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Debt to Income Problem

I am self employed with credit score 700-710.
Home is worth $400-425K with 250K mortgage balance.
Rental property worth $300K with no mortgage (free and clear).
Mortgage insurance and tax payments total $1560 mo.
No car payments.
Minimum on 6-7K in cc's is @150 / mo.

2010 and 2011 showed schedule C gross of 65K and 68K with AGI of 27.5 and 18.4 respectively.  In 2012 the rental unit comes in and shows @20K in rental income but less business income (net loss).  2013 is off to a good start.

I want to rent my home and purchase a smaller place nearby.  Would like to access $150K cash to pay cc's and purchase new small home / condo.  I estimate $30K annual income from renting my home.  

Is there any way to structure this to make it happen without going to a hard money lender?  If not, is there anyway I could do a traditional refi to get my rates down?

TIA 
   
  • June 04 2013 - Philadelphia
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Answers (2)

Profile picture for Mortgage Brothers
Very doubtful.  The most recent tax return from 2012 shows a loss in Schedule C income so your income for underwriting purposes is the positive cash flow from the rental property minus the self-employment loss.
 
No averaging of two years self-employment income if the most recent year is lower than the prior year.

2013 self-employment income is immaterial until it appears on a filed tax return next year.

You also may have to deal with carrying the PITI payment on the current residence even if you have a lease if your equity position is not 30% in the property (Google Fannie Mae "buy and bail" rule for details on that)
  • June 04 2013
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Profile picture for user7192801
Thanks Patrick.  To clarify: 2012 (to be filed in the next week) will show 20K+ in rental income and a gross on schedule C of 30ish but netting out to no profit.  

What if I tried to break this into smaller battles?  I have 37yrs left on a 40 yr mortgage (product of getting jacked up by BOA 2+ years ago) at 5.6%.  So, a simple refi (HARP?) would be a huge benefit.  Can that happen?  My loan still appears as a freddie mac loan.  If I simply resolved that issue I would have a 7 year shorter term and $100+ per month lower expenses.  

I have the flexibility to over report 2012 income if need be . . . (ouch).  But I can see that resolving some (if not all) of these issues this year might be a huge long term benefit.

Does a high income high net worth co-signer change anything (not that I really want to ask him . . . and certainly wouldn't put him on the deed)

I appreciate any additional thoughts you may have.
  • June 04 2013
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