Refi'ing 2 properties and possibly purchasing another

Hi.  Several years back my mom needed someone to co-sign with her on a mortgage loan because she could not qualify on her own.  A few years back I refi'd the property under my name alone and she continued to live in the house.  The property is about 50 miles away from my primary residence and the last time I refi'd my primary residence home, the lender viewed the other home as a second home.  I am about to start the process of refi'ing my current home to 30 year fix.  I would also like to refi' the home my mother lives in to a 15 year term instead of 30.  The payments would be about $50 more a month.  With both properties I am about 30% debt to income.  However I would like to possibly buy another house in the next 2-5 years and then rent out my current house.  We just need a bigger house to accomadate our growing family.  With the stricter lending practices I am not sure if I were to purchase another house I would be under 50% debt to ratio.  If the housing market recovers in the next 5 years and house values start appreciating.. then I am sure my current house will have 30% equity.  But the payment of the house I will be purchasing will be higher as well.  It is currently around 20% equity.  The house my mother lives in has about 70% equity. 

I spoke with my mother about this and she doesn't believe she could refi the property she lives in herself.. but would need a co-signer.  Do lenders even do co-signers?  And if they do, and I took the 2nd position, how would this effect my ability to purchase a home later on as far as debt to income ratio?  Or would this not effect the debt to income ratio because I would be in 2nd position.  The reason I refi'd the home she lives in under my name alone was that she was facing the possibility of bankruptcy several years ago due to being diagnosed with cancer and not having adequate health insurance coverage.  The medical bills were enormous and we wanted to protect my credit (My credit is excellent).  I just want to make sure that the secondary home does not effect my ability to purchase a new home later on while keeping my primary residence.  She understands I would prefer that she refinance herself.. but this doesn't seem possible.  Or would I be able to just refi under my own name and explain it to the lenders when I purchase my next home and hope they do not count the mortgage against me.  Any help would be greatly appreciated.

On a side note, can anyone tell me roughly how much higher (on average) are loan rates for a second home??

Pat,

You have a lot going on here.  You will be fine refinancing your current home, but the tricky part is whether or not the lender will believe your mother's home is truly a second home.  In the past when guidelines were more relaxed, just being 50 miles away was enough to call it a second home.  Now that lenders have tightened their belts, not only do you have to be 50 miles away, but it has to be desirable "vacation like" location.  Because of your Mother's health situation, you have a very strong argument to call this a second home since you visit her often to take care of her, so I definitely believe you can get this done.  However the gray area that I see here is with occupancy if it is documented on tax returns that your mother is renting or showing she is the one making the mortgage payments.  Is she writing off the interest or are you.   From what my CPA of nearly 38 years tells me, as long as your mother can document proof of paying the mortgage, then she can legally write of the interest even though the loan is in your name (any of you CPA's out there please feel free to chime in if you think this is wrong).  You will have to sort that out for yourself.  As far as buying a new Owner Occ home, you should be fine, but you have to make sure that the new home you are buying is superior to the one you have now (ie.  Significantly more Sq/ft., more bedrooms, bigger lot, nicer ammenities, etc.)  As long as you debt ratio properly then the secondary home should not affect your ability to purchse going forward.  There are no hits to the rate for a second home at the present time.  Good luck!

Thanks,

Chris

Hi Chris,

Thanks a lot for your reply.  The second home is not in a city that would be considered a "vacation destination" of area.  Just a regular major city.  Neither she or I deduct the interest on are taxes.  We were told a long time ago she wasn't able to.. and as for me I decided I didn't want to take the deduction just to keep everything above board. Its not my house, its hers.  I don't have a lease agreement in place but I am considering doing so.  My only problem is that my mother does not make monthly payments regularly.  Because she does consulting work and is self employed, her income fluctuates.  The mortgage payments are automatically deducted each month out of a bank account under my name.  She deposits money into that account every couple of months and is usually about 5-6 months worth of mortgage payments.  But what started out as wanting to help her I am becoming increasingly aware affects any future plans I have for my own family. Thanks again for your help.

Assuming that your mother is over 62 and that you could satisfy a lender that your mother has a "vested interest", it sounds as if she could get a reverse mortgage on the property.  This way, she would not have to make any payments, but would have the option of doing so. 

You didn't mention if she is on title to the property, this would be enough for her to show vested interest.  In order to qualify for a RM, your name couldn't be on title unless you were also over 62.

I hope this helps.

Update: In browsing the other topics, as of the 1st of this year your mother would be able to use a reverse mortgage to purchase the property from you as well.  This would eliminate the need to show vested interest.

Also, I forgot to mention that a RM does not hve any income requirements and FHA does not require any credit qualifications.