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Have high DTI, but enough equity to pay it off

Hello, my co applicant and I are interested in selling our current home and buying a bigger home.

Our current DTI is too high for the new home, however if we sell our current home we will have enough equity to rid ourselves of those debts and have enough left over to put 5% down on the new home.

We want to stay in our current home until we can get locked in for the new home that we want. We don't want to sell our home, move into a rental while we pay off our debts and qualify, and then move again. So my question is -- what options do we have?

Thank you for your time

  • May 20 2014 - Mesa
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Answers (8)

This is a very common thing that people run into. This is an easy fix.

My last two deals I closed had this exact situation.

First, talk with a lender and get pre-approved based on the sale of your current property and paying off debt to bring your DTI down.

Next, do what William said. Instead of 30 day close ask for 45-60 day close to give yourself time to find a new home, with the option to rent it back for 30-60 days. If you're able to find your home soon enough you can do what is called a simultaneous transaction which basically allows you to sell and sign on your current home, pay off all your debt necessary to bring your DTI down thru the HUD statement and title company, and then that same day sign on your new home and move in later that day or weekend, whatever agreement you come to with the buyers and sellers.

If you need more information or have additional questions feel free to contact me via my zillow profile.
  • May 28 2014
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you would want to put your home up for sale, and request the buyer lease back the property for 60 days upon successful close.  This would give you nearly 90 days to find a home, submit an offer and close.  I'm currently working with a borrower who is doing exactly this scenario right now.  But they only requested 30 days after close.. Their home is under contract and we're a week away from closing, and their purchase is due to close in 3 weeks.. the timing couldn't have worked out better for them..

Feel free to reach out to me via my profile if you have any additional questions or concerns.  William J. Acres, Arizona's Mortgage Expert.

  • May 22 2014
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This is a very easy qualification process in that you file would be underwritten contingent on the sales of the existing home and the debt reduction. So i would offer a simultaneous closing so that you are not left homeless. Please feel free to reach out through my profile if you want to discuss further outside a public forum.
  • May 21 2014
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When you are ready to put the home on the market, I would be happy help since I have extensive experience working with both buyers and sellers that have a home that has to be sold in the process of finding a new one.  This can be a delicate balancing act and you should work with an experienced agent that sells a lot of homes, has references to support their work, and knows the area where you home is located.  
  • May 20 2014
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I'm a local lender here in Scottsdale. We can actually underwrite your loan before you put your home on the market. We would conditionally approve the loan based on the debts being paid off and the house being sold. At that point, you could have the confidence to put your home on the market and close on the two homes one after another. Please feel free to reach out through my profile if you want to discuss further outside a public forum. 
  • May 20 2014
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I know a lender that can help. Please contact me.
  • May 20 2014
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I would talk to a lender, FIRST!  Sometime your credit scores will go down, if you pay off debt.  This may not be your case, but before you sell your home and put a new home under contract you must first look at your financing options.

David 

  • May 20 2014
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You should be able to apply for your purchase financing and receive a conditional approval contingent on the sale of existing house, as well as the payoff and closure of accounts that are impacting your qualifying debt to income ratio.  

Handled correctly you could arrange to close both transactions within 24 hours of each other.   

Another option depending on the equity in current home vs. debt load would be if you could obtain a home equity line/loan to pay the debts sooner, this would be "cleaner" to apply with likely a better credit score.   This scenario you would still be looking for a a conditional approval contingent on sale of existing, only without needing the added stipulation to pay/close all your accounts which not all lenders will accomodate for.

The trouble on the second scenario is it might be a challenge to get the equity loan for enough to cover your debts.  
  • May 20 2014
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