I want to buy a second home. Advice? and how much buying power do I have?

[msmsm]

1. Mortgage Credit Scores:  Both of us have 800+ scores.

2. Credit Negatives: None.

3. Gross Income: 174K a year

5. Monthly debt payments: $4000 including current mortgage. I could make that $3500 if necessary.

6. Employment: Both employed for 10 years.

7. Assets/Reserves:

40K savings/CDs

170K in pension fund - cannot withdraw unless I get **bleep**canned.

I own a home worth about 100K - owe 24K on it (not sure if this matters).

8. Location:  91977, 92021

9. Property Description: Looking for a 2BD condo / apartment.

11. Occupancy: Not sure what my options would be. I want my mother to live in it.

I have three major questions.

1. I've used the "how much home can i afford?" and knowing DTI limits.. but I'm wondering if anyone had more to offer as to a ballpark figure on what spending power I have for this second place.

2. Could I purchase the second pad with less than 20% down? I've seen yes or no online.. wanted a straight answer.

3. Do I do this as a rental or investiment? What's the glaring differences if any?

Thank you so much for your help. I'm a longtime and daily lurker..

[msmsm]

2. Credit Negatives: None.

[msmsm]

3. Gross Income: 174K a year

[msmsm]

5. Monthly debt payments: $4000 including current mortgage. I could make that $3500 if necessary.

[Anonymous]

Unless you plan to occupy the new property part of the time, it would not be a true second home. Second homes are tricky to prove for this very reason. True second homes can be had for as little as 10% down, whereas investment properties require at least 15% down.

[AZEsq]

It does also depend on your lender/location. I'm in the exact situation *except I have WAY less in retirement *.  We have $50K in savings, but had decided to use 1/3 of it to pay down some credit cards that have an interest rate that will reset in a few months. I talked to my lender and, based on the fact that we do visit between 3-6 times per year, they've agreed to allow me to do it (on my own without hubby's income) as a second home, permitting us to purchase with only 5% down--the area is booming, though, definitely not a depressed market. I'd use a broker for sure that either specializes in or has done these before. Find a good agent and talk to them because they generally know where to point you. We are currently in the process still because it's hard to convince mothers to settle, or at least my mother.

My main advice is to find a real estate agent that you're comfortable with and who says "yes, it can be done and here's how." That's what we did and went from thinking and talking about it for a year to a preapproval within 6 weeks of contacting the the agent==and that's with my mother dragging her heels on location. The buying power will depend on your DTI. Get off any cards that your'e merely an auth user on if they carry a balance, pay down as many tradelines with high payments as you can, and throw it at the wall! 

To buy it as an investment property, most lenders are requiring 20% down. I'd stick to second home. To pay less than 20% it would have to appraise at some predetermined ltv. It's unlikely.

[p-]

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@msmsm wrote:1. I've used the "how much home can i afford?" and knowing DTI limits.. but I'm wondering if anyone had more to offer as to a ballpark figure on what spending power I have for this second place.  The DTI limits are way too high for comfort.  Stay well below that with your income.

2. Could I purchase the second pad with less than 20% down? I've seen yes or no online.. wanted a straight answer.  I did, see below.

3. Do I do this as a rental or investment? What's the glaring differences if any?  Do it as an occupied residence.  If you can.

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I am in a similar situation, in terms of income and liabilities.  We had a home with a 165k mortgage here in cali, and decided to buy a second one and move before selling our first one.  Mainly because we saw the market going up, and we wanted to do some improvements to the old home before selling it that would make it difficult to live in.

We purchased a home for 269k using an FHA 3% down loan.  We were honest about our intent to occupy the home as a primary residence following closing.  We covered the down and the closing cash with some tax free withdrawal from a well funded Roth, knowing we could replace it upon sale of the other home.  We then used savings, cash flow, and a bit of credit to fix up the old one for sale, clearing a nice sum at closing.

We used only my credit, because my scores were in the 800's and my wife's had an item that wouldn't clear off until this month.  The DTI added up to just under what I would qualify for on my own at 43% (I'm half our income), and I can tell you that I would not have wanted it to be any more than that.

We had the 950 mortgage on the old place, two car payments, daycare, and the new mortgage at 1600.  It really cut into our lifestyle budget.  We spent about six months paying both, and just finally last month got it closed.  The experience really shed light on how much money we were wasting on lifestyle and debt service, and we came out the other end resolving to pay off all debts before buying a rental home.  

I even sold my truck.  

I reccomend that you be very conservative on your monthly budget for this, and try to buy it as a residence if you can.