IS there a solution to this????
Ok,so after much thought and witnessing the major housing boom in a growing area of Arizona for the past 6 years or so I decided to get in on it. This as going to be a "no brainer". Houses in the area were gaining in value at an alarming rate with what appeared to be no end in sight.
The plan was to buy a new home using my over 800 credit score to secure both loans (1st &2nd with little or no cash out of pocket). The house would be a rental which at the time of purchase the monthy rent achievable would return at least 80% of the loan payments. Step 2 would be to refinance after the first year as the value of the home would be substantially higher bringing the monthly payments inline with the rent being charged for the home.
Now I would have a new home being paid for by someone else and gaining in value that I could turn in about 5 years for a nice profit. Ahhh the American dream!
Well, of course, the plan worked fine at first. Got the new house (at a discount with extras because the initial buyer dropped out) in a new development with HOA etc.... and had it rented almost immediately at a competetive rate that paid about 75% of the loan payments. No problems here as I could justify the payment difference as cost of doing business until I refi and have it all paid for by the renter(s).
About 6 months after the purchase I'm all proud of my financial prowess and decided to start sniffing around for money for the refi so I would have it all lined up when the one year mark came about. Everyone I contacted thought my plan was sound,offered all kinds of solutions and were all ready when I was.(This "Land Baron" stuff was great!)
I chose a company and made the commitment. The first problem was,after the appraisal, the house was worth less than what I paid for it! LESS!!!!???? "You're kidding me, right?" This is NOT good. Well, I could still refi the main loan separately and not combine the 2 loans as I had planned but that would only drop the payment slightly if I stayed with the "interest only" type loan. Any other type loan would make the payments higher. Hmmm what to do.
The goal here is to make enough off the gain in value of the second house to pay it and my primary house off in 5 years buy selling the rental at an expected profit. To do this based on value of the rental I wanted to keep monthly payments between both houses as low as possible during this time. Hence the second home being a rental to pay for itself and keep the already low payment on the primary house until payoff.
The problem was the decline in property value which is out of control now.
After running the numbers with the loan guys (who obviously want to make big money off me as well) we came up with a temporary solution.
I wanted to get some cash out to do some much needed repairs to my primary home and I wanted to lower the monthly payments on the second home loans to get as close a possible to matching the incoming rent from that home.
I ended up taking the second loan on the rental and refinanced it into the primary home loan with the cash out I needed for repairs. This of course increased the payment for the primary home and at the same time unburdened the second home so I could actually qualify it for refinancing into a lower payment loan.
Overall, I combined 3 loan payments into 2 and lowered the combined payments a little and did all the repairs and upgrades I wanted(needed) to my primary home. Sounds great doesn't it?
Now the rental is 2 years old and still in great shape. I had a couple of months with NO renter, which is BAD. Now that it IS rented again I can't get the same rate I enjoyed before because of the property value problems in the area so it's costing me money instead of making me money. It's worth less than the only loan left on the house so I can't refi. Who knows if the market will come back "before I DIE!" .
I need 320,000 to pay off both homes.
The rental was purchased for 245,000 is now worth 170,000. The interest only loan balance is 189,000 and adjusts in 4 years!
The primary is worth 240,000 and has a loan balance of
The loan payments are 1400 and 1100 respectively
The rent coming in is down to 900