My one question is about the “condo penalty” for Fannie and Freddie-backed mortgages. My lender says it’s a mandatory .75 point fee, or the equivalent in the rate (1/4%). When I called another lender, they didn’t know what I was talking about. But their fees were higher.

By the way, my mortgage is backed by Refi Plus, so it doesn’t matter that the equity has eroded with falling house values. (Nowhere near underwater.)

I recommend sitting down for a few hours and mapping out your financial plan and your current financial situation, then determining if maintaining another property fits in with your long term financial goals. If it does and you can afford to maintain the negative cash flow on a rental without harming your financial goals, then you may be able to make a case for keeping the other property. But if keeping the other property doesn’t fit in with your goals or it would make things too difficult in an emergency, then you may need to reevaluate your plans.

An option that might be less risky is to keep the current house and rent it out, while covering the difference from your cash reserves or current income. Then rent a home for your personal use instead of buying a new home right away. This will give you more financial flexibility in the long run because it is usually much easier to scale down from a rental than it is with a home (as you have seen with your current home). This will give you time to evaluate the effect of the negative cash flow caused by renting your home for a loss, and possibly give you more time to build a larger cash reserve for reducing your current mortgage and/or making a down payment.

Thanks much for the reply. I guess I was not clear in my question, my apologies. Although i’m under by 100k in home value, wells fargo is willing to refinance my 2nd loan, they own the loan today (home equity loan – the 96k that remains on that loan). And i plan to go ahead with that refinance.

Ideally i would like to retain this property (rent it out) and buy a second bigger home. But the rental income will not cover the two mortgage payments, so i will have to pay out of pocket. Do I use my personal savings (100k) to reduce my mortgage payments on this home (will lose that money as the house value has reduced) ….do i rent it out and use my personal savings as down payment for a bigger place.

If this is confusing or not clear, my apologies.

You seem to be mixing a lot of topics together. The most important thing I want to point out is that the 100K is already gone. Whether or not you refinance, or way you do, it already is. I just say that because I don’t want you making a decision based on trying to ‘save’ that money. What the house is worth is completely independent of your financing choices.

Second, I’m very surprised of the idea that you could take the money out. If the house is worth $100K less now, I don’t see a bank refinancing you above the actual value. Banks would hardly do that during the boom, but nowadays they’re quite conservative.

Finally, all the talk about refinancing doesn’t seem to make sense if you’re planning on selling & upgrading anyway. Refinancing generally carries with it closing costs that you wouldn’t have time to recoup. So if you’re going to sell and upgrade (assuming you can afford it), then make your life simpler and don’t throw all those extra steps into it.

Any suggestions for me? I would appreciate your input.

Thanks!

I also like the previous person have about 4 months of living expenses as an emergency fund. I also have no other debts other than the rental property. I pay out $350 to cover both mortgages every month. The house is at the water line for LTV or about 95%.

Is it wise to pay down the 2nd or use the money to save for another property here in California or try and sell the house long term?

Thanks, Tom

I figure if I really needed more money, I could sell assets such as car, or possibly borrow from the old folks and pay them better interest than they’re getting now.