Anonymous
Anonymous asked in Business & FinanceRenting & Real Estate · 1 decade ago

Questions for a mortgage loan professional?

We currently own a condo. We paid $295K for it in 2005 and its not worth that much now. Its worth right around 200K now.

Our family is growing (baby on the way) and we would love to have a house. We really want a back yard for the kids and easy access to the house (currently we have stairs to our condo which isn’t very convenient when carrying kids).

Our payment is $1300+taxes. we can rent our place out for at least $1500 per month. The house we would like to buy is $250K (we are thinking of offering $200K).

How can we pre-qualify? I am thinking our options are following:

Get a signed lease to rent our condo and put that in as income. (we currently make $8400/mo and our debts are $1300 (current mortgage) + $600 (credit cards).

Come up with 20% down (we currently have 10%). What is a requirement now? What is the debt ratio now? Pre-qualify this way and rent our condo.

Or our last option would be to buy a house and foreclose the condo….

Any recommendations?

6 Answers

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  • 1 decade ago
    Favorite Answer

    Simple:

    1. Rent Condo

    ( 75% of rent income is counted as income , minus your mortgage payment , HOA dues,and any insurance or taxes)

    Be sure the rental agreement is for one full year forward.

    2. Do an FHA loan on the new home , and save your cash. Offer $212,000 with 6% allowable seller concessions, and you bring "0" to the new purchase as long as house appraises for selling price. FHA loans have great rates, low mortgage insurance premiums(MIP), which is much lower than the private mortgage insurance (PMI) you'd have to pay on a 10% down conventional loan.You retain $20,000 cash to pay off credit cards, so your monthly outlay drops dramatically.

    5% is typically the minimum down on a conventional loan, with rare exception.

    3. DTI can be 45-50% or more dependent on entire credit scenario, but with no credit cards (-$600), I bet you'd be fine.Why are you paying interest to borrow revolving credit when you have nice income?

    4. Do not foreclose.It is dishonest in this scenario.It's not an inability to pay, but a lifestyle convience, and is therefore not justified.

    Source(s): 30 years of lending
  • 1 decade ago

    With your income and debts as stated here, it doesn't look like you'd need to go into foreclosure. By the way, when you talk about the condo, you say 1300 is the mortgage. What about property tax? You should prorate that over 12 months and make sure that the 1500 in rent will cover it + the association fee if any + some money for unexpected maintenance bills.

    Definitely try to get a signed lease to show as income, so your ratios will look even better to the lender. Don't forget, though, that that "potential rental income" will be calculated for 9 months rather than 12 - the lender likes to leave a little slack in case your tenant needs to move out and it may take a while between tenants.

    And with your current income, just save up as fast as you can ... you'll likely be the happy owner of TWO homes pretty darned soon!

    Cheers,

    LBF

  • 1 decade ago

    If you get a rental agreement, you can only use 75% of that for income. Most likely, you will need around 20% down. Do not foreclose on the condo. Instead, you can put it up for sale once you are in your new home & see if it flies!

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  • Rachel
    Lv 6
    1 decade ago

    Don't consider foreclosure an option at all! That will really damage your credit rating. Instead, try to sell it if you can't keep it and rent it out.

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