Buying a Short Sale and Selling my house..Mortgage Advice needed (loan, real estate)

[neolinux123]

Hello,

I am looking for advice.

Here is my scenario, we are in a contract to buy short sale property and have listed our existing property for sale. We have good equity in our existing property and will like to use that as down payment for the short sale property.

If for any reason, our existing property does not sell in time...what are my options to finance short sale property?

I have enough money to put 10% down, but Income might not be sufficient per one bank to support 2 mortgages. I planned as temp solution to rent existing property, bank I am dealing with shot me down, saying you cannot have a new tenant and still qualify to support 2 mortgages.

I am looking to sell my exisiting property ASAP(already listed), and just in case I cannot sell it fast enough and need to close the short sale property(great deal I am getting)...this is my dilemma.

Any advice please

[ShanetheMortgageMan]

Well I think the banks issue with you trying to rent it out is that you already are selling the home, which would make it kind of suspect you are renting a home that will be sold shortly afterwards. If the terms in the rental agreement stated "rent until home is sold" or if the listing on your home included verbiage similar to "tenant is leasing until XX/XX/XX" then I think they'd be more comfortable as to the legitimacy of the rental agreement.

Using rental income from a primary residence being converted to a rental is fine to use to qualify if you meet guidelines. For FHA you need 25% equity (per an appraisal) or being relocated by your employer. For conventional you need 30% equity + 6 months PITI in reserves for both properties.

[neolinux123]

Originally Posted by ShanetheMortgageMan

Well I think the banks issue with you trying to rent it out is that you already are selling the home, which would make it kind of suspect you are renting a home that will be sold shortly afterwards. If the terms in the rental agreement stated "rent until home is sold" or if the listing on your home included verbiage similar to "tenant is leasing until XX/XX/XX" then I think they'd be more comfortable as to the legitimacy of the rental agreement.

Using rental income from a primary residence being converted to a rental is fine to use to qualify if you meet guidelines. For FHA you need 25% equity (per an appraisal) or being relocated by your employer. For conventional you need 30% equity + 6 months PITI in reserves for both properties.

Thanks you for your helpful response.
I will be going for conventional mortgage, first goal is to sell the existing house...I am just trying to get all the ducks in a row..just in case I am unable to sell and the short sale approval comes sooner then later. We made contract on short sale in med/late april....lender is BofA...appraisal was done by bank beginning of this week...which I thought was quicker than what I have heard. If the approval does not come for 2 months then I am prolly in good shape to sell my existing house...if it comes earlier then I am in trouble. Existing home has more than 50% equity based on what I owe and comparable comp in the development. I can put 10% down on short sale property which will appraise for atleast 20% to 30% higher if I close at the price that was accepted by seller.......I am feeling the pain of doing Real Estate transactions under current condition...where to buy and upgrade is easy..but to sell is so hard.

[Lacerta]

Originally Posted by ShanetheMortgageMan

Well I think the banks issue with you trying to rent it out is that you already are selling the home, which would make it kind of suspect you are renting a home that will be sold shortly afterwards. If the terms in the rental agreement stated "rent until home is sold" or if the listing on your home included verbiage similar to "tenant is leasing until XX/XX/XX" then I think they'd be more comfortable as to the legitimacy of the rental agreement.

Using rental income from a primary residence being converted to a rental is fine to use to qualify if you meet guidelines. For FHA you need 25% equity (per an appraisal) or being relocated by your employer. For conventional you need 30% equity + 6 months PITI in reserves for both properties.

I've actually been told by several lenders in recent days that you no longer can include rental income unless you have been renting properties out (that one or a different one) for a minimum of 2 years. It is one of the new guidelines that has come from this crazy market we are in. That might not be industry standard, but it is pretty widespread, as I've heard that from at least 3 different lending companies this year.

To the OP, you used to be able to get a "bridge loan" for situations like this, where you got a temporary loan until the 1st house sold, but I don't think anyone is doing them anymore.

Unfortunately, from my understanding of the current options, you had better hope that your first home sells before you need to close on the new one (you might have to be pretty aggressive on the price). If you can at least get into contract and get the closing date close to when you need the money, you MIGHT be able to get the bank to approve you, under the realization that you aren't intending to carry 2 mortgages long term. But there is so much fraud out there, that they still very possibly will not go for it.

(NOTE: I am not a lender or a RE agent)

[ShanetheMortgageMan]

Lacerta you are getting guidelines for including rental income from existing rental properties confused with guidelines for using rental income from a primary residence being vacated.

But you are correct, when someone has rental properties and wants to use that income to qualify most lenders require a 2-year landlord history, these days very few will just accept a lease agreement. But converting your primary residence to a rental has completely different guidelines.

[neolinux123]

Thank you....Lacerta and ShaneTheMortgageMan for your responses.

I was told by one Regional bank what Lacerta mentioned about the 2 year rental income. Currently consulting another National lender and was told that I might be able to use rental income and she is looking into that. Obviously my first preference is to sell my existing home by being aggressive....but want to be ready just in case.

Thank you both again for your responses and if you come across any other info please do share.