If you are one of the rare quarterlifers who owns a home, chances are you bought into the low end of a booming housing market that is now flat, if not declining.  Perhaps by now a nicer home in your neighborhood is within reach financially…but you would need to sell your starter home to afford the payment.  Your dream of trading up has just become much more difficult.

What with the ongoing turmoil in the mortgage market, it is becoming very difficult for would-be first time homebuyers to qualify for financing. You should interpret that in a few ways:

- Would-be starter home buyers must live somewhere; chances are they will rent.

- You are going to have a difficult time selling your starter home.

- If you are financially stable, obtaining a new mortgage will not be too difficult.

Accordingly, I would like to recommend an alternative strategy.  Instead of selling your starter home and trading up, plan to hold the home as a rental.  Once you have a tenant lined up (with a signed lease, contingent on your new purchase), you can use 75% of the prospective rental income to qualify for a new home.  Then buy a larger home with owner occupied financing and a low 5% down payment to house you and your family.

Not everybody is cut out to be a landlord, but this strategy may help you benefit from the combination of tight credit standards and the depressed housing market, and improve your digs at the same time. 

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This entry was posted on Friday, August 17th, 2007 at 9:25 am and is filed under Buying a Home. You may e-mail this post to a friend. You may print this page. Responses are currently closed.