grown. The tax appraisal, which is supposed to be conservative, is $186K. A similar house on the same street (same model) sold in about 1 week last February for $182,500. We put out house on the market in April, and it hasn't sold.

Our current asking price is $175,900. So, as you can see, the market is not very good here right now. This is a very good neighborhood. The average home value here is about $220K and the next cheapest house on the market is about $200K. Our house is smaller than most at about 1700 sq-ft. I expect that the market will hit the bottom this fall and start to come back next spring. If we can sell the house at the current asking price then we will be happy enough. But, if the market is so soft now that we cannot get that much then we would probably like to lease it for a year or two until we can sell it for a more reasonable amount. We've got a fair amount of equity, about 45% on a 180K valuation. I think that we can probably get $1400-$1500/month in rent. That's the data, here are the questions:

1) I need to get some money out of the house to make the downpayment on the new one. I can probably swing it if the we take the LTV to 80%. Should I try to re-finance before we lease it or get a tenant first?

2) Do I need to get a special investment property loan? What kind of LTV do those typically require? We have good credit, about 650-700.

3) What do you think of interest-only loans? We found one that offers a 3.5% interest rate for the first year, with the rate increasing in ubsequent years. Since we only want to keep it for 1-2 years, this would seem to make sense to me. If this type of loan works then the expected lease amount is about $300 more per month than the interest + Tax + insurance.


Any help or tips are appreciated!
Thanks,
Matt

Hello Matt and welcome to my forums.

First let me say that I am sorry to hear about your difficulty selling your home. The fact that you have had your house for sale since April and today is October 1, 2002 tells me that either the marketing of the house or the pricing might be a bit off. If you have it listed with a realtor, you might consider giving the listing to another or selling the property through one of those “buy owner” networks. This situation is particularly distressing since most real estate markets are booming. For example, average housing prices in my neighborhood went up 16% last year and should go up another 10% this year. You might consider spending some money in real estate classifieds also.

Here are a couple of tools, I found valuable when looking to buy a house a couple of years ago. They will also help you as a seller to get a more accurate feel of the market in your area.

The realtor.com site allows you to search homes for sale by zip code:
http://www.realtor.com/

This is a little tool from BankofAmerica, I think they charge if you want a report but it is worth it:
http://www.bankofamerica.com/loansandhomes...e=hc_home_worth

Now on to your questions

1) I need to get some money out of the house to make the downpayment on the new one. I can probably swing it if the we take the LTV to 80%. Should I try to re-finance before we lease it or get a tenant first?
There might be a problem with you refinancing with a tenant. Interest rates for residential real estate are at an all time low. However, those rates apply only to owner occupied real estate. You will not qualify with a tenant. In addition, you will have to explain to the lender of your new property that the new home will be your primary residence. This might be a problem if your credit report shows an outstanding mortgage loan.

2) Do I need to get a special investment property loan? What kind of LTV do those typically require? We have good credit, about 650-700.
If you are going to own both properties at the same time you will have to demonstrate repayment capability for both facilities. This is more dependent on income than on credit score. Of course credit history is important. Investment property loans usually have a maximum 80% LTV. Take a look at my http://www.loanuniverse.com/realestate.html page for more info.

3) What do you think of interest-only loans? We found one that offers a 3.5% interest rate for the first year, with the rate increasing in subsequent years. Since we only want to keep it for 1-2 years, this would seem to make sense to me. If this type of loan works then the expected lease amount is about $300 more per month than the interest + Tax + insurance.
This sounds good. Nevertheless with the current interest rates, I would try to lock the low rates for as long as possible. For example, you can find a 15-year mortgage for 5.25%.

Good luck and I hope this has been helpful to you.