Question: I have a question about refinancing a home loan, and about how banks view a rental property, and perhaps what order we should do things if we want to move in the next few months. (move out to the suburbs in the same area – not long distance)
We are currently living in a double that we purchased 5 years ago. Similar homes in the neighborhood have been going for about $65K recently, but we got it for about $40k because it needed repairs. We got a 10 year loan, and I pay about $30 more than required each month, for $370 a month. We currently still owe about $11K on it, and would have it paid off in about 4 years.
However, situations have changed. Not only did my wife find out she was pregnant with our third child recently, but our other two children are getting ready to enter school. My oldest son is 5, and I’ll be putting him in a part-time private preschool soon. The schools in our city are fairly poor – evaluated as a D. We just figured we would be moved out long before the kids would be getting to school.
Anyway, to make a long story short, we bought this place instead of something closer to our “dream home” because it seemed like a good long term choice for income. However, now I need to put my wife’s desires for a larger yard, and our desire for a better school system at the forefront.
She is due in February, so this means that if we are going to get moved, we should really do it by December, so we have a 4 month time frame. However, I’m not at all sure how to begin. I’m pretty sure that a bank wouldn’t give us a second mortgage at this point – we make about $40k a year, and this place is eating most of it up.
I believe that perhaps the smartest thing for us to do would be to refinance our mortgage for a larger amount, and for 20 or 30 years instead of the 10 we got. This would both give us $ to replace the furnaces and get both sides into final rentable condition fast, as well as give us some $ for moving, and maybe even for down payment.
Complicating things is the fact that my sister has been living on the other side of the double for nearly 2.5 years. She has been a big help with the kids, but we haven’t been charging her much of anything to live there. I went over and talked to her about various possibilities, and that if we refinanced, we would need to get a lot more rent coming in sooner rather than later. So I mentioned that she might need to move. This is not the first time I’ve brought this up – I’ve mentioned it at least a couple of times since late last year. Her job would never give her enough $ to pay a higher rent. I was rather taken aback when she said, rather forcefully, “I can’t afford the higher rents around here. I WON’T be going anywhere for at least another year.” I have also heard her talking a lot recently on the phone about redecorating her side of the double, so I now am starting to think that she thinks of it as her place, and for some reason she seems to think that she has some sort of long term right to stay there.
So as you can see, this is a delicate situation. I’m not sure what the best way to proceed is on a financial front. Should we approach several banks and credit unions about refinancing our home for a longer term, to free up monthly payment $ and to give us some $ to work with right now?
Regarding my sister, she has been renting for about $160 a month – roughly $250 to $280 less than a 3 bedroom 1,300 square foot would rent for in our area. However, when she started renting, the place needed a totally redone kitchen, bathroom, the works. Nobody else would have probably rented there for much of anything. Now we have a lot more time and money in it. Since it has been 5 years now since we bought the place, and we are thinking of moving, we really need to start having the place pay for itself.
We could probably go up to another 12 months without having her side bring in its full potential, but I’m not sure how best to handle this situation without it ruining our relationship. Considering her reaction to my idea of her moving, should we somehow give her notice in writing now – sooner rather than later? We really appreciate her help with the kids over the last couple of years, and we value our relationship with her, but I don’t want this to turn into some sort of thing where she acts like we never asked her to move, and doesn’t take it seriously.
If you were in this situation, how would you proceed:
A) with my sister, who says she does not intend to move any time soon, and has ignored hints over the past year that she should be looking into other housing arrangements? (at one point she said something about taking a roommate if we increased rents, but now says that isn’t likely)
&
B) with the financial situation – how can we do things in the right order, and the right way, so that we can upgrade to new furnaces, fix the last few things around here that need fixing, and also get moved by the end of the year?
Answer: No one can answer this but you (or someone with intimate knowledge of your family circumstances).
Just what do you owe your sister? Did she pay for any of the needed repairs you mentioned? If not, did she provide free labor for any of said repairs? If so, she may see herself as having equity in the property, even if you see it as her only deserved benefit was the cut rate rent.
Or has she done something unrelated for you that left you owing her big?
If none of the above applies, you have to decide if you want to be a doormat for mooching relatives, or are you willing to be a man and assert yourself and let the chips fall where they may. I don’t think it is a good idea to go further in debt to fix the place before you sell. You’ll pay dear for the refinance. I suspect that you could pay for at least one new furnace with the closing costs of refinancing alone. It might be better to let the new owners pick and install the new furnaces. You’ll have to provide a price allowance for that and other needed repairs, of course.
Or you could make the needed repairs and avoid refinancing by increasing your income. You could do that by working lots of overtime, if it is available, at your current job. If you can’t do that, you could get a part time job.
By the way, aren’t you the same poster that recently said you put 30 grand in some stock? If so, why are you acting like you have no resources for necessary home maintenance?
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