Buy second house, rent out first house? Advice needed!

[Andy Yoon]

Hi all, this is my first post since signing up recently, yay!

So, we're expecting later this year with our first and would like to move closer to our parents.

We currently own a condo ($240k balance on loan) and believe we can rent it out to cover nearly all of PITI + HOA. Unfortunately, selling the unit is not an option as it is underwater.

In turn, we could rent or buy a modest SFR for around $325-350k (with 20% down). Our household income is between $160k - $175k annually and our credit is good. I haven't talked to a mortgage broker yet, but was hoping to get tips or advice on whether this is a good idea before I do. Thanks!

[Lynn McGeein]

When you talk to your mortgage broker, you will likely find that these days, even if you rent it out, any rental income for that property will not count towards any new home purchase and your whole PITI + HOA payment will count against you for at least 2 years, so you'd have to qualify for both mortgage payments, new home and old. There are a lot of previous posts here on ratios that make a good rental property as "nearly all of PITI + HOA" doesn't cover vacancy, maintenance, or repair costs. My opinion is that this is only a good idea if a short sale is not on the table for some reason. If a short sale doesn't work for you, could you refinance the house to make the numbers work better for you? They usually won't allow a refi it if it's been for sale recently or you plan to sell or rent soon, so you'd have to decide on a refi before you decide to sell or rent it out. If you could get the payments down drastically so rent covers PITI, HOA and most of the expenses, then it might be easier to refinance now, then make the decision to rent it out and move closer to your parents in a year or so.