Randy Johnson, president of Independence Mortgage Co. in Newport Beach, author of “How to Save Thousands of Dollars on Your Home Mortgage” and a mortgage broker since 1983, answers questions…
Ken from Newport asks:
Q. I currently rent in Orange County, and do not plan to buy here in the immediate future, because I believe prices in the areas I am considering are likely to continue to fall. However, I am considering buying investment property out of the area. My question is if I buy one or two properties as investments (taking mortgages), how will that impact my ability to borrow to buy my primary residence down the road? I understand that having multiple mortgages can negatively impact one’s ability to borrow for an additional property. Also, would that eventual O.C. purchase still get the benefit (lower rates, down payment requirements) of a primary residence, or would the rentals prevent that?
A. I am glad that you are seeing opportunity in the investment side and yours are good questions. You will not be penalized for having investment property. You will get a good rate with no change in down payment requirement.
But the lender will factor in the financial effect of those properties. Here’s how our industry looks at it. We use a formula to calculate the impact of the property on you.
Take the rental income, say $1,000 per month, and multiply by .75 to account for vacancy, management, and repairs. You get $750. From that deduct the mortgage payment and the monthly property tax and insurance. If that total is $700, you made a $50 per month profit and it is added to your income. If the total expenses are $950, you are losing $200 per month and that is treated as a permanent obligation, just like a $200 car payment, and added to your debt for qualifying purposes. When you get loans on your investment properties, run the numbers and then pretend you are buying a home here also to assess the impact.
Note also that non-owner occupied loans are the same rate as owner-occupied but they carry a 1.5-point add-on to the fee up to 75% loan-to-value, and a 3-point add on from 75% to 80% LTV. So plan on putting 25% down. Good luck.
Ben in Costa Mesa asks:
Q. I am 85 years old. My spouse is 80. Our home is paid for and I am thinking of obtaining a reverse mortgage for the maximum allowed, which I believe is $300,000? My home currently is probably appraised at $800,000 (was around $1,100,000 last year). I want to do some remodeling, maybe help two of our children buy a home in this down market and have a little fun with a few extra bucks in our pocket. Any reason not to get a reverse mortgage? What should I look out for?
A. First, congratulations on making it to 85. It sounds as if you are a good candidate for a reverse mortgage. The only thing to note is that they are expensive, especially with up-front fees. There is a lot of information about these products at www.reverse.org. AARP’s Web site also has a lot of information on reverse mortgages.
Finally, reverse mortgages are available through specialized channels, not like regular loans. I hope you find a lot of things to have fun doing with the extra bucks. You’ve earned it.
That’s it. If you want Johnson to answer a question, email it to Mathew Padilla at mapadilla(at)ocregister.com. Include your name or nickname and the city you live in — that information will be published with your question.
Johnson will answer up to three questions each week, so keep checking back for a response. If many questions are submitted, it could take a while to get a response, or he may never get to it. Also, readers keep submitting variations on the same question, which has already been answered: what to do when you can no longer afford your mortgage. I have decided not to publish most of those questions, because they are repetitive, although I appreciate the difficult situation many homeowners are in these days.
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