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In your savings you’ll need:
- 10% down payment
- 2-5% of the total mortgage balances (old + new)
- $10K for closing costs
- $ for moving & furniture costs (assuming you’ll leave all the furniture behind in the condo you’ll need to furnish new house completely)
- $ for any necessary improvements to the condo to get it STR ready
- $ for any necessary improvements to the house you’ll buy (depends on your market, but now buyers do have more negotiating power to get things fixed. Wasn’t the case earlier this year).
To get the 10% down payment, you can do a cash out refi, get a HELOC, borrow against your 401K, or just save the money. The absolute max you’ll be able to tap into is 90% of the condo value less your mortgage balance. Or, move or now into an apartment and start the mid term rentals to save cash faster for down payment (that’s what I did - also helped me feel more confident that I could cover old mortgage + new mortgage).
You can use rental comps to help you qualify for a 2nd mortgage. I think they typically use 75% of estimated rental income towards qualifying for another mortgage. They’ll look at long term rental income not short term.
For your own reference, use AirDNA to estimate your rental income for short term / mid term. To make sure you can actually cover mortgage costs with that methods. If you get a realtor for STR specifically, they should have an account and give you access.
Go to some short term rental happy hours in your area. You’ll meet mortgage lenders that know all the ins & outs for getting people qualified for 2nd homes when they plan to do mid term rentals on the 1st.
Definitely on the risk averse side too! Glad it is working out well for you. Working to get on your level.
I don’t haven’t the answer but commenting so I can follow 👍. Planning on executing that exact plan in the next couple of years!
Oh wow, crazy how similar our future plans are lol. But, I haven’t even considered international students, thank you for that!
Coach
You just need to be able to qualify with both mortgage payments. So take your gross income divided by 2, subtract the current mortgage payment and the monthly payments for anything else that reports on credit. The amount that remains is roughly what you can afford as a housing payment on a new property…best to leave a little wiggle room in that number as well.
Thanks Josh!
Mentor
Not hard at all. Didn't even consider it would be an issue.
It won’t be any different than qualifying for your condo. You need basic Debt to Income ratio limits, but if you plan to rent out the condo, the bank will take 75% of what you get a lease signed for and use that to “cancel out” your monthly debt on the mortgage. If you can get enough out of rent, that effectively takes your debt for the condo on a month that basis to zero, so then you just need to qualify under the typical income requirements as any old Joe would need to go to buy the SFH. You can do as low as 5% down on the new house, all the same deals. You will only run in to “issues” if you can’t rent your condo for enough that the 75% of rent covers it, at which point you might have a few hundred dollars of extra debt on your books, if that makes sense.
Coach
Well said! Need to have the current property under lease prior to closing on the new property with the term of the lease starting within 60 days of closing to count the rental income and it has to be a long term lease. Bank won’t count any rental income most of the time unless you’re actually receiving it.
Reason to avoid condo^
I know, it’s bad :( lol but got it before it hit the market and didn’t have to compete against people offering $10k more than listing price so just rolled with it.