I hope you are enjoying your Friday~ I have an interesting blog today for you to read. We all know recently it has been harder to sell homes then years past. Although with Colorado’s new foreclosure starts report, actually decreasing in numbers (sorry to say not in Douglas county +24%). One would think we are doing better in Colorado. I would say yes, on certain fronts and locations, we are.
However, one thing many folks have done while they can’t sell their homes during this softer market, is to move out of them and rent them out and buy a new primary residence.
Well, if you are doing that now and using a conventional loan through fannie mae, you will have to have 30% equity in your home you are moving out of, if you need to use the rental income from your home to qualify for your new home loan. If you don’t have 30% equity (evidenced by a drive by appraisal, or BPO) then you have to be able to qualify carrying both mortgages.
As example, you move out of your home that you owe $180,000 and is worth $190,000 in value. You want to get a new mortgage for a new house and rent out that old house. Since in this example you are lacking the 30% equity in that home you are making a rental, you have to be able to carry that debt on top of your new mortgage, to qualify. So if that current mortgage payment is $1,600 and your new mortgage is going to be $2,000 then out of the gate you have to carry $3,600 plus your other debts (minimum credit card payments, auto loans, monthly student loans…). Even if you only have your house as debt to get your ratios in line to qualify you need to make a gross income of $8,300 (give or take) a month. Mind you there are compensating factors that can allow your debt ratios to be higher, but this is to be used as a guide. On top of that, be prepared as always to be able to show liquid cash (6 months mortgage payment) in the bank (IRA, 401K, savings, stocks….) as “reserves” to strengthen your financial portfolio to the banks.
Now through knowing other loans and underwriting guidelines, there are a few work arounds for this. But email me if you are one of the masses looking to move out of your home, rent it out, and buy another home to live in.