5% down, can my wife purchase the property in her name?

Question

I'm new to Investing - looking for passive income on rentals and the area I live in is of high demand. I'm a home owner and recently married. My wife doesn't have a primary residence in her name. At 2.5% interest rate, it doesn't make sense to refinance just to put her name on the property. We've found a property, but of course, like most, we only want to put 5% down and use all other cash for renovations. Should she purchase the property in her name? Will this allow for 5% down and opportunities to rent out faster? Thanks!

Jason Bohling · Answer

@Cole Payton so what I did was refi’ed my personal residence to a 2.75% interest rate and this will eventually be a rental when we move on.  That 2.75% helps quite a bit as far as cash flow that I can get when I do rent it out, in the meantime my mortgage is super low.  To access the equity, we got a HELOC on it.  We were able to get a 90% loan-to-value on it and with all the interest rate hikes it’s currently sitting at 9.74%.

I went this way because it allowed me to keep super-low long-term debt on it while allowing me access to the equity (to use as short-term debt such as a down payment or rehab in a BRRRR that I can refi out of later and pay back) as I need it.  It didn’t make sense in my situation to cash-out refi into a higher interest rate and higher mortgage payment that I will have to make every month no matter what, just to have a pile of cash that will be sitting idle most of the time.  The HELOC allows me to access what I need, when I need it.  This set up gave me the greatest terms with the most flexibility for my situation.  This is what worked for us.

Now, a mistake I see people make a lot is when figuring how much equity is available.  If say, you have a house valued at $120,000 and you owe $80,000 you have $40,000 in equity.  The mistake I see is people thinking if they do a cash-out or HELOC at 80% loan-to-value, they think that means they get 80% of that $40,000 to use which would be $32,000, which isn’t correct.  The way it’s actually calculated is you take the $120,000 x 80% which equals $96,000, then deduct the $80,000 owed leaving $16,000 in equity you can access, not $32,000.

Another couple pluses for the HELOC vs cash-out is with the HELOC, I had no costs at all, whereas with a cash-out you will have several thousand in closing costs and the HELOC even once I move will still stay on this house and available to use for the rest of the draw period.

Good luck and hope this all helps.

Brittany Minocchi · Answer

Hey Cole! Jason is correct. To purchase a single-family investment property you’d need at least 15% down, more for multi-family. If you rent your current home and purchase another home, then 5% is a possibility.

If you’d be open to a short term rental in a market that you visit often, you could do a second home loan with 10% down. This won’t fly on a long term rental though - you have to intend to occupy the property for at least part of the year.

Theresa Harris · Answer

I would think about turning your current home into a rental (if the numbers work) and buying a new one (with 5% down) that the two of you can live in.  It would also make it more like your home instead of her moving into your home plus if you plan on having kids down the road, you can buy a home with that in mind.  I'd keep the low interest rate mortgage that you have.

Theresa Harris · Answer

Some of us do the 20% down.  It also means we don't have to pay the mortgage insurance. Where I am (Canada), the mortgage insurance works out to about 15% of the mortgage.

Cole Payton · Answer

Of course, I don't want any red flags but does everyone live in their soon to be rental for a year to avoid the 15-25% down? Or is this where the BRRRR method come into play?

Cole Payton · Answer

Okay. I take it regardless she or I would have to live in it for a year before renting it out for the 5% down? What about a HELOC on my primary verses a refinance? I have the cash for 5-15% down but is it better to borrow it against my current primary and use my cash for renovations? Thanks for everyones input. Very helpful.

Jason Wray · Answer

Cole,

The only way your wife can put 5% down is if you both buy this home as a new primary.  If not it would be an investment home which requires 15% down.  If you can rent out your current home it would allow you to buy a new home.  Just treat your current home as a rental and find a new home to purchase so you can use the 5% down option.

You may also want to rethink a cash out refinance even with a 2.5% rate.  Rates will come back down but property values are inflated right now.  I would not wait to pull out cash because that cash will purchase cash flowing rentals.  Take advantage of the cash now and refinance for a lower rate in 12-24 months.

5% down, can my wife purchase the property in her name?

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