By John Voket
As I chat with real estate pros and industry experts across the country, a new issue is cropping up that warrants some focus. Today more than in recent history, we are learning that many folks are considering renting out a current home after shopping for and moving into a newly acquired property.
Marcie Geffner at Bankrate.com recently produced a report warning consumers who want to buy a new home while renting out the old house, that they could face a glitch. Say someone owns two houses – one they occupy, and one they don’t.
To cut monthly interest expense, that owner might want to refinance the house they’re renting. But Geffner says it might not be easy, and offers a few tips.
She says often, equity is the biggest hurdle in the effort to refinance a house being rented out.
Enter Stephen LaDue, a senior loan officer at Prime Lending in Brookfield, Wisconsin who notes that lenders typically require a cushion of 25 percent or more to refinance a loan secured by a non owner-occupied house. The reason: an owner who has a substantial stake in the property is less likely to default on the mortgage.
A second mortgage on the rental house will make refinancing difficult because that lender probably won’t agree to remain in the lesser position if the first loan is refinanced.
Ray Martin who blogs for Moneywatch advises, when deciding whether to rent out your home, consider the pros and cons:
- Keep property to sell later at a better price
- Rental income covers mortgage, taxes, insurance, and other costs
- Tax breaks offset rent or other income
- You are the landlord
- Tenants may damage your property
- You could be taxed on gains if you later sell
Don’t assume rental income can be counted toward the guidelines to refinance a house being rented out. Gary Parkes, vice president of mortgage lending for Guaranteed Rate in Atlanta, says lenders tend to be suspicious of rent unless the landlord is a professional property investor.