RENT OWN SELL
Newyork
RENT OWN SELL
Newyork
Buying your first home is an achievement in and of itself, so to the small population of people. who are fortunate enough to be able to purchase a second home: kudos!
You’ve probably already gone through the process of buying your first home. So better to consult about the process than you when it comes to buying a second. It will demand the same level of energy. There are plenty of things that you should know about transitioning from merely being a homeowner to being a landlord. There are also things you should know if you plan to buy a second home while renting out the first. Without further ado, let’s take a look.
Besides getting a mortgage, paying a down payment and other closing costs make up a huge investment that often hinders current buyers from buying a second home. But by renting out the first home, you are likely to get financial assistance from your tenant. This gives you the ability to afford another mortgage payment. Additionally, by buying a second home and renting the first, you are likely to get tax breaks.
All in all, when you buy a second home while renting out the first, you embark on a journey to becoming a successful real estate investor. Your assets increase, one house at a time.
You might be feeling excited about the idea of buying a second home, but let’s first confront a few realities first. First, adding an additional house may add responsibilities that you might not be ready for. As a landlord, you have to manage the property, which is a full-time job in itself. Taxes also become increasingly more complex when you add an additional property to the mix, so you have to get familiar with it.
Finally, you would have to spend money on house maintenance and property repair. Before buying a second home and renting out the first, you should know what to potentially look forward to.
Buying a second home is all about affordability. If you feel certain that you can handle paying two mortgage payments at the same time you may be ready to embark on the journey of becoming a landlord. It’s up to you to figure out whether or not you can afford a second home. Will you finance it by way of a traditional mortgage or will you pursue owner financing or pay with cash?
Here is what you need to think about as you weigh your options:
Affordability is subject to your financial health. To get a second home loan, you’ll need to figure out if you afford to pay a down payment, closing costs, and a higher interest rates.
Given the financial aspect, it may be a good idea to consult with your financial advisor before making a final decision.
If you already own a home you may already have equity in it. You can use that equity to leverage another loan against it. Typically homeowners take out additional loans for home renovations, but if you can, use the loan to finance your new home.
One downside of taking out a loan against the equity in your home is that you run the risk of losing your first home if you fail to pay the installments. Therefore, be extra cautious before tapping into your equity for this purpose.
If you are not comfortable with using your home’s equity for a loan, consider keeping it simple and taking out a conventional loan. There are usually no restrictions for the use of the funds. However, banks often require proof of income, higher credit scores, and a larger down payment in order to qualify for the loan.
Turn your first home Into a rental property
Doing your homework keeps the whole process running smoothly. You need to consider a few things before you rent out your first home:
To rent out your first home, you need to know the average monthly rental rate. If you can, try to ensure that the revenue generated from the rent of your first home is enough to either cover or substantially pay both mortgages.
It is better to inform your lender that you are planning to rent out your home. If there is no prior restriction in the lender agreement then the lender probably won’t have any issue with it. But giving them notice is still a good idea. Similarly, you should inform your home insurance company about your decision in case they need to make adjustments to your policy.
The rent you are likely to receive will likely place you in a different tax bracket since your gross annual income will significantly increase. Become familiar with real estate taxes and any deductions you can claim before you rent out your home.
You are almost ready to rent out your home now you must find a tenant. Finding a suitable tenant can be stressful. The best option is to work with a realtor to find a tenant. You may even make a list of requirements or criteria that the tenant must meet in order to be eligible to rent the property. Ask your agent to screen potential tenants according to those criteria.
The short answer is yes–there shouldn’t be an issue with you renting out a mortgaged home. However, review the terms of your loan agreement to see if there are any clauses that state otherwise.
Sometimes lenders include a clause that restricts the homeowner from renting out the home, or it may include a provision that only restricts it for a certain period. If you encounter this clause it is probably a good idea to pursue another lender who doesn’t have those restrictions.
Related Article:
Second Home Tax Benefits
Mortgage Terms and Tax Rules: Second Homes vs Investment Properties
