New home purchase while renting out existing (loan officer, interest rate, California)

[MajorWG]

I've spoken to a various LOs and received different information. Hoping anyone with recent similar xp or knowledge might share their thoughts.

I will be moving to Charlotte this June and would like to purchase a home by October. My current primary residence is a condo that I own. However, I cannot sell at this time, so I will be renting it out when I move. (Due to ongoing HOA/developer litigation and some existing short sales and foreclosures in the buliding...) I'm aware of the FHA and conventional guidelines regarding when/how rental income can be figured into D/I ratio when qualifying -- which means I'm aware that I can't use it because I'll have neither the required equity nor the rental history.

My questions are:

1. How many months reserve do I need to cover PITI on both properties? Will 401/IRA assets qualify towards that?

2. Assuming conventional loans, do lenders vary wildly in what D/I ratio they use for approval? I've been told so many different numbers, I don't know what to believe. And does having an existing mortgage (as in my situation) affect what ratio they use or is all debt considered the same?

3. I will be living in a short-term rental while I house hunt, which is considerably more expensive than my current place - but by all means still affordable. Will lenders scrutinize that sudden higher cost of living at all when reviewing bank statements?

4. Is it reasonable to consider a lower interest ARM in order to reduce new home PITI and subsequent D/I ratio for approval? I'm 99% sure I won't be living there for more than 5 years, so 5/1 or 7/1 are acceptable to me.

5. I anticipate 5-10% down on 250-300k home. Are these reasonable numbers or do I have my head in the clouds thinking I'll be approved? FHA 3.5% may not be possible as I am considering some non-FHA approved townhomes.


-FICO: 802
-Current PITI + HOA: $1140 (LTV is ~82%, 154k outstanding)
-Student Loan: $157 (fixed monthly, 22k outstanding)
-Gross monthly income: $7250 (average of past 2 years is $7500 when including bonus)
-5 years steady salaried employment w/ same employer
-401/IRA: 50k
-Cash: 35k


Thanks for any input!!

[Murph75]

We are in the process of doing the same thing right now.

Our loan officer told us we can get approved up to 49% DTI, all debt is considered the same. The new mortgage is front end 19%, and with both mortgages and other debt, 39-40% but we could have gone higher.

For FHA we didn't need reserves, for conventional we needed 6 months both mortgage payments in reserves after down payment.

We are going conventional and putting down 5% so we needed total of 42k in thr bank and about 24k to cover both payments after paying the 5%.

I don't think the higher rent payments will be a problem, if anything it will help show you can pay both mortgages if need be.

Oh and with your score, you should be golden. We have a 697 due to a 6 year old PAID medical bill. The one report that it is not showing on is 750, so it's definitely that one stubborn bill. It wasn't a problem getting approved but our rate is a bit higher, 3.75.

[charlie_paige]

We bought a home while owning a rental and we didn't have any issues at all. We got a VA loan, so maybe that was the difference? We have a credit score over 800, no debt, husband has had the same job for 17 years, and all we had to do for the old house was show a paper from our property management company that it was rented. It had only been rented for a couple of weeks. We didn't need any reserve cash, we got 100% financing, and the lowest interest rate our title company had ever seen. Mortgage brokers were falling over themselves to give us a loan.

I was really worried that it was going to be a major issue, but it really wasn't. We bought the previous home before the crash and had put 20% down on it. We lost so much equity that even with that and making extra payments we were underwater by a lot. So, we decided to rent it out until the market returned. It rented almost immediately, and has been rented constantly for the last 3 years. The rent is just enough above the mortgage to cover maintenance and the property management fee, but not raise our taxable income. The value has increased by 100k, but we need to go up another 100k so we can sell it. What can I say? California markets really tanked. But it's coming back. Anyway, since it was rented the mortgage company didn't count it in our monthly debts.

I guess I should say that both mortgages were well below what they would lend us. Both times they said we could get at least 800k, but we took out in the low/mid 300's. That might have made a difference as far as getting a loan goes. I just wanted to be extra sure that we could afford both houses and have enough left over to live on in case the home didn't rent.

[Pfhtex]

Originally Posted by MajorWG

I've spoken to a various LOs and received different information. Hoping anyone with recent similar xp or knowledge might share their thoughts.

I will be moving to Charlotte this June and would like to purchase a home by October. My current primary residence is a condo that I own. However, I cannot sell at this time, so I will be renting it out when I move. (Due to ongoing HOA/developer litigation and some existing short sales and foreclosures in the buliding...) I'm aware of the FHA and conventional guidelines regarding when/how rental income can be figured into D/I ratio when qualifying -- which means I'm aware that I can't use it because I'll have neither the required equity nor the rental history.

My questions are:

1. How many months reserve do I need to cover PITI on both properties? Will 401/IRA assets qualify towards that?

2. Assuming conventional loans, do lenders vary wildly in what D/I ratio they use for approval? I've been told so many different numbers, I don't know what to believe. And does having an existing mortgage (as in my situation) affect what ratio they use or is all debt considered the same?

3. I will be living in a short-term rental while I house hunt, which is considerably more expensive than my current place - but by all means still affordable. Will lenders scrutinize that sudden higher cost of living at all when reviewing bank statements?

4. Is it reasonable to consider a lower interest ARM in order to reduce new home PITI and subsequent D/I ratio for approval? I'm 99% sure I won't be living there for more than 5 years, so 5/1 or 7/1 are acceptable to me.

5. I anticipate 5-10% down on 250-300k home. Are these reasonable numbers or do I have my head in the clouds thinking I'll be approved? FHA 3.5% may not be possible as I am considering some non-FHA approved townhomes.


-FICO: 802
-Current PITI + HOA: $1140 (LTV is ~82%, 154k outstanding)
-Student Loan: $157 (fixed monthly, 22k outstanding)
-Gross monthly income: $7250 (average of past 2 years is $7500 when including bonus)
-5 years steady salaried employment w/ same employer
-401/IRA: 50k
-Cash: 35k


Thanks for any input!!

Are you changing jobs? Is this a Relocation? If staying at the same company, are you remaining in exactly the same position, wherein it is a lateral move?

If not, we can't use your bonus income.

[MajorWG]

Originally Posted by Pfhtex

Are you changing jobs? Is this a Relocation? If staying at the same company, are you remaining in exactly the same position, wherein it is a lateral move?

If not, we can't use your bonus income.

I will be retaining the same job w/ my employer, so it's strictly just a geographical move for personal reasons... and at my own expense



Thanks all for your replies! I definitely feel better about the whole situation.