Profile picture for welambert

Will lender take lease into account?

I have condo in another state in which I am UPSIDE DOWN! :(  I am fortunate, however, to be employed and have been able to continue making payments (as depressing as it is!).
I have rented it in order to be able to move to a new area, so I am treating it as a rental property. I have a signed lease ..
Will a lender in my new area take the lease/rental situation into account if I apply for a mtg ... or will the condo mortgage expense be considered only as a liability?
I think I can get a great deal on foreclosure in my new area and reduce my living expenses (compared with renting) ...
Thanks for your help ...
  • April 21 2010 - Charlotte
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Answers (3)

As Patrick stated, 30% equity is required. You will need to qualify for a new purchase loan with both payments. You will also need two months PITI in reserves on the purchase and six months on the rental including your PITI & HOA dues. .... Happy funding, Rudi
  • April 29 2010
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A lender is going to ask for a copy of your 2009 Federal tax return, all pages.  If you included the rental income on the return, then you can avoid the " buy and bail" issue that Patrick talks about below.    If it  is a newly rented, then Patrick is spot on! 

Best of Luck! 

  • April 29 2010
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Profile picture for Mortgage Brothers
You will not be able to wash the monthly debt obligation on the condo with the rental income if you do not have a 30% equity position in the property per Fannie Mae underwriting guides and the entire monthly expense of the condo will count in your debt ratios if attempting to purchase another property.

You could only wash the debt at a 75% occupancy ratio if the condo was an existing rental property (not your primary residence that is being converted to a rental).

This is Fannie Mae's response to "buy and bail" where borrowers in underwater areas were producing a lease to show the previous home was rented and the income was allowed to wash the debt, buy a new home at a significantly lower price, and bail on the mortgage on the old property.

That does not have to be your intention, but you will be subject to the underwriting rule, and not allowed to use the rental income from the condo unit towards qualifying if it can not be demonstrated through an appraisal that you have 30% equity in that property.
  • April 21 2010
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