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Old 05-19-2009, 02:06 PM
57 posts, read 143,663 times
Reputation: 33


My fiancee and I are looking to buy an owner-occupied duplex as first time buyers. We are waiting for bank approval on a short-sale property right in our price range. Then I found out at work last week that we will be having reduced hours and reduced pay. That starts a month from now and is supposed to only be a temporary measure (month to two months). This now puts this duplex near the top of what we can afford if we use my reduced salary at about 33% of our reduced income. However, when you factor in the rental income, it is more than comfortable (it is a 3-unit and the 2 other units cover about 60% of the projected PITI) at about 15% of our reduced income.

My questions are:
1) If closing occurs in the time period where my pay is reduced, will that reduced pay be taken as my base pay? I'm a salaried worker, I believe that they will just be enforcing one unpaid time off day per week.

2) The current tenants have leases into 2010. Will this rental income be taken into account in the loan underwriting?
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Old 05-19-2009, 03:01 PM
28,461 posts, read 75,373,495 times
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The basics of an owner occuptied property with rental units are the same for either OO+1 thru OO+3, so a duplex is the same as triplex or quad to lenders: Benefits of Buying a Multi-Unit Property for Your First Home.

Generally they will assume about 70% - 80% of the rent will count as additional income for you, which works out OK and should let you get a nice place than you otherwise would.

I really would be a little worried about anything that is essentially that is a 20% pay reduction and how the company will report that, could be a nasty surprise. To be safe I suppose I would shop as though that reduction is our new salary, then you would have a "windfall" if your employer goes back to normal pay...
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Old 05-19-2009, 03:28 PM
57 posts, read 143,663 times
Reputation: 33
Thanks for the info. With the rental income, we'll still be good for the current property and anything in our current range. The idea from the get-go was to be able to qualify with our income alone for a bit more of a safety net. So I guess this temporary pay reduction may serve to solidly enforce that safety net (ie - we won't be able to get as much of a loan as we would have before).

Do you know how lenders handle properties that currently have units with vacancies? Do they assume fair market rent or would they just ignore the potential rental income?
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