Rental Property Mortgage- how will it affect new mortge rte?

vinny508 · Joined: 07 Feb 2008 Posts: 2

I own a condo but am trying to purchase a house over the next half a year.

I have 2 options-
-sell the condo now and loose the 30k downpayment because it was bought when market was better

-refinance the remaining mortgage and rent the condo out. I will still have to pay about $200 a month tax expense for it which rent wont cover. then i would sell the condo in a few years when the market improves.

The question is, when I apply for the mortgage on the new house, how will the condo ownership reflect on that? Will I be less qualified for the bigger mortgage since I already have one?

I appreciate all the advice on what to do in my situation

liverichly · Joined: 10 Feb 2005 Posts: 195 Location: Orange County, CA

If you sell the condo prior (or simultaneously) with buying the new home, it won't be factored into your debt-to-income ratio. If you don't sell your condo prior/simultaneously with buying the new home, but have a rental contract on it instead, 75% of the rental contract amount can be used as qualifying income to help offset the housing payment on the condo.

m2c · Joined: 03 Aug 2005 Posts: 743

Before making any projections on renting your condo, you’d better make sure you are legally able to do this. More and more condo associations are enforcing prohibitions on “rentals” so as to maintain “warrantable” status of purchase financing. Recent changes on “spot” condo rules by GSEs has made the picture uglier.

vinny508 · Joined: 07 Feb 2008 Posts: 2

thanks for your reply. Yes, our condo association is ok with leasing the property. I am just trying to figure out the next steps to take and which path to follow

liverichly · Joined: 10 Feb 2005 Posts: 195 Location: Orange County, CA

I'd say rent it out... if you are only losing $200/mo now, and historically rental rates have increased, then odds are you might not have such a big loss in the future. Plus you'd be paying down the mortgage balance, might be something you hand off to your kids down the road. If you were losing a lot of money each month, then it'd be a different story. However to sell now and take a $30k hit, doesn't seem to be the right move if you are able to cover the negative $200/mo for the rental... $30k / $200 = 150 months of negative $200/mo rent.