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Buying Retirement Home
Old 06-16-2015, 07:10 PM   #1
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Buying Retirement Home

We are going to buy our retirement home from my folks who are moving to independent living. Alas, I am still two or so years from retirement. The new home is in a different state so we can't actually move in. We are planning on renting it out. My questions deal with financing.

Will the loan (30 year fixed) rate be different for second home versus rental property? Am I "lying" if I say it is my second home and then turn around and rent it immediately. My payments on first and second homes would be low enough that total debt payment will only add up to 28% to 29% of gross pay so I should be able to qualify even if not rental. Finally, if we were able to find a renter before we were able to close, in Texas, any problem with my folks signing the lease and then transferring it to me when we close on the house?

thanks,

Marc

PS Thinking of 30 year loan because still cheap money; however, would i be foolish to get a 7/1 ARM and take eventual proceeds from current house to aim towards paying the new house off in seven years?
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Old 06-16-2015, 08:18 PM   #2
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You should not consider renting out the house on a short term (2 year) rental if it was going to be your residence in the future. Too many things can happen.

You could spend the 2 years reconditioning the house and have it completely ready to move into.

Anyone should apply for a mortgage with complete honesty. If you rate for the loan, you rate for the loan. And there are few situations where anyone shouldn't take an all time low interest rate loan vs. a variable loan.

A 15 year mortgage would get you a lower rate. And when you sell your current house you'll be in good shape. You could then continue prepaying your principal.
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Old 06-16-2015, 10:36 PM   #3
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I don't see the 2 year issue being a reason not to rent out a place, except that at the end you will possibly need to evict the people. Being up front about it will set expectations and avoid issues.

By not renting it out, you will miss out on a lot of rental income ex 40K while still having most of all the expenses. Plus, an empty house is a magnet for thieves to steal the plumbing/AC/wiring etc.

Go with the 30 or a 15 yr mortgage, you can always pay it off early, or as some advise invest the money instead and earn a greater return rate.

I think the bigger question is why are you buying your parents old home ?
If they were not selling/moving, would you move to that state or location anyhow ?
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Old 06-16-2015, 10:51 PM   #4
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i have no idea if the rates are favorable, but could you take a home equity loan on your current home, and put the money towards the retirement home?
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Old 06-17-2015, 08:31 PM   #5
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I think the bigger question is why are you buying your parents old home ?
If they were not selling/moving, would you move to that state or location anyhow ?
Because we like the house, we like the over 55 community it is in, and we have lots of friends in the area and around Texas (and will be close to my folks if they need help). We were sort of set on Tennessee but realized we had lots of friends in TX but not that many in TN.

Thanks to all for their advice. It is financially advantageous for us to rent instead of just letting it sit idle. We are planning on repainting and doing a kitchen remodel anyway so no big downside to renters. Plus, my trips to TX are now tax-deductible if I am inspecting/working on the house.

Any recommendations on mortgage companies. I have always been a fan of bankrate.com but don't know if they are the best anymore for finding good rates.

Marc
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Old 06-25-2015, 10:19 PM   #6
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Not quite three years ago we purchased the house that will become our retirement home, on the opposite side of the country. (We had previously decided on the location, and chose to buy early while the market was down and slow, and rates were low.) We weren't retired yet, but expected to be in the next 5-7 years. We have since moved up our date, and plan to move next year.

We intended from the start to rent out the house until we were ready for it, and in fact rented it back to the sellers for the first seven months. (Beneficial to both of us.) We have had two good subsequent tenants. One was a friend of the seller, and a somewhat known quantity. The current one was found by our property manager. It might also help that the rental market is very tight in that area.

To avoid any trouble we were very up front about our intentions when we applied for the loan. We got it from Wells Fargo, with a customized 10/1 ARM to improve our rate, and because we planned to pay off the loan after we sell our current house, before it adjusted upward. The rate was a tiny bit higher (quarter point at most) due to the rental rider, but we were, and still are, quite happy with it.
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Old 06-25-2015, 10:28 PM   #7
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Any recommendations on mortgage companies. I have always been a fan of bankrate.com but don't know if they are the best anymore for finding good rates.
Marc
Try these guys, good rates and they have been very good to work with over the years on new loans and refi's as rates dropped.

https://www.provident.com/
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Old 07-01-2015, 03:09 PM   #8
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Some fodder for planning where to live in the Americas.
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Old 07-02-2015, 12:21 AM   #9
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Any recommendations on mortgage companies. I have always been a fan of bankrate.com but don't know if they are the best anymore for finding good rates.
Use those rates as bargaining chips and call around credit unions, banks and other lenders and ask if they can beat any of the best online rates. In my experience sometimes they will and sometimes they won't. Or maybe you can at least get the same rate from a local credit union which makes it easier for dropping off the documents and signing papers.
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Old 07-18-2015, 08:49 AM   #10
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An update.

After deciding to be totally upfront about plans to rent out house; we worked with Citi to get the loan only to find out on day that loan was to be approved, that since we are "related parties" and house would be used for "investment purposes" we could not get a loan. Checking around for other options this week we have found that there are very few options, short of committing mortgage fraud, around this.

We decided to increase our down payment significantly to allow folks to pay off their mortgage and they will carry the loan with balloon after 84 months to give us time to retire, move into house, and get a new loan.

As we were "upfront" about being related parties, Citi admitted their mistake and will be refunding appraisal and application fees.

Just posting for others that might find themselves in same situation in the future.

Marc

PS House is rented out as of 1 August so going through all these hoops quickly in order to close on time.
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