25 Sep RENT, OWN, OR DO BOTH?
There are generally three different situations you can find yourself in when it comes to living situations; living with parents, renting, or owning.
A lot of the times the first decision someone will need to make is whether they buy a home to live in, buy a home to rent to someone else, or buy a home to live in while also renting out a portion of it. There are lots of pro’s and con’s to both. Below are some of the numbers and things to consider when looking at each of them.
Buying with The Intention to Rent
Buying a property for the purposes of renting it out to someone else comes with different qualifying criteria and different mortgage product options. The following are some of the important points to consider:
- The minimum down payment required is 20% of the property price and this down payment must be from your own savings. It cannot be gifted from someone else.
- Only a portion of the rental income can be used for the qualifying of how much of a mortgage you can afford to borrow. Some lenders only use 50% of the income and add it to yours. Others may look at taking 80% of the rental income and subtracting your expenses which can have a much higher impact on how much you can afford.
- Interest rates usually have a premium on them when the mortgage is for a rental property compared to a mortgage being requested for a property someone plans on living in. This premium can be anywhere from 0.10% to 0.20% on a regular 5-year fixed rate.
The following is a typical scenario you can expect to qualify for in a rental situation:
$450,000 purchase price
$90,000 down payment (20%)
$1,665 monthly mortgage payment
$1,400 in monthly rental income
$66,500 a year in income
$0 month in consumer debt payments
Buying with The Intention to Own