Fork in the road- Debt-to-income

[JAMES Coleman]

Hello all,

My wife and I are at a fork in the road and need some guidance. For the sake of a little background, we bought our first home two months shy of two years ago and have fully renovated it. We bought the house for $94k and believe we can sell it for $150k. After it’s all said and done, we think we can walk with approximately $35k net.

Choices, choices….

1. We could sell the house, buy another undervalued house and flip it again.
2. We could rent the house (the rental market is great here and I think we could cash flow, albeit by just a little bit.

Here is where I need some guidance. I’m very unfamiliar with real estate financing and I’m frankly not sure what our options are. My wife is a stay at home mom and our household income is slightly less than $40k per year (we live in a small home, most homes cost $60k or so).

In terms of debt to income ratio, lets say we rent out our current come, have it under a signed year long lease that will safely make our mortgage payment and a little more. Will a normal bank allow us to qualify for another home in which we will live in? In other words, will they count our rental income for the sake of our debt to income ratio?

Furthermore, if we bought a duplex, lived in one side and rented the other, would that still count under the rules for buying a primary residence or would that count as an investment property?

I appreciate the feedback from BP members, I have spent many hours perusing the site!

Jim