Profile picture for James rudyk

H

We would like to buy a second home and sell the first one after moving into the second. We currently pay 3000/month for the first mortgage and would need to pay about 4300/month for the second mortgage (20% down payment). We have a combined provable annual income of about 180,000. We heard that most lenders require the debt-to-income ratio under 45%, we are at about 48.7% now.

Do we to qualify for that second mortgage? What can we do to make this happen? We can put put another 30,000 down, but it won't bring the ratio below 45%.

By a way, we have about $200,000 equity from the 1st home. We also have at least 300,000 401(k). I will consider both of our jobs are stable, so we should be fine making payment for both mortgage. But the 45% rule make us nervous. Some articles even suggest 36% is needed, if this is true, we have to give up. Thanks
  • August 19 2013 - Austin
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Answers (9)

Best Answer

I disagree with the poster who claims to be able to use lease income on current home. Unless you are an investor  who has rentals on your taxes that  solution is not viable.
If your FICO scores are above 721 you can get a DU or LP approval with 24 months reserves- the secret is in the cash reserves. 401k and stocks are only used at 60%  I have gotten approval with 50%. You are only $550 away from the 45% number-
reduce fire policies with $5000 deductables (skinny off $100) then increase after closing. Pay $40000 more down and should reduce payment $455-- get a gift of $10000 from family DON't borrow or withdrawal 401k--there is your 45%

Don't buy the rate down-that won't penny out - look at a 5 year loan where the  lender uses the start rate to qualify - Do a 5 year or 3 year loan with lowest NO Points rate. When you sell your current home, refinance to 30 year
OR apply with a lender who is NOT a bank and can be creative
  • August 26 2013
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Profile picture for James rudyk
The load was approved. Thanks you for your advices.

My lender was very strict about 45% rule. We have to increase down payment to keep dti under 45%. We didn't try the lease option. My lender didn't think we qualify for it.
  • September 20 2013
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The answer is obtaining an automated underwriting approval - DU or LP - and that will tell you whether 48.7% is possible.  I recently had a loan DU approved with that ratio. Automated underwriting would also determine the amount of reserves but that does not appear to be an issue. I only do loans in TX so if you want to pursue approval process contact me thru my Profile.
  • August 26 2013
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It looks like you have a Realtor, I can not give you any advise.  
  • August 26 2013
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Profile picture for LendU
It sounds like you have a great property and if you're serious about renting it out, a very good option, I was suggest throwing some feelers out there on craigslist list.  You'd be surprised as to how quickly you can rent out a place in the current market.  I've had many clients rent out their existing homes, because they wanted to keep the investment, and they've had no problem finding a renter.  As for going with Freddie vs. Fannie, you might take a hit on the pricing/interest rate of your new loan due to the higher debt to income ratio.  If this does not concern you then it's a valid option.  
  • August 20 2013
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Profile picture for B2 Funding
There are 2 ways to get a conventional mortgage. The first is Fannie Mae and they are very strict to the 45%. The other is Freddie Mac and I have been able to get loans approved upto a 50% Debt to Income Ratio. With Freddie Mac if there are other factors involved to offset the higher DTI you should be able to get approved. We have lenders that would do both.
  • August 20 2013
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Profile picture for James rudyk
We don't have an appraisal yet. But based on our realtor estimate, it should be in lower 500,000, the current load on it is about 330,000.

We thought about renting, but the timing is the issue. The 2nd house needs to be closed next month. I don't know how realistic to rent it out within such a short time.

Sorry about the confusing title, Zillow won't allow me to edit any more.
  • August 20 2013
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Profile picture for LendU
You mentioned that you have about $200,000 in equity on your current residence.  What is the estimated value of this property?  If we can get an appraisal that gives us at minimum 25% available equity we can provide a lease agreement and exclude the payment from your debt to income ratio on the current residence.  Have you considered keeping the property as an investment?  The rental market is very strong right now and home prices are rising again.  It could be a great investment for you.  
  • August 19 2013
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Profile picture for wetdawgs
Have you considered having the first home on the market and sold before buying and moving to a second home?

  • August 19 2013
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