Braselton, GA · Member since 2013 · 243 posts · 57 votes
Asking this question for friend, as we haven't been able to get a positive answer.
She owns a property that she bought in 2007 at the peek. worth about 145k and owes about 147k. She wants to keep it as a rental property and purchase a new OO property because her family is growing and she and her husband + kids need something bigger.
She has been attempting to get pre-approved, but they won't even discuss it without 20-30% down, or that much in equity in the current home, which isn't going to happen. Are there any programs or strategies out there that she can use to purchase a new OO property while keeping the current house as a rental until the value comes up and she can sell it? Her credit is 800+ and DTI is fairly low. Thanks in advance.
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
11y
If her DTI is okay, with both mortgages, she should be fine. Something may be wrong in her approach....it should be "I want to buy an owner occupied , primary residence". The current home would become a rental, and she has to qualify for both mortgages, without any consideration for rental income. If her current loan is FHA, she can't get another one. The suits aren't stupid, they don't like losing money. Homepath loans don't exist anymore.
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
11y
Are you sure the DTI is low if you count both mortgages as debt & do not count any of the rental income she is expecting from the 1st home that would now be a rental.
Are you sure the DTI is low if you count both mortgages as debt & do not count any of the rental income she is expecting from the 1st home that would now be a rental.
They haven't even considered what it would be with 2 mortgages. That's part of the problem. Loan officers are so narrow minded with what they are doing day to day, that they assume anytime someone buys a second property its "automatically" an investment property and they jump into 25% mode. Ridiculous robots. They'll even tell you that they run it by the underwriters, and that they say its not going to work. Total BS. I know FHA has a "growing family" clause, but I don't know if it fits in here, as she won't be moving past the 50 miles they normally require. These suits seem to be mindless. Do they not like making money?
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
11y
Low down payment loans are scarce, even for owner occupants. FHA is one option.
Have they tried starting the conversation with "what are our options for a low down payment OO loan?" Then bringing up the existing house?
They will have to hit the (fairly low) DTI requirements for OO loans with both mortgages and their existing income. Rental income will be ignored.
All this has come about because of the "jump and dump" scam. Buyers claimed they were buying a new house and renting the old one. After they closed on the new one, they stopped paying on the old one and let it fall into foreclosure. So lenders want some protection. Two loans with negative equity in both is a high risk situation. With a value of $145K and a loan balance of $147K this owner is underwater to the turn of $15-20K once the costs of selling are factored in. Combine that with a new purchase with less than 10% down and now they're underwater on two houses.
Its not that these "suits" don't like making money. Its just that they dislike losing it more.
Braselton, GA · Member since 2013 · 243 posts · 57 votes
11y
I understand the jump and dump thing, but like I said she has an 800+ credit rating, hasn't missed a payment since the purchase in 07, and the bank would be lending on the new OO property not the existing one so the risk wouldn't be there for them.
Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes
11y
Is she looking at buying a second property or a personal property? I can tell you for a fact that I have bough numerous personal properties with 5% down for the second one. The key is you have to move out of the first into the second within usually 2 months.
Is she looking at buying a second property or a personal property? I can tell you for a fact that I have bough numerous personal properties with 5% down for the second one. The key is you have to move out of the first into the second within usually 2 months.
She wants a new owner occupied property. FHA and other lenders require you to move in before 60 days. Problem is they won't even discuss it with her as they aren't use to this type of situation, or that they have been burnt in the past and won't budge.
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
11y
If her DTI is okay, with both mortgages, she should be fine. Something may be wrong in her approach....it should be "I want to buy an owner occupied , primary residence". The current home would become a rental, and she has to qualify for both mortgages, without any consideration for rental income. If her current loan is FHA, she can't get another one. The suits aren't stupid, they don't like losing money. Homepath loans don't exist anymore.
I understand the jump and dump thing, but like I said she has an 800+ credit rating, hasn't missed a payment since the purchase in 07, and the bank would be lending on the new OO property not the existing one so the risk wouldn't be there for them.
There is risk there for the lender. Lending to someone so they will own 2 houses with low/no equity involves risk to both lenders. There is no rental track record for her current residence. How badly does she want to keep her current house, and why?
I understand the jump and dump thing, but like I said she has an 800+ credit rating, hasn't missed a payment since the purchase in 07, and the bank would be lending on the new OO property not the existing one so the risk wouldn't be there for them.
There is risk there for the lender. Lending to someone so they will own 2 houses with low/no equity involves risk to both lenders. There is no rental track record for her current residence. How badly does she want to keep her current house, and why?
She can't come out of pocket 20k to sell the current property. My advice is to hold it as a rental until the market is slightly better 2-3 years. They are building a hospital about 1 mile away and prices are increasing steadily in her neighborhood, but not quite back to the peek levels of 07-08
If her DTI is okay, with both mortgages, she should be fine. Something may be wrong in her approach....it should be "I want to buy an owner occupied , primary residence". The current home would become a rental, and she has to qualify for both mortgages, without any consideration for rental income. If her current loan is FHA, she can't get another one. The suits aren't stupid, they don't like losing money. Homepath loans don't exist anymore.
Thanks for putting it so clearly. She has to qualify for both mortgages with no consideration for rental income. How common is that these days?
If her DTI is okay, with both mortgages, she should be fine. Something may be wrong in her approach....it should be "I want to buy an owner occupied , primary residence". The current home would become a rental, and she has to qualify for both mortgages, without any consideration for rental income.
The key is that her family income needs to be able to cover both mortgages. This is how I did it for my current home. My previous home was consider as mortgage debt with no rental income. I don't think that being underwater/equity situation should play a big factor.
Lenders are definitely very wary about people claiming they are buying a property OO and using it as an investment property. In a move up situation this is less likely to be an issue.
If her DTI is okay, with both mortgages, she should be fine. Something may be wrong in her approach....it should be "I want to buy an owner occupied , primary residence". The current home would become a rental, and she has to qualify for both mortgages, without any consideration for rental income. If her current loan is FHA, she can't get another one. The suits aren't stupid, they don't like losing money. Homepath loans don't exist anymore.
Thanks for putting it so clearly. She has to qualify for both mortgages with no consideration for rental income. How common is that these days?
Very common! We have to to qualify for all of our mortgages with no consideration for rental. For us sometimes they count, but usually they won't count till after they are on our taxes.
That being said we have found brokers to be MUCH more lienent than banks. For examples, well fargo won't loan to us, but they buy all our loans from good faith mortgage lol!