How much equity to you need in a property to borrow against it and get another one ?
I paid $120,800 with closing costs 5 months ago ( Utah is cheap , it's not a shack for those worried about my welfare ) . I want to move into a more hip neighboorhood where I can walk to things or ride a bike . I don't care if my new place will be half the size of this one to get the better area. I want to live in the new property and use this one as a rental.
What does it need to be valued at to do this ? It appraised 5 months ago for $134,000. I bought it via short sale and am so happy I found it ( for investment purposes ). It just isn't where I want to be. Others exactly like it are selling in the $140's.
Re: How much equity to you need in a property to borrow against it and get another on
based on recently released new regulatory guidelines for mortgage lenders, you'll probably need to have 20% equity in BOTH properties (vs current assessed value)plus closing costs on the new property you wish to buy in order to get approved for mortgage financing. You didn't say how much of the $120k purchase price of your first property was financed vs down payment, so you'll have to complete this calculation yourself. However, if the first property could be assessed for say $140k then any equity you have in excess of 20% = mortgage loan balance less than $112k would potentially be available for use in purchasing the second property.
Re: How much equity to you need in a property to borrow against it and get another on
Melonie:
Thanks for your reply.
Yeah , that was some important info. It was around $10,000 that was put down including my closing costs ( $7,000 down $3800 closing ) . The loan amount was $110,800.
So ....... I guess the question should be:
I have a townhome that apprasied at $134,000 recently.
I owe $110,300 on it currently ( yep ... only $100 goes to principal a month when you start a loan !). Is this enough to borrow against , buy something in a hipper area , and use the current property as a rental ?
I'll have to call my mortgage person. Who knows what is flying now ( it's probably completely different now than even just 5 months ago when I was there last time ).
Re: How much equity to you need in a property to borrow against it and get another on
OK assuming that the $134k appraisal is the one the bank goes with, the equity you would need to maintain would be $134k * .8 = $107k. So you are $3k short of equity to think about borrowing against the value of property #1. Also, assuming that the second property you're thinking of buying is similarly priced, you'll need to come up with $134k *.2= $27k for the down payment on that property. Throw in closing costs for the second property and you're about $35k short overall.
Re: How much equity to you need in a property to borrow against it and get another on
I just want to say I have no relevant info but it houses here were $120k Id go buy one yesterday...
Re: How much equity to you need in a property to borrow against it and get another on
I would not be buying a second home when your equity is a 7k downpayment and the 14k your property value has gone up.
Re: How much equity to you need in a property to borrow against it and get another on
I found the perfect renters ...... on here for a one year assignment , want a nice place , willing to pay $150 over what I pay out. Maybe I'll just rent a room in the better area of town. I went and looked at one today with a girl that travels as much as I do ( it would feel like it was our own place most of the time ) .
Re: How much equity to you need in a property to borrow against it and get another on
Keep in mind, if you plan on buying another property while they are renting from you, lenders will only count 75% of what they're paying you as rental "income", so make sure that the difference of what they're paying and what you're paying is enough to avoid you being 'in the hole' for rent.
Re: How much equity to you need in a property to borrow against it and get another on
I seem to be right at that 75% mark ( $1100 rent , 75% is $825,my mortgage is $850 ) . I
Re: How much equity to you need in a property to borrow against it and get another on
^^^ don't forget to add in property taxes and insurance !
Re: How much equity to you need in a property to borrow against it and get another on
Most lenders will not allow mortgaging against a property that has been owned for less than one year.
Also, there have been zillions of changes in regs since 5 months ago...and a lot of property value has dropped in that time, as well. So, just because you had an appraisal of $134,000 5 months ago doesn't mean that it will still be that or more.
I would hold off on putting renters in the place until you know for sure that you can get this other place and close on it. Otherwise, you're working yourself into a very rough spot.
Re: How much equity to you need in a property to borrow against it and get another on
Quote:
I seem to be right at that 75% mark ( $1100 rent , 75% is $825,my mortgage is $850 ) .
if you figure that your property taxes average say $2000 per year, that effectively adds $167 to the monthly 'nut'. If you figure that commercial property insurance will run another $2000 per year, that's yet another $167. $850 mortgage + $167 property tax + $167 insurance = $1184 per month. To make the 75% hurdle, the monthly rent you must charge would be $1578 ... which you probably can't 'sell' to would-be tenants.
Despite the fact that property values have dropped 10-20%, in most places the rental market is still below the corresponding traditional level needed for landlords to earn a profit with all costs considered. This is why commercial property is now the fastest rising delinquency category.