Board Topic: aquiring properties over time
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aquiring properties over time

Posted by: Lizzie Jul 1 2003, 10:06 AM
I bought a condo about two and a half years ago, moved out of there, bought house #1 and rented the condo (I make 100 dollars extra after what it costs me per month). Now I am trying to buy house #2, so I can rent house #1 (should be able to make 100-200 dollars over what it costs me per month). I am planning to ask for a residential mortgage from the builder as this (house #2) will be my primary residence. Is this a good way to do this (aquire rental properties)? I keep hearing about rental property financing, but I do not understand the differences between the two types of loans. Can you help?

Posted by: loanuniverse Jul 2 2003, 07:14 AM
A mortgage for the purchase of your primary residence is a very special product. In the current rate environment, it is also one of the cheapest sources of money a consumer has. Among the reasons why it is cheap is because the government has purposely made it so in order to encourage homeownership. One of the ways the residential mortgage market is stimulated is through the work of agencies that group together many loans and sell them in the secondary market in a process called ?securitization?. In order for the process to work, all the loans that are grouped together must share some characteristics, one of which is that they reflect first position financing on the primary residence of the borrower.

If these loans were available for financing rental properties, the overall quality of the portfolio would decline {being that the default rate for rental property loans is higher}. In addition, the whole idea of encouraging homeownership would be diluted as the loans would not be for that purpose.

Can you keep doing as you describe? Yes, you can. However, the thing is that you can only have one primary residence. The way you are describing it, you have two outstanding loans listed as residential mortgages, and want to finance the new house with a third. Any lender would question that. Technically, you could make the argument that since you are moving into the new house you could qualify for a residential mortgage. The problem that I see is qualifying for the new loan while still keeping the other house. {You need to show repayment capability for both}.

How are you going to document the rent for the house you are living in?
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