Buying a new home.... Looking to do FHA

[Anonymous]

  Looking to purchase a new home as my family will soon outgrow this one.  But I refuse to sell this home in this economy.  So I will use it as a rental property.  My current home loan will soon be refinanced to about 950 (including tax and insurance), and my new mortgage would be around 2k a month (including tax and insurance).  So we are looking at 3k a month for housing debt...  I will have no credit card debt, and the car will be paid off, or nearly so.  Divide the 2950 by 7100 (monthly income gross) and you have 41% DTI ratio.   We plan on renting out both the first house at $1500, plus a bedroom in the new home to my wife's friend for $600.  But as I understand,  rental income can't be used due to no prior rental history. Correct?  Do lenders look at the dollar amount of the home purchase, or are they primarily concerned with the monthly mortgage payment and DTI ratio?  I owe 140k on the first home, but it's worth over 200k now, so there is some equity there.  .Just some other info...  My credit scores will be between 630 and 660, and I plan on putting as little down as possible...  3.5-5%.  I will have atleast 3 months reserves to cover both properties.  $10,000.  I have been employed by the same agency for 12 years, it's a state job, and very stable...  $85,000.   Looking to purchase a new home in between 300-to 350k,,,  So I'd probably have in the neighborhood of 470k of mortgage debt...  I remember a long time ago that you could multiply your income by three, and that's typically what mortgage amount you could qualify for.  But this DTI ratio seems like it would work for me.  I have one lender who says it can be done due to my strong employment history, and another who said my first home will hinder me because it hasn't been successfully rented out and will reduce my new home to 160k overall.  Pretty extreme differences of opinions.  Any ideas on how I'd do in underwriting?  Suggestions?  Thanks. 

[ShanetheMortgageMan]

Lenders are more concerned with monthly payment/debt to income ratio than the entire amount you are borrowing on mortgages.

FHA permits you to use rental income on a primary residence you are vacating and turning it into a rental if you can either document you have 25% equity or are being relocated for work to a new area.  Since you appear to have about 30% equity (needs to be verified via an appraisal) then as long as you have a rental/lease agreement for 12 months past the closing date and evidence of 1st months rent and/or security deposit then you can use that rental income to offset that home's mortgage payment (but can't be used to add qualifying income).

Assuming you don't want to get that set up, then you would have to qualify for both the new & existing mortgage payments.  For a $300-$350k sales price with 3.5% down, your estimated housing payment will be more like $2,100-$2,500/mo.  Add in your current house payment of $950.  Divide by $7,083/mo and your debt to income ratio is about 48.8% - kind of high but not too high to qualify, especially if you have the 3 months PITI remaining after closing.

Let's assume you are able to put together what FHA requires in order to use the rental income, and you rent it out for $1,000/mo.  For qualifying purposes, only 75% of that amount will be used at most lenders (some will allow up to HUD's regional rates, which would give you a little more qualifying income), or $750/mo to offset/reduce it down to only giving you $200/mo in the liability category.  Doing so would put your total debt ratio at 38% and that won't ever have a problem.