Profile picture for kbean515

Very Complex Situation, what would you do?

Okay... Purchased my home for $131,900 in 2006 with a 5.5% interest rate (FHA LOAN). 

Currently I am under water on the mortgage due to the housing crash only.  My credit is excellent.  I think the county auditor valued the house at $112,000 last year.  

The mortgage has been paid down to about $112,900 as of now.  

We would like to move into a better school district and have about $25,000 save up for our decision.  We also have about $6,000 in a retirement savings account on top of the pension as an asset. 

We are willing to rent and purchase a new home, but everything I have been reading says that you need 30% equity and an income to cover both mortgages.  I'm not too concerned about the income because I feel my income and rent income will allow me to qualify.  However, I do not have anywhere near the 30% equity though.  

I'm not sure if any of this is possible...... but.  Should I invest the $25,000 into refinancing the mortgage into a conventional 15 year mortgage on my current home?  Possibly to get rid of the PMI etc... and show i have 30% equity? 

Then after a couple of years apply for a FHA loan to buy the new house and rent the old one? 

What would you do?  What are some options? Thank you so much in advance. 

  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
January 31 - Columbus
We think we've answered this question for you!
  • Be a Good Neighbor. Be respectful and on-topic. No spam or self-promotion! See our Good Neighbor Policy.
 
 

Answers (11)

Profile picture for kbean515
Probably 180,000 roughly.
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
January 31
How much home are you trying to qualify for for?  Without knowing that it is very hard to give any advice ad to what your best move would be.
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
January 31
Kbean515,
I dealt with a scenario similar to your situation fairly recently. If you were able to rent out your existing place for at least a year and report it on your next tax return, most underwriters, using Fannie Mae guidelines, should use the rental income to offset your mortgage liability to help your qualifications on the new place. You can then reserve your assets to use towards the down on the new place. 
I'm hesitant to advise anyone to use assets to pay down existing mortgages because you are still subject to a lot of factors (i.e., appraised value and needing 30% equity with a rent schedule) that could prevent you from being able to use any rental income on your old residence. Underwriters will always give more weight to actual income reported on your IRS tax returns. Hope that helps...
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
January 31
Profile picture for kbean515
The move will be within 30 miles.... To qualify for both mortgages (with your debt/income) do you just add the two mortgages together (with insurance and taxes)... (or mortgage only).  We don't have any other debts except for $126 a month for student loans.  Income is only $65,000 currently but my husband is going back to work soon.  
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
January 31
You should not have to pay the mortgage down to the point of having 30% equity, if some factors are in place. How far is the move going to be (greater than 100 miles)? Also, if you can qualify for both mortgages with your income, than the equity part should not be a factor. I am a Sr. Mortgage Consultant with a National Federal Savings Bank, and we are licensed to do business in all 50 States. Please feel free to contact me through my profile to discuss your scenario further and to answer any questions you may have. Thank you and best of luck.
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
January 31
You only need the 30% equity if you are trying to use the rental income to qualify for the financing on your new home. You should NOT use the 25k to pay down existing FHA balance. Use that money as a down payment to get a FNMA loan for your new home. FHA mortgage insurance costs are punitive these days and getting a new FHA loan is really your last resort. 
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
January 31
Profile picture for kbean515
Hmmmm... how does that help me obtain a new home though?.... I would still have less than the equity needed to be able to obtain another mortgage for the next home? (I think).  I was thinking of paying down the mortgage balance out of the FHA/ PMI area.  making it a conventional, perhaps?  So that I could qualify for a mortgage (possibly an FHA) on the second home. 
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
January 31
You need a two year history of rental income to use it.  You are allowed to also take out more than one FHA loan at a time if you follow what I posted below.
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
January 31
Refinance the property as a FHA Streamline as an investment property.  Should be able to drop the rate by a point or more.  Since you already have an FHA loan on it the appraised value does not matter.  They go off of either the last appraised value when refinance or the purchase price.  they are very easy loans and very minimal documents are needed to complete.  you will not need to provide any income (As long as whom ever was on the old loan is also on the new loan) and there is no appraisal done.
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
January 31
Profile picture for kbean515
I'm willing to put some or all of the 25,000 towards paying the mortgage down to the 30% equity so that we can possibly buy another house sometime in the next few years.  If we were able to qualify for maybe another FHA loan on property 2 later on.  If this makes sense.  I am not sure at all....about the rental income.  I keep reading different things.  Like if you have 30% equity and can afford both homes you're okay.  They will county 70% of the incoming rent with a rental agreement.  etc... I'm really not sure what the current requirements are.  
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
January 31
Profile picture for sunnyview
You might be able to refinance for a lower rate with an FHA streamline loan with little out of pocket. If you can save a little money that way, you may be able to better qualify for two houses and your rental cash flow may also look better to a lender if you buy another house down the line.

Ask your lender about what you need to count rental income though. I had heard that you needed at least 6 months-1 year of paid rent and a current lease to use it as an offset for qualifying, but that may not be true. I am sure the Zillow lenders will be able to offer their advice. They are in the know :)
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
January 31
 
Related Questions
Can a person with a low credit score get a home loan?
Profile picture for herbalmedicinecure12
Latest answer by herbalmedicinecure12
2 days ago | 26 answers
Bankruptcy Vs. Judgement
Profile picture for Joseph Metzler
Latest answer by Joseph Metzler
August 08 | 4 answers
Are there any lenders out there that can do a a conventional loan with 5% down with less than a 680
Profile picture for Randy Yates
Latest answer by Randy Yates
July 07 | 14 answers
Room Rental Income and Refinancing
Profile picture for Tyson Rondeau
Latest answer by Tyson Rondeau
May 11 | 1 answers
Letter from CPA? Have you heard of this?
Profile picture for Eric  Vander Werff
Latest answer by Eric Vander Werff
April 28 | 10 answers
Mortgage Rates
 
Be A Good Neighbor

Zillow Advice depends on each member to keep it a safe, fun, and positive place. If you see abuse, flag it. More on our Good Neighbor Policy.

Homes for Sale
  1. 6548 Fallon Ln, Canal Winchester, OH Home For Sale
    6548 Fallon Ln, Canal Winchester, OH 43110

     For Sale: $139,900

    • Beds: 3
    • Sqft: 1406
    • Baths: 3.0
    • Lot: 18295
  2. 5703 Silver Spurs Ln, Galloway, OH Home For Sale
    5703 Silver Spurs Ln, Galloway, OH 43119

     For Sale: $149,900

    • Beds: 3
    • Sqft: 1684
    • Baths: 3.0
    • Lot: 7840
  3. 5959 Ferdinand Dr, New Albany, OH Home For Sale
    5959 Ferdinand Dr, New Albany, OH 43054

     For Sale: $87,500

    • Beds: 2
    • Sqft: 1040
    • Baths: 2.5
    • Lot: --