Anyone rent out home and buy a second one?

[gpeach]

My husband is Army and we bought a house 2 years ago in July. We just got PCS'd and had to rent it out. The rent covers the mortgage, taxes and insurance. It is a brand new home in a amazing neighborhood that usually does not have rentals. Selling is not possible right now. But the tax deductions it makes financial sense to keep it anyway. Add in about 5 new builders breaking into our town and well we could get a house for 250 that would have cost us 350 2 years ago. 
 

Anyone have experience with getting a second home loan process? Not the credit qualification part. I know our credit won't be an issue. We have VA for first at 5%. Do we need to plan 20% down for the second?

[ShanetheMortgageMan]

It sounds like you probably don't have much equity since home values have gone down that much in 2 years, so the only way you could purchase a new home and use the rental income from the home you are vacating is with either FHA or VA financing (if there is enough remaining entitlement).  Both FHA & VA will be OK using the rental income because you are being relocated for employment to an area not within reasonable commuting distance.  75-85% of the rental amount can be used to offset it's housing expense (but can't add income on top of that, just can offset).  FHA just requires 3.5% down, and VA as you know doesn't need any down payment... but you need sufficient remaining entitlement.

http://www.benefits.va.gov/homeloans/docs/guaranty_calculation_examples.pdf

If you wanted to use your remaining entitlement to get another VA mortgage, here is how it's done.  To start, realize that the total entitlement (basic & 2nd tier) is $104,250 in areas that have the normal VA loan limit ($417k).  That is the basic entitlement of $36,000 plus the 2nd tier entitlement of $68,250.  This represents the amount of the mortgage that the VA guarantees.  On a zero down loan, lenders require VA to guarantee 25% of the loan amount.  So on a sales price of $144k, the VA guarantees $36,000 and the lender has no problem giving you 100% financing.  However if you buy a home above $144k, and still want to 100% financing, it's still possible to do by using your 2nd tier entitlement amount of $68,250, which together totals 25% of $417k and is the VA loan limit in most counties.  FYI, the total entitlement in areas that have higher than $417k VA loan limits is 25% of the county limit.

Example #5 in that link above would probably be closest to the situation you are in.

[gpeach]

Thank you for the info. It has gone down in value. The builder was offering bigger houses for less than we paid with more extras like granite and such right after us closing. 

According to the worksheet we do have entitlement left that we could use but we would be moving back to same area. So the houses would both be in same town. Not sure the VA /FHA would do that.  Would we need to go conventional? We see this as an opportunity to be able to buy a much larger home for same cost as what we paid for our current one. Then 5 years down the road the first loan would be paid down enough that we could at least sell for what was owed. Or just end up keeping it as as a rental since it is in one of the best neighborhoods.  

[ShanetheMortgageMan]

Welcome.  So if you got a permanent change of station, but it's in the same town?  I don't quite follow why you had to rent it out if you got PCS'd to a new base - is the area you live in Los Angeles and you were PCS'd from Camp Pendleton out to Twenty-Nine Palms or something?  It's not terribly important to the issue at hand, but it's a little confusing to me.

I believe you'd have to get special approval from VA in order to purchase a new home so close to your existing home that already has VA financing.  FHA & Conventional would be OK as long as you can quailfy for both payments without rental income from the home you are vacating, and it'd definitely be an upgrade/"move up" for your family.

[gpeach]

We were in Georgia and got stationed in Texas. His enlistment comes up for renewal soon and he can request going back to Georgia if he reenlists. The kids have been having health issues due to extreme dry weather. And my small business inventory had to be left behind in Georgia in a small warehouse. 

I just found a forclosure that is literally 50% below what they paid to build it in 2007. It is a fannie mae forclosure with homepath financing available. Beautiful home in a great neighborhood . It went on the market yesterday and has first look through 6/4. 

[ShanetheMortgageMan]

Ah I see, so you were in GA, moved to TX, and now are being PCS'd back to GA.  VA does say to discuss unusual circumstances of occupancy with the appropriate VA office orsubmit a description of the circumstances to the VA office for prior approval.  VA will likely say this is an underwriter's call, but may be willing to put their opinion in writing.

Because you are moving back into an area where you already own a home, an underwriter is going to think why don't you just move into the home you already own.  Having a renter in there is a good reason why you couldn't move back in, so be prepared to document that.  If you were buying a smaller home, it'd be pretty suspect, but since you'd be upgrading then you should just also have to write a letter of explanation, document the size/value of your home, and most underwriters should be OK.

HomePath can be a good deal, you can purchase with as little as 3% down (5-10% down is recommended for decent terms), there is no monthly mortgage insurance (which is why the interest rate gets fairly high with less than 20% down), and you don't need to get an appraisal ... but I've found in some situations that they are selling the homes a little higher than the market dictates - case in point we had an FHA purchase on a HomePath loan, FHA appraisal came in $9k less than purchase price and Fannie Mae agreed to sell it for the appraised value.

I'm not sure your scores, debt ratios, etc. but for low down payment options you could potentially have all types of financing (conventional, FHA, & VA) at your disposal.