Profile picture for pap32

How do I got another Mortgage for a second home

My husband and I have decided to move from our home into a bigger one. Our Mortgage payment is very low and instead of trying to sell our home because we owe more than it's worth (I believe). We have decided to keep it and rent it out. So how do we get another loan for a second home. We also at this time don't have any money to put down, but we are in the process of saving some. We have good credit I believe it's some where in the 700 hundred range. Just not really sure what to do.
  • November 14 2013 - Saint Paul
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Answers (9)

Ultimately only the lender you choose to get financed through will be the one with the rules you must follow. All I am saying is that I am going through this exact scenario with a buyer of mine, and my correspondent lender does not require 6 month's reserves on both ends. How that is possible as a Realtor I did not ask. I only know they are underwater on their current home.
  • November 15 2013
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Profile picture for Furlong Team
From the Fannie Mae underwriting guidelines:
If the borrower's current principal residence is pending sale or converting to a second home
or investment property, the following additional reserves (PITIA) must be calculated and
documented:Part B, Origination Through Closing
Subpart 3, Underwriting Borrowers
Chapter 4, Asset Assessment, General Asset Requirements
October 22, 2013
Printed copies may not be the most current version. For the most current version, go to the online version at
https://www.fanniemae.com/singlefamily/originating-underwriting. 410
If the percentage of equity in the current principal residence is…
30% or more: 2 months' PITI on subject property and 2 months' PITI on current principal residence
Less than 30%: 6 months on subject property and 6 months on current principal residence

Freddie Mac is the same, as is FHA and VA since the street has adopted the rule for all programs.  You need to have reserves and Chris is incorrect.
  • November 15 2013
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I will clarify you do not need to have those levels of reserves as Steve is talking about. I just had a similar client like you (ironically they asked pretty much the same question here on zillow) go to one of my correspondent lenders. I will say this once again; you are not buying a 2nd home you are buying a primary home and renting this current one out. Find the right lender and the large cash requirement at least can be avoided. There are still other hurdles like DTI, but I feel that at this point you just need to get with a loan officer and dive in. That is the only way to know if you will qualify or not.

~Chris
  • November 15 2013
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Profile picture for Furlong Team
In addition to needing to qualify for both mortgage payments, you will need to have 6 months' worth of both mortgage payments in reserve assets post-closing.  This rule was created to prevent people doing a buy-and-bail on their underwater homes.  You will also not be able to utilize rent income to qualify for the new purchase since you do not have 30% equity.

You could rent the property for a year and you rent somewhere else (not very desirable!) or start saving up funds to meet the reserve requirement.  A good loan officer can take you through all the math today so that you can put a plan in place to meet qualifying criteria.
  • November 14 2013
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Hey Pap32

you need at least 3.5% down for fha loan and 5 % down for conventional loan. the new loan it would be determine base on debt to income ratio. unfortunately you wont be able to use departure property rental income due to no equity.

wish you good luck

Omar Khamisa 
  • November 14 2013
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Just to clarify you should not need 20% down for you second home since it will be your primary residence and you will occupy it.
  • November 14 2013
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There are a couple routes that you can take for this. If your current home does not have an FHA loan, then you can use an FHA loan for your new home that only requires 3.5% down. If you already have a FHA loan then there's other options you'll have to take. One route is that you can use a conventional loan for your new home. This will probably require about a 20% down payment because it will be your second home. Conventional usually have great rates but for a lot of people 20% can be a high down payment. Another route is that you can refinance your current house into a conventional loan, then use an FHA loan to buy your new property. Either way, I recommend that you speak with a lender like myself that would be happy to speak with you and advise on what to do with your situation. Well I hope this helps, if you have any other questions or need a loan please contact me through the information on my profile page. I hope this helps and good luck!
  • November 14 2013
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Profile picture for TeamBorden
Your debt to income ratio (DTI) will be one of the biggest obstacles here as the rent will not be counted right away.  Trust me, I was in your exact scenario 5 years ago.  Coming up with a down payment is going to be just as important.  What I would do in your situation is find out what your house could sell for, and have a market analysis performed and a seller net sheet created for you so that you know what the cost of selling will be with commissions, closing costs, and other misc fees.  

If you are positive that you want to rent it out, and are not going to consider selling, I would talk with a qualified mortgage professional that can spell out your financial options.  A cosigner may be required to qualify for the loan, depending on your situation.  

If you do not have a lender you trust, the Realtor you choose can make personal recommendations to you.

If you would like a rental analysis and/or market evaluation of what your house could sell for, I would be happy to assist.  We help those buy and sell but also manage property for people in your type of situation.

The best of luck.:)
  • November 14 2013
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If you purchase another home the biggest thing of course is ensuring that it is owner occupied status from the bank. That allows you to stay with the current low down payment options of FHA 3.5% or Conventional 5% (there is 3% but it has a lot of restrictions...still possible to do)

Now, you can not have an FHA loan on two homes. So, if your current loan is FHA you have to go Conventional on your other home. There are exceptions (like buying a duplex), but you need to keep this in mind.

Biggest problem? Your DTI gets effected for buying a 2nd home, because you can not count rental income right away for loan qualifications. Your current mortgage payment will be counted as a debt, so you may not get pre-approved for as much as you want. Some people will choose to add a co-signer to get around this, or buy a duplex (because you can count rent if a tenant is living there towards income).

As for down payment the only 100% financing program available to you is Rural Housing. Think 50 minutes outside the cities for qualifying. VA of course is also 100% financing, and a very very slim change you would qualify for down payment assistance.

So what I may suggest for your next steps are the following:

1) Have the Realtor you choose to help you buy a home also complete a market analysis of your current one. They will determine the NET you can expect from selling the home, or if you are still underwater. Also, maybe even if you do make a profit on selling it is wiser to refinance or take out a HELOC. That is one other way to obtain a down payment for your other home.

2) As you can see there are a lot of financing implications to consider, and I don't expect you to know or understand all of them. Your Realtor will refer you to a great lender that understands what you want to do and will come up with the best solution that works for you.

Between the Realtor and Lender you will get the help you need to buy a second home and figure out the down payment situation. I would certainly love the opportunity to work with you, but one way to find Realtors is right here on Zillow. Look for Realtors that have testimonials from past clients. I believe that is the best way to know if a Realtor is a good fit for you or not.

Good Luck!

~Chris 
  • November 14 2013
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