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Old 05-28-2015, 01:51 PM
 
Location: Somewhere in the Pacific Rim
170 posts, read 225,258 times
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I have a rental home that I am selling that will be in the market next month. What I plan on doing is once that home sells I plan on purchasing a new home (primary residence) and will make the current home I am living in now a rental home.

I need some advice if I should refinance before or after I purchase my new home. I'd like to get the monthly payment down so I can have a better DTI and get approved for the loan for the new house. One thing I'm afraid is that the credit check from refinancing will prevent me from getting approved for the new home loan.
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Old 05-28-2015, 02:35 PM
 
Location: Phoenix, AZ area
2,932 posts, read 2,394,014 times
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Careful when you refi you need to make sure there's no language like you must occupy or something like that. Also if you plan on financing the new home I wouldn't do anything but pay down debt in the 6 months before you apply but that's just how I keep my score above 800, among other things.
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Old 05-29-2015, 03:56 PM
 
Location: MID ATLANTIC
7,598 posts, read 17,629,190 times
Reputation: 8083
Quote:
Originally Posted by bruddah View Post
I have a rental home that I am selling that will be in the market next month. What I plan on doing is once that home sells I plan on purchasing a new home (primary residence) and will make the current home I am living in now a rental home.

I need some advice if I should refinance before or after I purchase my new home. I'd like to get the monthly payment down so I can have a better DTI and get approved for the loan for the new house. One thing I'm afraid is that the credit check from refinancing will prevent me from getting approved for the new home loan.
So if I understand you correctly, you have two properties, one that you will be selling, one that you currently live in and a soon to be third, future primary residence? The home you are selling doesn't figure into the story at all, except that may be your source of funds.

You need to understand Occupancy fraud is the #1 type of borrower fraud. Some lenders will see that there was a new loan and want to see what you signed - what did you promise to do. Others will not. Some lenders (portfolio) won't care about the occupancy as long as you say you will live in it at some point during the life of the loan (future primary residence). Fannie Mae and others will want to see you in it within 60 days and stay there for 1 year. The latter is what MOST notes today require, you sign a statement of occupancy, that you intend to occupy the home within sixty days of signing the note and up to a period of one year.

So this is where the advice you get becomes dicey. Some will say, "just be sure you don't go to the same lender for both loans." (red flag, you are being told to do something not on the up and up). Ask the lender where you plan to buy the new home (I am assuming you want to buy from a builder that has their own mortgage company) if they would have any requirements when entertaining a new loan for you, as to do they concern themselves with what kind of refinance you obtained? If you are buying new, how long will the home take to be built? I would say timing is everything here. If you refinance, do not be expecting to run out and buy a new home and apply for a new mortgage before you even get your first mortgage statement. Don't be going out there and sign two notes within 90 days of each other as primary residences.

But there is a way this can be done, but it won't be two Fannie Mae loans. The refi will have to be a 10/1 portfolio ARM and the purchase can be a 30 year fixed. I have a long-time client that buys short sales on a regular basis and then he and his wife move in, always owner occupied. They almost always have an offer on the table somewhere. Some of these short sales take 18 months to negotiate. We can't expect a borrower to be in a constant state of suspended animation. I took the situation to our chief lending officers and his solution was, the refi loan had to be Portfolio (not Fannie, not Freddie, because we didn't want to deliver outside and assist with the fraud) and the new loan for the new home could be the owner occupied, 30 year fixed. No harm is done unless the other contract to purchase is executed at the time of refinance. And if you are buying new construction, there's every possibility you will be there for almost a year, anyway.

It's a mind field, something you need to very cautious with - get your answers in writing and in advance.
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