Do I Need To Sell My Home Before I Can Qualify For A New Mortgage On Another Property?
Although every situation is unique, it is still possible to qualify to purchase a new home while keeping your current primary residence in Phoenix.
Perhaps you are outgrowing your current house, or have been forced to relocate due to a job transfer? Regardless of the motivation for keeping one property while purchasing another, let’s address this question with the home mortgage approval in mind…
So, Do I Have To Sell?
Yes. No. Maybe. It depends.
Today’s mortgage guidelines are based on the past few years of rising defaults and risky lending practices. So one simple question can no longer be answered with one simple answer…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 Yes!
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. In that scenario, the lender will typically only count 75% of the monthly rent you are proposing to receive. So if you are going to receive $1000 a month in rent and your current payment is $1500, the lender will factor in an additional $750 of monthly liabilities in your overall Debt-to-Income Ratios.
Another detail that can present a huge hurdle is the reserve requirements and equity ratios guidelines which most lenders have in place. In some cases, if you are going to rent out your current home, you will need to have at least 30% equity in order to offset your payment with the proposed rent you will receive. Without a sufficient amount of equity, you will have to qualify to afford BOTH mortgage payments. You should also plan on showing some significant cash in the bank. Generally, lenders will require six months reserves 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. Keep in mind, this reserve requirement is incremental to your down payment on the new property.
What If I Can’t Qualify Based On Both Mortgage Payments?
This answer is pretty straightforward, and doesn’t require a financial calculator to figure out. If you are in this situation, then you will have to sell your current home before buying a new one. If you aren’t sure of the value of the home or how your local market is performing, please contact me and I’ll refer you to a great real estate agent that can assess values in your neighborhood.
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.
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