Tips On Buying And Selling A Home At The Same Time
This BLOG On Buying And Selling A Home At The Same Time Was Written By Gustan Cho
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 because of their growing family often need advice on buying and selling a home at the same time are 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 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
If you currently own a home and are planning on buying and selling a home at the same time, there are certain strategies that you can utilize where it may work for you. You can possibly buy a new home without having to sell or close on your existing home. If you do not intend on selling your current home, you need to qualify for both mortgages. Your loan officer needs to make sure that you qualify and meet the debt to income ratio requirement as follows:
- You need to meet the debt to income ratio requirement of your current mortgage payment PLUS your proposed home purchase
- Debt to income ratios are calculated by adding the total minimum monthly debt payments you have, which includes your current housing payment PLUS your new proposed housing payment and dividing it by your monthly gross income
- FHA DTI Requirements are 56.9% DTI back end and 46.9% DTI front end if your credit scores are at least 620 or higher
- If your credit scores are below 620 FICO, FHA caps your debt to income ratio at 43% DTI. There is no front end debt to income ratio requirements per FHA if your credit scores are under 620 FICO. If a FHA Lender tells you otherwise requiring you that there is a front end debt to income ratio requirement if your credit scores are under 620 FICO, it is not FHA requirement but a lender overlay on that lender. Try consulting with another lender that has no FHA Lender Overlay
- Fannie Mae has debt to income ratio requirement of 45% 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 you figured out if you would qualify and meet the debt to income ratio requirements, you need to figure out if you meet the owner occupied primary residence requirement.
Do You Meet The Primary Residence Requirement When Buying And Selling A Home At The Same Time?
If you are current homeowner and are buying and selling a home at the same time, does your new home purchase meet an owner occupied primary home purchase requirement? Mortgage lenders are very leery if you are buying a second home and exiting your existing home because they want to make sure that the second home you are buying WILL BE an owner occupied home and NOT AN INVESTMENT HOME. Here is how mortgage lenders will believe that the second home you are buying is a primary home and not a second home:
- If the second property you are buying is nearby the exiting property is and the same size and commuting distance, it will not work. For example, if you are a homeowner of a 2,000 square feet ranch home and 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 and 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 your children have left the home and are moving from a larger single family home to a town home or condominium or substantially smaller home, that would make sense
- Mortgage lenders are very strict with home buyers buying and selling a home at the same time because owner occupied primary residence mortgages require the lowest down payment and lowest mortgage rates
Buying And Selling A Home At The Same Time: Renting The Exiting Home
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 if he or she has at least 25% equity in their home.
- If they do not have 25% equity, they can get an appraisal which is ordered by the lender and 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.
If you have any questions on other creative ways of qualifying for a mortgage when you are buying and selling a home at the same time, please contact Gustan Cho at 262-716-8151 or email us at email@example.com .