Financing a home without selling existing home

[Joshua Easters]

Hi Everyone,

I am going to be in the market for a home in Tampa, FL early 2018. I own a home in Ruskin, FL that I am currently renting out. I owe $40k on the home in Ruskin with a mortgage payment of $700. After buying the Ruskin home for $56k, I put $20k into it, and currently rent it to long-term renters at $1,300 monthly. I recently had it appraised by a bank, and the appraisal came out at $160k.

My current annual income is at around $115,000. I have a $450/month car payment, minimal credit card debt, and a high credit score. I also have an untapped $35k HELOC on the rental house ready to use if needed. This could potentially be expanded given the appraised value of the home. I currently rent a home in the neighborhood I want to buy in, and when my lease is up in April, I would like to purchase a primary residence in that area.

My main objective is to purchase my primary residence without needing to sell the Ruskin house, which has become a nice passive income generator. Does anyone have any insight on what difficulty I might have in securing financing due to the fact I will be purchasing as second home (thought it will be my primary residence)? I could use the $35k HELOC on a down payment, but I am not sure what implications that might have in the financing process as well. I could potentially add between $5k and $10k to the down payment from savings, but would want to limit that as much as possible. I am looking at homes in the $250k to $350k range.

Any insight you might have as I approach this goal in 2018 would be greatly appreciated.

Thank you so much!

[Jorge Quintero]

Joshua Easters from my understanding, it’s very difficult to use equity in an investment property to fund other investments. I’m not sure how that translates into using it for a primary residence. However, if you are making that much money, and are generating cash flow, I don’t see why you couldn’t just buy the house with conventional financing. If you’re worried about the down payment, you could always use an FHA loan that requires as little as 3.5% down and it requires you to live in the residence for a year. Since you plan to live in it already, this isn’t a problem.

Do be aware that if you decide to use the FHA loan, putting a down payment less than ~20% will also cause you to pay the MIP (mortgage insurance premium) which is used to protect the lender in case you default on the loan. This would increase your mortgage by about $100 a month with a couple of fees included up front.

There’s also lease options where you could rent out a home from someone in the area of interest and have the exclusive right to buy the house for a certain number of years at a predefined price. This works really well if you’ve done research on the local market and pick a house that potentially appreciates a lot. You could save up money while renting the house out and later buy a very valuable home for the price that was determined when the lease option was signed.