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Profile picture for user6270109

Cant sell my first home can I buy another and rent out the first?

I hope you can answer my question.

I bought a Townhome in Colorado Springs in 2008 through CHFA first time homebuyer program.  I would like to sell this townhome and buy a new home however like many I am upside down in my Home I owe about 120k and its worth maybe 90k.  Since then my work has taken me to Castle Rock and I have rented out the townhome with CHFA's permission.  I have had tenents in the townhome since April of this year. 

I am currently renting a another townhome because I was under the assumption i could not buy another home until the first one sold.

I have looked into refinancing since my current rate is 5.875% and been shot down because it is not worth what I owe and I can't sell it for the same reason. I do not qualify for Harp because my mortgage is through CHFA and not Freddie or Fanny.

I would really like to buy a larger home for my family(we are expecting) in the Castle Rock  area and take advantage of the great rates and prices but I don't know how to go about it.

My question is, is there anyway I can buy another home with little down money 3-5%.

I make roughly 52k a year and my wife makes 12k.

We have one car payment 460 a month and no other debt besides the townhome.

Thank you,

Jerad

  • November 30 2012 - Colorado Springs
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Answers (10)

Profile picture for Mortgage Brothers
You really needed a more in depth answer to how lenders qualify applicants who are renting out another property. 
Since you have already moved and the former home is no longer your primary residence you can use the rental income from that property to offset the monthly payment.  As a rule of thumb take 75% of the monthly rental income from the current lease and compare that number to your full monthly PITI payment on that house (don't forget to include HOA dues in the monthly expense if applicable).  
The resulting number will be your net income or net loss on a monthly basis for that property.
Let's further assume that amounts to a net loss of $300 per month.  You have a car payment of $460 per month, so total monthly debt obligatons would be $760 per month.
Gross annual income is $64,000 divided by 12 = $5,333 per month gross income.  At a 50% debt to income ratio you could have $2,666 in monthly debt obligations and be approved (could probably be approved at a 52% to 54% DTI, but let's keep it simple).
The new house you purchase with a 3.5% down FHA mortgage cannot have a monthly PITI payment (plus HOA dues if applicable) of more than $1,906 per month ($2,666 minus your $760 in assumed other debt) or you will exceed a 50% debt to income ratio.
Important that all of your application documentation (driver's licenses, paystubs, W-2's, bank account statements) list the current address and not the former address so there is no question you now reside at a different address and the former house is not your primary residence at the time of application.
That is important so the "buy and bail" rule that both Fannie/Freddie and FHA have does not come in to play.  This rule requires you to have 30% equity (Fannie/Freddie) or 25% equity (FHA) in order to use rental income to offset the PITI payment for a house being retained and rented, but only if it is your primary residence at the time of mortgage application on the new house.
  • May 06 2013
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I assume you combined Chafa with an FHA loan.  There is no prohibition of buying another home FHA as long as circumstances have changed (you moved jobs to Castle Rock) and/or family size has increased.  You should be fine to buy as long as you qualify with the rental home.
  • May 06 2013
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Profile picture for Ofe Polack
You need to have this conversation with a few mortgage brokers and see what they recommend.  Good luck!
  • December 01 2012
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Great question Jerad, one I hear quite often. Looks like some good advice from our Industry members too, a good lender should be able to help you with this and answer your questions and meet your financial needs.

I have a rental, a residence, and am looking to rent the residence and purchase another property as my primary. Waiting on a local lender now to tell me how much I can qualify to buy before I begin searching Zillow for that property. I'm kind of in the same boat as you since I can't sell either property right now.
  • December 01 2012
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You can buy another home as long as you and your wife can qualify for both properties. You should consult a local lender,run your credit report and estimate your payment for your new property including taxs and homeowners. Then you will be able to determine if you can AFFORD to purchase another home.
  • December 01 2012
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Whatever you decide to do just make sure that you account for the possibility of your tenant not paying the rent for "x" amount of time--and the additional costs you may incur through an eviction. 

"X" being the maximum length of time an eviction can take place where you are from.  I can't tell you the number of people I know that stretch themselves out so thin that they forget about "reserves," some were lucky and it all went well...and others were not so lucky...they had to sell/short-sale some investment properties.

Best wishes from So-Cal and good luck
  • November 30 2012
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Profile picture for TreasureDavis
Congrats on the addition to your family! Colorado Springs has a great rental market. I would absolutely continue renting your home out until the market comes back up.

I would never recommend a short sale unless you are in a desperate situation and that is your only help.

The key is to find a great lender who will count your rental property and since you have already been renting your lender should be able to count you as a landlord of history. If you need referrals for great lenders to talk to I would be happy to send you the names of some lenders who could get it done or direct you on how to make it happen quickly. Good Luck to you and your family.
  • November 30 2012
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Profile picture for Go Huskers
Find an experienced FHA lender.

HUD 4155.1 4.E.4.h  "Exceptions to the Exclusion of Rental Income From a Principal Residence Being Vacated by a Borrower"

"When a borrower vacates a principal residence in favor of another principal residence, the rental income, reduced by the appropriate vacancy factor as determined by the jurisdictional FHA HOC, may be considered in the underwriting analysis, under the circumstances listed in the table below."

"The borrower is relocating with a new employer, or 
being transferred by the current employer to an area 
not within reasonable and locally-recognized 
commuting distance.
  
A properly executed lease agreement (that is, a lease 
signed by the borrower and the lessee) of at least 
one year's duration after the loan is closed is 
required.   

Note:  FHA recommends that underwriters also 
obtain evidence of the security deposit and/or 
evidence that the first month's rent was paid to the 
lessee"
  • November 30 2012
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Profile picture for user6270109
Also I forgot to add I have good credit high 700's.  and could sell a car that is paid off to get the down payment.
  • November 30 2012
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Jerad,
You might check with another lender...try shopping your re-fi so you can lower your rate.  

On a new home...the problem you may have is that lenders may not be able to include your rental income so your debt/income may not qualify you for another home loan.  If you have the down payment & are qualified to afford payments on the new home...I really don't see any reason you can't buy a larger home for your family.  Finding a lender that will include your rental income is the key!  
  • November 30 2012
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