2nd House Strategy

[Michael Garson]

Which house first?

I found a deal on a cheap, small house, for 65K. I plan to live there for a year, and fix it up a bit, before moving on and renting it out. Which allows me a 5% down loan and I'd have cash left over to fix it up.

So, when plotting buying my second house, which would become the owner occupied home, would they consider the new house an investment, and thus I'll need 20% down for that?

My concern is that by buying the investment house first, I ruin my chances at getting a less than 20% down loan on the 2nd home, where I'd really plan to settle in. I'll be looking at a 150K or so house after that, so it'd take me a while to have the 30K plus closing to pull that off.

Is it a better strategy to get the 150K home first, then buy the investment home? It's just that this one house is a great deal, and I wouldn't mind living there for a year, before moving on.

[Matt Devincenzo]

@Eric Black is correct you could still finance as OO on the 2nd (150K) home as long as you lived in the 1st one 12 months.

I think something you kind of alluded with your LTV question but didn't articulate, was the qualifying for the 2nd home as far as DTI ratio goes. If you have no landlording experience, which I assume you don't currently and won't until after you move into your 150K home, then your DTI calculation becomes a little different. The bank will likely not allow you to claim any of the projected rental income in order to qualify for the 2nd loan. This may make qualifying difficult since your W-2 income will have to support the DTI ratio of both loans. This came about due to the large number of people "converting" a OO home to a rental, but after moving into their new OO home allowing the last one to go to foreclosure.

Just something to check on as part of your "due diligence" of planning your investment options.