I've got a question for the some of the mortage pros on the board regarding the purchase of a second home.
As the title suggests in 2011 my home will need to be sold or converted into an investment property because my wife and I will need to relocate to a different city. We currently live in a college town, as a result the market for rentals is significantly greater than average. Due to the rental market here we are considering converting our current home into a rental and purchasing a second home. My question is would we be able to qualify to purchase another home if we were to keep this one.
Me: Self Employed 6 years $65k gross average income over the past 2 years+ should stay about the same for the next few years
Spouse: W2 Employee 30k/yr gross
Liabilities - First Mortgage on the Home we're in now 102k Balance, no other debt between us.
Assets - 30k Cash, 15k Brokerage Account
Me 760 12/09
Spouse 730 4/10
Doubt credit has changed much since we last checked. We have not taken any new loans and both of us only have a few small credit cards which we PIF each month in addition to the mortgage.
Approximate Market Value - $135k
Mortgage - 30yr Fixed Conventional 4.75% - 102k Balance P&I $542/mo + ~$200 Taxes + Insurance
Market Rental Value - $1200/mo gross / assume $10560/yr with 10% management fees & 2mo vacancy
Home we would like to purchase
Approximate Price 175k - 225k
Preferred Mortgage 30yr Fixed Conventional 20% Down
We should easily be able to save approximately 10k between now and May we plan to move. With this in mind we would like to take 40k put 20% down on the new home and keep 15k in reserves. Do the mortgage pros think this could be a workable deal, or will keeping the first house as an investment property be a killer. If it does seem workable will we be able to get approved on a conventional mortgage or would we have to use alternative financing such as FHA due to the second home and higher DTI as a result. Thanks for your time guys, if you have any suggestions for us please feel free.
Hard to say...you never know...
Obviously more cash down will help, as well as having reserves.
What a lender told us was to include rental income (and provide a copy of the rental agreement) to help qualify (income wise) for a new place.
We move a lot, so one of the things I learned to do is scout out a bank or credit union that will be in the area I am moving to and move my business there. Start building the relationship as fast as you can! I even ask them, what do you like to see? Regular deposits? A sizable amount in savings? What?
Talk to a lender ahead of time...run the scenario (without them pulling credit).
PS - they might be a little concerned about your own business. I'd volunteer that it's a business you do from home, anywhere in the US. Your clientele wont' change, your income wont' change.
For DW, offer/explain that she is doing work transfer. I use to have to provide a letter from my employer stating the situation.
It is actually not a home based business. It is a traditional brick and mortar business for wholesale electronics. We have needed to open a second location for a while but none of us who started the company have wanted to move to another city to get it started. Because I'll be moving from Kansas to Denver, CO anyway I'll be opening the 2nd location but still own more than 1/3rd of the entire business and will still be receving dividends from the first location while we work to expand. I'm sure that DW won't be an issue but the complexity of our financial situation makes home financiing less than optimal. Also I owned our current home before we got married and everything in Kansas is still in my name only. Could DW purchase our new home alone without using any of my information to qualify?
hhmmm...if it were me, I would probably present the income from the first location as regular income. Any chance to show that it comes to both of you?
I am not sure if they would approve on DW's salary alone. I am not sure that the rule is...but way back when, the general rule was the cost of the house could be up to 3x the annual income, provided debt to income ratio was less than 29% max. Obviously the more that can be put down, the better.
Why not call a few lenders and run the scenario past them? See what they say? Just tell them not to run your credit!