Buying And Selling A Home At The Same Time Mortgage Guidelines

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Buying And Selling A Home At The Same Time Mortgage Guidelines

This BLOG On Buying And Selling A Home At The Same Time Mortgage Guidelines Was UPDATED On November 7th, 2018

There are home buyers who currently own a home and are in a dilemma on buying and selling a home at the same time.

  • Homeowners who are either downsizing due to being empty nesters and needing in buying and selling a home at the same time
  • Or homeowners are upgrading to a larger home
  • This is because of their growing family
  • These dual transaction borrowers often need advice on buying and selling a home at the same time
  • Theyare often at a dilemma on what to do
  • Do I sell first and buy a new home?
  • Or do I sell my home first and buy a new home?
  • What do I do during the transitional period?

Buying and selling a home at the same time is not as easy as it may seem.

  • It is not a matter on finding a solution of buying and selling a home at the same time
  • But it may also affect the mortgage loan approval process
  • This is because if the first home is not sold by the time the home buyer is buying their new home, then the borrower needs to qualify for both mortgages

Strategies On Buying And Selling A Home At The Same Time

Homeowners who currently own a home and are planning on buying and selling a home at the same time, there are certain strategies they can utilize where it may work.

  • Buyers can possibly buy a new home without having to sell or close on existing home
  • If homeowners do not intend on selling current home, they need to qualify for both mortgages

Meeting DTI Requirements On Both Mortgages

Loan officer needs to make sure borrowers qualify and meet the debt to income ratio requirement as follows:

  • Need to meet the debt to income ratio requirement of current mortgage payment PLUS proposed home purchase
  • Debt to income ratios are calculated by adding the total minimum monthly debt payments, which includes current housing payment PLUS new proposed housing payment
  • Then dividing it by monthly gross income
  • FHA DTI Requirements are 56.9% DTI back end and 46.9% DTI front end with credit scores of 620 or higher
  • If credit scores are below 620 FICO, FHA caps debt to income ratio at 43% DTI to get an AUS Approval
  • There is no front end debt to income ratio requirements if credit scores are under 620 FICO
  • If Lender says otherwise requiring that there is a front end debt to income ratio requirement if credit scores are under 620 it is not HUD requirement but a lender overlay
  • Try consulting with another lender with no overlays
  • Fannie Mae has debt to income ratio requirement of 50% DTI
  • Freddie Mac will go up to 50% DTI cap
  • VA Loans do not have debt to income ratio requirements
  • USDA will cap debt to income ratio requirements at 41% DTI

Once borrowers qualify and meet the debt to income ratio requirements,  need to figure out if you meet the owner occupied primary residence requirement.

Primary Residence Requirement When Buying And Selling A Home At The Same Time

Homeowners buying and selling a home at the same time need to consider whether or not the new home purchase meet an owner occupied primary home purchase requirement:

  • Lenders are very leery if borrowers are buying a second home and exiting existing home
  • This is because they want to make sure that the second home they are buying WILL BE an owner occupied home and NOT AN INVESTMENT HOME

Here is how lenders will believe that the second home buyers are buying is a primary home and not a second home:

  • If the second property nearby the exiting property
  • If it is the same size and commuting distance, it will not work
  • For example, here is a case scenario:
    • if you are a homeowner of a 2,000 square feet ranch home
    • are buying a second 2,000 square feet ranch home 30 minutes away
    • the lender will not believe that you are buying the second home as an owner occupied primary residence
  • If you are buying the second home and the second home is 30% or larger of the exiting home, that would make sense
  • A letter of explanation will be required
  • A growing family will be a great letter of explanation
  • Other reasons can be exiting a condominium or town home and purchasing a single family home
  • The flip side will work
  • If you are downsizing because children have left the home
  • Are moving from a larger single family home to a town home or condominium or substantially smaller home, that would make sense
  • Lenders are very strict with home buyers buying and selling a home at the same time
  • This is because owner occupied primary residence mortgages require the lowest down payment and lowest mortgage rates

Renting Exiting Home When Buying And Selling A Home At The Same Time

Borrowers who have higher debt to income ratios and cannot qualify for a mortgage buying and selling a home at the same time may have another option if they currently have equity in their home or can pay down their current mortgage balance to have 75% LTV. Here how this mortgage guidelines works:

  • If a current homeowner who is buying and selling a home at the same time but cannot qualify for both mortgages, the borrower can use potential rental income on the property he is not selling
  • This can be done if he or she has at least 25% equity in their home
  • If they do not have 25% equity, they can get an appraisal
  • Appraisal needs to be ordered by the lender
  • If there is not enough equity, homeowners need to pay down the mortgage balance to 75% Loan To Value
  • If the property they are moving out of has at least 25% equity, they can use 75% of the potential rental income as part of their qualified income
  • The potential rental income is determined by the appraiser

Borrowers with any questions on other creative ways of qualifying for a mortgage when buying and selling a home at the same time, please contact Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com .

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