Tuesday, July 17, 2012

Do I need to sell?

Contact Melanie Troutman
Do I Need To Sell My Home Before I Can Qualify For A New Mortgage On Another Property?

Yes. No. Maybe. It depends.
Welcome to the wonderful world of mortgage lending. Only in this industry can one simple question elicit four answers…and all of them may be right.

If you are in a financial position where you qualify to afford both your current residence and the proposed payment on your new house, then the simple answer is No!

Qualifying based on your Debt-to-Income Ratio is one thing, but remember to budget for the additional expenses of maintaining multiple properties. Everything from mortgage payments, increased property taxes and hazard insurance to unexpected repairs should be factored into your final decision.

What If I Rent My Current Property?

This scenario presents the “maybe” and the “it depends” answers to the question. If you’re not quite qualified to carry both mortgages, you may have to rent the other property in order to offset the mortgage payment.

A huge hurdle is the equity ratio most lenders require. In most cases, if you are going to rent out your current home, you will need to have at least 25% equity in order to offset your payment with the proposed rent you will receive. An appraisal will be done to determine the value of your existing home.

If you do have 25% equity, the lender will require a rental contract and documentation for the rent deposit. Lenders will only count 75% of your rent as net rent to offset the mortgage payment on your existing home. Generally, lenders will require six months reserve on the old property, as well as six month reserves on the new property.

For example, if you have a $1500 payment on your old house and are buying a home with a $2000 monthly payment, you will need over $21,000 in the bank.

As you can tell, purchasing one home while living in another can be a very complicated transaction.  Please feel free to contact me anytime so we can review your specific situation and suggest the proper action plan.

info source: Mortgage 101

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