The question of carrying two mortgages usually arises in one of two common scenarios. First, you currently own a home you’re living in and want to buy another home. But you haven’t been able to sell your current home before you have to buy the other one. Second, you have a mortgage on the home you’re occupying now, and you want to buy investment property. Both of these scenarios often involve having two concurrent mortgages – in which case you need to know how to effectively carry two mortgages in California.
Be Like the Bank
The first step, of course, in determining how to effectively carry two mortgages in California is figuring out whether you can actually afford it. And the best way to figure that out is to use the debt-to-income ratio, just the same as your bank or mortgage company will.
The debt-to-income ratio is a percentage that shows, as the name says, the ratio of your debt to your income, with the maximum percentage usually around 43%. For example, if your current mortgage plus the new mortgage will run $3,000 a month and other total monthly debts and expenses are $1,000, that’s a total monthly debt of $4,000. Then if your monthly gross income is $10,000, the debt-to-income ratio will be 40% – under the 43% cut-off.
This doesn’t tell the whole story, but it’s a good rough measure of whether you can carry the two mortgages. After all, it’s the same formula the bank will use.
Offer Projected Income
Suppose you are, in fact, trying to get a second mortgage in order to buy investment property. But if your debt-to-income ratio is fairly high, it may be a tough sell to the bank and so pretty difficult to get that financing.
One thing you can do is to present your lender the investment property’s projected income potential. You can, for example, present the lender with records of standard rents and occupancy rates for the area, and if the property currently has tenants, you can offer actual proof of investment income figures. In addition, you might able to give the lender letters from the tenants indicating their intent to remain after the sale.
Offering projected income like this is a good way to prove to the mortgage lender – and to yourself – that you can indeed effectively carry two mortgages in California.
Lean on Equity
Another good tactic for financing involved in the area of how to effectively carry two mortgages in California is using your equity. You may still be paying on the mortgage for your first property, but you’ve likely built up some equity you can lean on.
What you can do, then, is to get what is called a cash-out equity loan. What happens, in this case, is that you borrow against the equity in your current home in order to make, say, a larger down payment on the second property. That way, you are more likely to get financing, and you will have more affordable payments because they’ll be smaller with the larger down payment. This situation may also obviate the need for private mortgage insurance, thus further lowering payments.
Just keep in mind, though, that with a cash-out equity loan you’ll actually have three mortgages going at once. So, again, use that debt-to-income ratio to make sure you can afford it.
Carrying two mortgages can be a pretty hefty burden, and sometimes it’s difficult to get financing for the second mortgage. But you really can do it by taking the right approach. You just need to know how to effectively carry two mortgages in California.