Profile picture for TBaFFz

Looking to purchase a primary home while keeping an investment property.

Hi,

My wife and I are in an interesting situation. We want to purchase the house we are renting from my father-in-law.  The condo that I currently own is under my name before we got married and is a FHA 5% loan.  The condo was a new construction in 2007 and is now substantially underwater.  The value is around 85k but the loan still has114k remaining.  We have the condo rented out and are breaking even on the property.  We looked into building a home earlier this year but when HeartLand bank did the approval process they said our condo caused our Debt-To-Income ratio to go above 45% and was to risky for them.  They mentioned we where 47% and they wanted 45% or lower to be approved for a loan.  We now want to stay in the house we are renting for father-in-law, purchase it and convert the condo from FHA to an investment property.  Can we qualify for a loan while keeping the condo as a rental?  Could the condo be converted into a investment property and then purchase the home we are in now as an FHA?  
Our financial history looks like this…
Both have 720+ credit
Combined yearly gross income of $67,500
Combined monthly net income $4042
Condo mortgage $822
Condo association fee $145
Car Loan 1 - $175 month
Car Loan 2 - $173 month
Total Debt for both Cars = $13,957
I currently have student loans totaling at $12,000
We do not have any other recurring debt such as credit cards etc.
Thanks,

Todd 
  • July 01 2013 - Saint Louis
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Answers (3)

Todd, feel free to contact me at [Contact information removed by Zillow moderator. Please see our Good Neighbor Policy.]  Thanks!

  • July 02 2013
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How long has the condo been a rental property?     If it has been a rental for two years, your lender should be able to use the rental income to offset the ownership costs when calculating your income.

Near the beginning of the housing crisis, a trend was identified now termed 'buy and bail' - where people who are underwater on their current home would buy a new property, then let the previous home go into foreclosure.  Shortly thereafter the underwriting guidelines for people who convert their current home to a rental became more difficult.    

If your DTI was 2% over the limit (calculated to be $112/month based on $67.5k/yr of income); perhaps you can refinance your cars (or sell one) - to get your DTI under 45%.

However you'll want to make sure your lender carefully checks if any additional reserves are needed post-closing to offset the risk of continuing to own the condo.
  • July 02 2013
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Profile picture for user1423854
Hello Stackmaster If the rental property shows on your most recently filed tax returns then you may be able to qualify using the schedule E Income. 
If you can put down at least 10% then you can also be approved up to 50% for the DTI.
If you would like to speak please feel free to contact me through my profile - good luck!
  • July 09 2013
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