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I currently own a 2-Family Home (Duplex) that was purchased several years ago utilizing an FHA backed loan. I reside in one unit and rent the other unit (I have a lease and I claim the rent on my tax return). If I wanted to apply for a loan to purchase a 1 family residential property to reside in, would the bank consider the rent value of my unit (the whole duplex) towards my debt/income ratio? If I rent the whole duplex, I can cover the mortgage, taxes, and insurance + show a positive cash flow.
But different lenders interpret guidelines in different ways, and many lenders have Underwriting Overlays that, well, are laid over FNMA guidelines.
I would use the rental income as illustrated on your schedule E, and then use the executed Lease from the unit in which you now reside. Tough thing is, you are going to have to have an executed lease, deposit, and first month's rent at the very least, you can't say you plan to rent it out after you move out when you buy the new place.
But different lenders interpret guidelines in different ways, and many lenders have Underwriting Overlays that, well, are laid over FNMA guidelines.
I would use the rental income as illustrated on your schedule E, and then use the executed Lease from the unit in which you now reside. Tough thing is, you are going to have to have an executed lease, deposit, and first month's rent at the very least, you can't say you plan to rent it out after you move out when you buy the new place.
Let us know what type of financing you will likely use to buy the new place: Conventional, FHA again, USDA, VA?
Also, consider a refinance of the duplex before you move out, maybe you can get rid of the mortgage insurance?
I would use conventional financing. I currently have a 3.25 rate and have to pay MIP until the LTV is under 78% AND 5 years. The MIP is between 400 and 500 a month and it would be great if I could reduce it. But, with refinancing will I be able to reduce my monthy payment enouph to warrant paying closing costs again?
By having a signed lease and taking a deposit/first months rent for my unit would show poor judgement on my part if I have not yet received final underwriting loan approval for the new home. If I did not get approved, I could potentially be sued and asked to vacate my unit.
We just did this, our loan officer ran the numbers and we ultimately qualified without the rental income, lender required we pay down all our credit cards, but our position is strong, 85% equity in existing house and excellent credit. We did a conventional 30 year with 35% down payment and had plenty of cash reserves to cover both homes for 6 months.
Lender may require you have at least 30% equity in the rental, in addtion lender will only use 75% of the rental income. Existing property debt, ie, HOA fees, property taxes, insurance, mortgage, heloc loan, etc, all debts are factored in, do the math, you may be in the red.
Having a signed lease is not a problem, bank will favor this, your problem may be having positive rental income after all debts are calculated.
Lender may require you have at least 30% equity in the rental, in addtion lender will only use 75% of the rental income. Existing property debt, ie, HOA fees, property taxes, insurance, mortgage, heloc loan, etc, all debts are factored in, do the math, you may be in the red.
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Fannie removed the equity requirement in June, however, not everyone can follow this change if they do not have access to Direct Fannie money). FHA still has this requirement.
Fannie removed the equity requirement in June, however, not everyone can follow this change if they do not have access to Direct Fannie money). FHA still has this requirement.
So there is a chance. Worst case scenario I can sell my duplex and then by a single family home. I was also considering buying a plot and having a custom home built on it.
Contacted the morgtage loan orginator who did my loan several years ago. He stated that there still is a 30% equity req on the existing property to use both units. Perhaps they have overlays that are more strict.
Contacted the morgtage loan orginator who did my loan several years ago. He stated that there still is a 30% equity req on the existing property to use both units. Perhaps they have overlays that are more strict.
Nope, not true! You need to find a lender that offers Fannie Direct. Your prior lender may require 30%, but Fannie no longer does. If you want the memo, DM me with your email. (I've spent too much time trying to figure out how to save a doc on this tablet).
The other thing I don't think you realize, your lease does not have to start immediately. If you close on your purchase December 20th - your lease can start Feb 1. You can take the entire month of January to make the move, as long as you have the funds to make that January payment on the 2 unit.
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