qualify for 2nd Home as primary residence?

[JRPearson]

Hi Everyone,

My wife and I are interested in purchasing a second home and converting our current primary residence into an investment property. We are planning to meet with our credit union to discuss our options but would greatly appreciate any input from those of you with this type of mortgage experience to make sure we are on the right track. I really don’t want the hard pull on our credit if we don’t have a chance of being qualified so I’m hoping they can do a soft pull and/or that we can get an idea from feedback here if we should even bother with an inquiry at this time. Using the template provided in an earlier post (thank you Shane) our info is below:

1. Credit.  From myfico, scores for mortgage:EXP 692 TU 740 EQ 683, EXP 688 TU 656 EQ 643; she has some old medical bill collections that we will be attempting a PFD to resolve
2. Income.  16k/mo gross
3. Source of income.  Both employed. We are not counting projected rental income because we can’t count it anyway from what we have read (don’t have 30% equity in current home)
4. Monthly debt payments.  Current DTI is 23%. Projected DTI w/ second mortgage is 34%. (Our current mortgage payment is 1700 and we are trying to keep the same range for the second home)
5. Employment We are both local government employees, been at same jobs for many years.
6. Assets/Reserves. Current home value: 326k Estimated Payoff 264k Equity 62k or 19%; Cash reserves/savings: $12k 
7. Location.  Maryland, Carroll County
8. Property.  Single family house that will be our new primary residence. Moving to be closer to work to reduce current 50 mile commute (2nd FHA loan exception?). New home area is approx. 70 miles from current residence.
9. Value.  Need guidance on this one but we think we are looking at 350k range.
10. Occupancy.  Purchasing a second home that will become our primary residence and converting our current primary residence into an investment property
11. Transaction Type.  Purchase

  Thank you for any input.

JP

[frugalQ]

We converted our previous residence into an investment property and are purchasing a new home.

Since you DTI can support both mortgages, it will be a normal primary residence loan. The current mortgage will be a non-issue.

If your current mortgage is FHA, you won't be able to get a second FHA loan unless you can meet exception their requirements. I think it's something like if you are moving at least 50 miles away or something like that.

Good luck!!

[Anonymous]

I can't say what the current FHA requirements are but 3 yrs ago my son-in-law did the same thing & has 2 FHA's right now.  Only put 3% down on the home they have now.  He had to make his first home a rental beause of the economy & the fact that he owed more than it was worth.

[frugalQ]

Sandibeach, this was our exact situation except our second is conventional

[Anonymous]

Based on your income, you could do this.  However, you are tight on savings.  When converting the home from primary to investment or secondary residence, you need to have 6 months reserves PITI on this home, 2 months on the new home, plus the down payment and closing costs on the new purchase.

I noticed that you are going to your credit union.  As a mortgage professional with 30 years experience, I would suggest that you speak with a local professional, who can explain the guidelines to you, instead of just filling in the blanks on the application and sending your loan to underwriting.

I have spent thousands of hours perfecting my craft and becoming a true expert in this field and suggest you look for someone in your area like that.  If you happen to be in Pennsylvania, please reach out and I would be happy to assist you.

In my opinion, I would suggest you save some more money right now.

[frugalQ]

you are correct about the reserves.  the amount of reserves will be lender specific.  my lender requires us to have 6 months PITI on both the rental property and new home.  

the reserves can be in the form of 401k and stocks though....it doesn't have to be cash in bank savings.

[JRPearson]

Thanks for the replies. Hoping to have enough in reserve in a few months. In the meantime I will continue to save and learn as much as I can from this awesome forum!

[frugalQ]

You have the right idea.  Learn as much as you can...it will go a long way in understanding what's happening during the actual mortgage process.

if you plan to go fannie mae, i recommend going to their website and reading up on all of their guidelines.  they are listed in the 'selling guide' section.