Converting your existing one into a rental property, there are some guidelines and things you need to know about. We have helped hundreds of people find, purchase or rent out their Panama City Beach condominiums so we understand the process and can help you make the right decision at the right time.
First, assess the risk. If you’re planning on renting out your existing property in buying a second home with another mortgage, there is some risk involved. Two mortgages mean that will be two payments, two tax bills, and two insurance policies. Insurance on investment properties has a higher rate since it is not your primary residency.
Secondly, recent Fannie Mae rules can be beneficial for property investors. In the past, guidelines stated that in order to convert a primary home to a rental property, the owner needed to have a minimum of 30% down payment. That requirement has recently been removed and new guidelines state that a borrower may qualify to convert their existing home into a rental the credit and income requirements. You can also use a new lease agreement for your existing home to qualify as income.
- You can buy your next home without selling your current home.
- You can contract on the next home without a contingency
- You have the ability to qualify for larger loans
The drawback, however, as of the entire proposed amount on the rental property cannot be used as income. Fannie Mae has quite favorable regulations for current homeowners. If you have a single family home you are allowed to use 75% of the monthly lease amount on your current home. Regulations are a little bit different on a condo unit.
Fannie Mae also still requires reserves. You must have some money put away in savings, stocks, and bonds, or retirement accounts that can be easily accessed in case of an emergency. The amount of reserves required differs from applicant to applicant. In general, it’s important to have at least 2 to 6 months worth of principal and interest payment for the new and existing home loans.
Third, it comes down to whether the house or condo will be a good rental. Many people use this excuse they can’t sell it for as much as they want that, if nobody wants as a rental property either, it may not bring the income you desire.
If you are considering buying a condo for rental purposes you need to weigh the pros and cons including the investment you’ll need for cash flow and appreciation, consider mortgage insurance, consider owner-occupied purchase programs such as HUD and REOs and make a plan for the transition from owner-occupied property to a rental.
If you’re planning on buying a home or condominium in Panama City Beach to convert to a rental would you currently have one that you’d like to convert, call our office today. We are happy to answer any questions you have and point you in the right direction for the proper steps on converting a owned property into a rental property.