How to move out of my personal residence and keep it as a rental and purchase next house

Question

"Property A" is my single family home that my family lives in. We bought it HUD owned in January 2013 with a VA and it has a 3.125% interest rate. It's also got about $60,000 +/- worth of equity in it. I could rent it for $1,400 and our piti mortgage is just over $1,000. 4/3, 3 car, 2446 sqft.
"Property B" is our subject property we'd like to purchase. It is currently a short sale at $350,000 but with the work it needs it'll probably go for around $320,000 or less or go through foreclosure before the bank will be willing to sell it at that price. 5/3.5, 2.5 car, 3673 sqft.

What I'd like to do is purchase property B, maybe with an interest-only two year loan from a hard money lender (or some other hard money loan) and rent out property A.  Then, when property A is seasoned and I have two year's landlording experience under my belt (so the banks will count my rental income as income to back a mortgage), refinance property A with new long-term financing and refinance property B with a VA loan (or whichever loan would give me the best interest rate).  Could I, should I, use a blanket loan?  What would my options be to pull this off?  What other types of mortgages could I use in this scenario?  Also, at what point could I/should I transfer property A into my LLC?  Is that even legal?  How would I go about doing this?  My goal is to keep property A as a rental in my LLC while "moving up" to another good deal personally.  My exit strategy for property B would be to sell (eventually), not to hold and rent, because it wouldn't have a large enough tenant pool since it is so big and higher priced... the demand for that type of house as a rental just isn't there.

Janet R. · Answer

You should be fine transferring to an LLC, the only reason a lender might call the note is if you want to transfer to a Corporation. Transferring to an LLC is just a Quit Claim or Warranty Deed; the promissory note is still in your personal name (or however you financed). Where you have more of a concern regarding due on sale is if you transfer to a Corporation. In order to transfer to a Corporation you have to actually sell it to the entity, this is why a lender would call the note if they found out you sold it. They of course, and rightfully so, expect their payoff.

Erin Estes · Answer

I am aware of the VA restrictions; I think the best way to keep the VA advantages would be to refinance property A and use a new VA loan with property B.  I guess the 70% LTV depends on what the appraiser says, because depending on comps or Zillow's estimates, there's a $30,000 range it could appraise in at between 65% and 75% depending on opinion and comp sources.  Thanks for the reply!

Erin Estes · Answer

@Janet R. Thanks so much, that is super helpful!  I'll keep that in mind for the future.

Alexander Merritt · Answer

@Erin E. Can you break out taxes and insurance separately for me?

Erin Estes · Answer

@Alexander Merritt That's a sweet website!  The lower number is the median at $1500.  Our PITI with current financing is $1065; not sure what it would be if we refinanced and ended up with a higher interest rate than we've got now.

Elizabeth Colegrove · Answer

the va seasoning requirement is one year. We have two va loans so I am familiar with the process. We have had no problem buying anther personal property in the manner you have described without a hard money lender etc. Simply using a broker. While it is true about the two year requirements, we have not had a problem getting our first mortgage count. We have had best luck going through a mortgage broker and nt a bank. Wellsfargo buys all of our loans but won't directly lend to us.

Alexander Merritt · Answer

@Erin E.

Honestly I think a more thourough analysis of your rental should be your first step to determine if it's even a good rental.

How much is your total mortgage payment?How much is your taxes? How much is your insurance?

Go to rentometer.com and plug in your address and 4 bedroom and tell us the lower of either the median or average rent.

Account Closed · Answer

id consider equity line of credit for ur next down, since u have 60% equity already if i read correctly.

Shaun Weekes · Answer

@Erin E.

Fannie Mae has no seasoning for rents so as long as the departing residence has 30% equity or an LTV of 70% (same thing just worded differently) you can actually use the rents and not include the existing mortgage.It’s 30% for conventional and 25% equity for FHA.

If you don't have that equity but you can qualify with both mortgages then you're going to be fine.

Now getting a second VA loan will be difficult depending on how much entitlement you have left and typically the VA will require you to have a really good reason for getting a second loan. Maybe you've outgrown the home, military moved you out of state etc.

If you go the Hard money route you will probably have to live in the home for 6 - 12 (I would have to know what type of loan you're looking at refinancing into so that’s why the 6 month spread) then refinance and the 30% or 25% rule for a departing residence won't apply because you've established yourself in the 2nd home already.

I need more info to figure out you're situation so PM me or call and we can chat about it in more detail.

Go to my profile and check out the link to my interview on The Joe Fairless Show.

I hope this helps and have a great day.

Erin Estes · Answer

Thank you so much! This helps tremendously! I had heard that it takes two years of seasoning before rental income would count toward mortgage qualifying, but it looks like I need to investigate that more!  It looks like I have more options than I originally thought :) 70% would be enough, I think for us to make it work.  Maybe I could get a new VA with property B and get a conventional refi with property A if they'd consider rental income.  Thanks for the response!

How to move out of my personal residence and keep it as a rental and purchase next house

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