Buying and Selling at same time

[Anonymous]

Hello,

I purchased a nice starter house last year and my wife and I both received large raises since. Because of these raises we are probably going to buy our forever home in about 2-3 years. Any info or advice?

Specifically a question I have is when purchasing a new home will my current house count against my backend ratio or front end? For example I know 28/36% ratios are pretty common, and I can fit our desired house into the 36% ratio but will both houses count against my housing obligation? In an ideal world I would rent out my current home (3bed and a MIL) while living in my new house. Hopefully with a few cost of living increases I should be able to squeeze both into %28. 

Let me know any advice you guys have.

Bill

[Anonymous]

If you plan to sell your current home, it will not be factored into your DTI. If you keep it as a rental, you are typically allowed to count 75% of fair market rent to offset the mortgage payment. For example, if your current mortgage is $1300 and fair market rent is $2000, you'd get to offset $1500 against your $1300 payment and you'd actually get to factor $200 worth of income.

[Anonymous]

Thank you! 

[Anonymous]

I think the calculation he gave above varies by state so check into what the rules are where you live. 

Where I am - 75% of the rents received are added in to your regular income, and the mortgage is figured into your DTI - so really only get to use 37.5% of rent to offset the existing mortgage, and it will be counted towards your backend ratio. Also, you have to have rental income reported on your taxes for 2 years, for non-owner occupied properties before you can count the rents as income (same vesting requirement for any income to be used). Like I said, probably varies by area so check into what the rules are where you live. A loan officer from any bank in your area should be able to answer your questions and tell you what you need to do.