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We are possibly keeping our first home as a rental property and buying a 2nd home in a new city as our new primary residence. How does a second mortgage work?

My husband is a 3rd year medical resident in Minnesota and we might be matching into a new 3 year training program in Omaha. We’ll find out the match in March.

Considering our current town pretty much revolves around the hospital and most people moving here are medical residents coming here for training for 3-6 years, we feel like there is a strong rental market (of responsible potential renters who are basically never home because they work all the time in the hospital). Because we hadn’t planned to move in 3 years (my husband decided to switch specialities- thus the additional years of training), we are strongly considering keeping this first home and buying a new home if/when we move to Omaha in the summer.

Current home financials: In 2022, we bought a $260,000 single-family home at 4.38% on a 7 year adjustable rate mortgage- $50,000 down payment. Currently, we have $110,000 left on the mortgage. Actual monthly payment is $1375, but we pay $3000 to pay it pretty aggressively (because of the 7 year adjustable rate). We think we could rent it out anywhere between $1800- $2000 a month.

Income info to note: Our combined income will be around $110,000. Rental income could add roughly $21,000- $24,000 to this. We have baby on the way- due in May! I work from home in a pretty low stress job, so I plan to continue to work while taking care of baby with minimal childcare costs. My husband’s mom gifted us $70,000 when she passed away last year and we are considering using this either pay a big chunk of the remaining mortgage or use it for a future down payment on a second home. We also have about $300,000 in an investment account that was originally supposed to be a college savings account, but my husband never needed it because he got scholarships. We’d kinda like to not touch this money because it’s doing well invested, but we are open to using it for purchasing a second home. No other debt besides our current mortgage.

We have the ability to live with my husband’s dad in Omaha for the first few months, considering we’ll have to move two weeks after the baby’s birth, so we don’t need to rush buy a second home this summer. If we buy, we’re hoping to get to shop around for the best rate & and avoid the increase of summer-time home prices.

Questions we have: Should we just sell our current home and move on? If we do keep our current house as a rental and try to add a second mortgage, how do lenders approach a second mortgage- what do we need to know and/or ask? Is there any way we can get closer to our current 4.38% interest rate and avoid the 7%+ rates we are seeing these days? Should we use our investments to completely pay off our first house OR should we use them to pay off a big chunk of the second house?

submitted by /u/KaleidoscopeEven8804
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source https://www.reddit.com/r/RealEstate/comments/1i5laur/we_are_possibly_keeping_our_first_home_as_a/
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