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Buying a home before selling my existing home

I would like to ask my question in a differant manor. I am looking to purchasea short sale then sell my home and move into it. The home is currently rent to a tenant for an additonal year " they have been there a year already" I am looking for lenders. 1st do they take any of the rent into consideration, second can I still get a good interest rate for the second home?3rd the house is $500,000, but appraises for $700,000. if I put $100,000 down does that help?
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August 25 2009 - Orlando
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Answers (12)

Original question is from August 2009.  Please pay attention to the dates. 

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May 10 2010
If you're looking to purchase prior to selling but you have the first place rented out and your debt to income ratio pans out, you shouldn't have a problem.

You should also be able to get a homestead on whatever property will be your primary but you will lose the homestead on the rental property since you can only have it in the one you physically live in.

As far as rates, it depends on the mortgage company's guidelines whether they'll consider your new property a 2nd property, therefore, costing you the extra point or higher rate. You may also be required to contact your rental property's lender, depending on the terms of that contract, and notify them that it's being rented.
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May 08 2010
BMW61
Loan amount is calculated from the lesser of the appraised value or the sales price. You are right about the one year, generally.
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August 25 2009
The value of the property is the sales price in this case and not the appraisal, There is no equity, equity is a figment of your imagination until it is realized. For loan purposes if the loan is $400,000 and the sales price is $500,000 with the appraisal justifying the sales price then the loan to value ratio will be 80%.
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August 25 2009
Your question is a bit confusing and you may want to seek the advice of your banker or lender regarding your qualifications for a new loan.

The simple breakdown is:  You will be buying an investment property and you must qualify for that property along with your current residence.  In order to rely on the rental income as a factor, you must as mentioned below show some history as an investment buyer.

Obviously the more you put down the better your LTV.  It would help yes.  I believe you would be required to put at least 30% down on an investment property anyway.  Again, I am a Realtor not a Loan Mortgage Consultant.

Will you be able to sell your current home and not lose money?  There are many questions posed here to make sound decision.  You may wish to consult with your Banker and/or Mortagage consultant.  Is there really a property  left that "sells" that much lower than the  current appraisal?   I am not sure about your $200K in equity on the investment property.  Is that a current appraisal?  Remember a short sale must be approved by the 3rd party so you may or may not get the home for "your" price.

Good Luck and if it makes sense after you consult accountants, bankers and/or attorneys then go for it.    Prices and interest rates make it all more affordable if it makes sense for you.Regards,Gay MiddletonRealtor
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August 25 2009
1. Home being purchased is an investment property.
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August 25 2009
  Agreed, read twice answer once, it will be an investment and the interest rate will be as a 2nd home or investor if you keep the tenant in place.  Unless interest rates stay low, the tenant moves out and you make it your primary and can refi at a lower rate the only benefit down the road will be the property taxes as when you move in you will be able to Homestead and SOH. Other than you say the home has an appraisal of $700,000 maybe some equity there, but, my question would be how old is the appraisal and the source of the appraisal, the seller? Have a Realtor check the comps to back it up or get your own appraisal through a Mortgage Broker.
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August 25 2009
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Do I understand correctly that even though the house is apprraised for $200,000. more than the purchase price the lenders do not take that into consideration as equity until I own it for a year? So if the house valued for $500,000. and I bought it for $100,000. the lenders only see the loan value as $100,000? doesn't make much sense? That is if I am correct? Thanks for all your sugestions
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August 25 2009
You will need 30% equity in the rental home and 2 years of Federal Tax Returns showing rental property income, expense and depreciation to receive 75% of rental income to qualify. Otherwise, your PITI on the rental and PITI on your new purchase will go into your DTI.

It will help. The more you put down on your new purchase, the lower your DTI for qualifing for the new loan.

Between your two posts I hope you will understand the new guidelines.
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August 25 2009
BMW61,

The short sale will not be the issue as the seller has to bear the proof of financial hardship in order for it to be approved.  In regards to the underwriter counting the rental income; the majority of lenders will want to see 2 years of positive rental income on your taxes in order to count rental income.  In this case is does not sound like you will have this, however an underwriter can use the contract and payment history of the tenant as a compensating factor but I would not rely on this if it is needed to get the loan approved. In order to purchase this home as a second home you will need to put down a minimum investment of 25% of the purchase price.  With the purchase price listed the loan will qualify conventional and there are some great interest rates out there currently for investment property purchases.  I hope this answers all your questions!.  Good luck
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August 25 2009
Dave..I think you ahve it a little backwards.  I read it as the house he is looking to buy has a tenant in it and the tenant will be in there for another year.  This will be treated as nothing else but an investment property
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August 25 2009
Hey there,Rental history should show the home you currently own as an investment property and if your income combined with the monthly rental of the property and add to that your credit score and $100,000 downpayment you should have no problem with the purchase.You should get a decent interest rate based on the above information and the fact the new home will be your primary home.

Visit my profile here on Zillow, just click my name above in blue.
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August 25 2009
 
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