How to? Move into a new house and keep my first home as a rental

Question

1st time posting here.

Looking to purchase another house and keep current single family home as rental. We just have no idea how to do it.

In Austin, Texas market. Bought house 1.5 year ago for $230K. We got a conventional loan with our Credit Union, putting 3% down at 3.25% interest. Our total payment (P&I, PMI, property tax, insurance) is $1569, and we still owe $222k because only $389 per month is going towards principal.
Based on crazy prices on houses that have been sold in our neighborhood over the course of the past few months, I think that we could probably sell the house for $330-370k with barely any updates to house. Based on other house rentals in neighborhood we think that it might be possible to rent for $1700-$1900 per month easily.

Was thinking we should be able to get PMI removed? I reached out to mortgage lender and asked how to do it, they replied that if we believe the value of the house is at or above $298k, then we could get it appraised (by an appraiser of their choice to confirm) and they'd drop PMI.

Currently our PMI is $72.18 a month until Sept 2027.

Other details to help figure out if possible:

Our gross family income is right at $100k. We don't have a ton of money saved for a new down payment on a new house.

Any advice is appreciated.

Account Closed · Answer

@Jacob Pereira @Jordan Moorhead @Jarred SleethThank you all for the insight and offers for help. Def going to see about getting rid of PMI asap.One other thing I'm curious about, what would be a decent interest rate to refinance towards? I've read only refinance if it's a full percentage point lower or more, does that sound about right? I know it def costs money to refinance from your current rate, so I'm curious to know how much lower it needs to be to justify it? We have it locked in currently at 3.25% fixed on a 30yr loan.

Another question I had was would it be better to try and get a second home/mortgage in my wife's name? The current mortgage is in my name, not my wife's. However the deed for the house is in both our names. Or what that not even matter?

We have no debt besides the mortgage, just FYI, seeing that prob is a factor to lenders.

Jarred Sleeth · Answer

Hey Rob, welcome to BP! You're in the right place for sure. So, a few things to address here:

1. You'll want to make sure per your loan documents that you can move out and rent it without incurring any sort of penalty. Usually you can do this within 12-24 months with most loans. Likely you're fine there.
2. The lender is correct on PMI. If you can get an appraisal value supporting an 80% LTV (in most cases) then they will be able to drop the PMI. Definitely worth the cost if you think it will appraise.
3. This is where things get tricky. Without leveraging the existing equity in your home, depending on your cash reserves, it may be tough to get a new loan. You also may run into DTI (debt to income) issues because while you likely show enough income to buy the house, with the additional loan on the first house needing to be covered, it might be tough. Lenders won't be able to count "future" rental income to offset the debt, and usually want to see 12 months of this rental income on your taxes to include in your DTI calculation. I would speak with your lender and discuss what your options would be.

Good luck and reach out if you get stuck. I'm down here in Austin as well.

Jacob Pereira · Answer

Account Closed or myself and we'll be happy to let you know what it's worth, no strings attached (actually, I can't say that for certain with Jordan, but I'd be surprised if he wasn't willing to). All that said, appraisers are known to use strange methods such as sacrificing goats and reading smoke signals to get their final appraisal numbers, so there's always a risk that even if your house is worth a lot more the appraisal doesn't come in. Jordan, back me up on this.

As far as your next property is concerned, you don't really need that much down if you plan to owner occupy, but as mentioned above your DTI could become an issue. At 100k income with 222k in debt you might be okay, but that's dependent on a lot of other factors including your other debt, your next home price, etc. Reach out to your current lender if you liked them, or to @Jarred Sleeth if you didn't and they could tell you very quickly what you can afford.

Jordan and Jarred, sorry for offering up your services for free without asking you, but who knows? It might translate into business for you.

Jordan Moorhead · Answer

Account Closed said you may be able to get another home without doing anything but you also might need to move out first, rent your home and then show the lender your lease for $1900 which will make it so you can buy more real estate. If you can hold onto your home!

Account Closed · Answer

@Jacob Pereira @Jordan Moorhead @Jarred Sleeth

Thank you all for the insight and offers for help. Def going to see about getting rid of PMI asap.One other thing I'm curious about, what would be a decent interest rate to refinance towards? I've read only refinance if it's a full percentage point lower or more, does that sound about right?

I know it def costs money to refinance from your current rate, so I'm curious to know how much lower it needs to be to justify it? We have it locked in currently at 3.25% fixed on a 30yr loan.

Another question I had was would it be better to try and get a second home/mortgage in my wife's name?

The current mortgage is in my name, not my wife's. However the deed for the house is in both our names. Or what that not even matter?

We have no debt besides the mortgage, just FYI, seeing that prob is a factor to lenders.

How to? Move into a new house and keep my first home as a rental

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