Approval for second home while first is rented

[CruisinCindy]

DH and I are currently renting a house while we have my condo rented.  It has been rented out for 2 yrs and has a renewal for another year. My question is,  are banks offering  home loans  if one of the loan applicants still owns a previous house?  I am hearing that they want 20-30% in equity in the condo. What happens if the equity is less than that, as the values have gone down for condos in the Houston area? Our game plan is to have a years worth of mortgage pymts for the condo set aside as well as 10% down pymt for the new home. Credit scores are in the 700's. Any input in this type of situation is greatly appreciated.

[ShanetheMortgageMan]

It sounds like you have 2 questions... first, is it OK for someone to buy a new home with a mortgage if they already own another home?  The answer to that is yes, as long as you can qualify.

Second, how does owning another home (particularly a condo that has been rented out for 2 years) affect qualifying to buy another home?  If the rent from the condo has been reported on your tax returns for at least the most recent year, then the condo's rental income off of the tax return can help offset it's housing payment regardless if there is any equity, or even negative equity, in the property.  

If you were purchasing the new home as a second home or investment property, then you would need to have anywhere from 2 to 6 months of reserves for the new properties housing payment along with 2 months reserves for all additional financed second homes or investment properties... however when you are buying as a primary residence, then FHA financing doesn't require any reserves, and conventional financing just requires 2 months reserves.  So if you have 12 months reserves of the condo's payment + 10% down, you shouldn't have any problem meeting reserve requirements for any loan program.

[CruisinCindy]

Hi Shane,

Thanks for the quick response. You answered my question a few months ago as well. Yes, the condo has been rented out for two years and is about to be rented for another year. It has also been reported on the tax returns. So I guess the equity requirement is not a concern. The new home would be our primary as we do not leave on the same side of town as the condo. I commute in direction and DH commutes in the opposite.  I was just concerned about how the banks were handling this type of financing situiation in Texas. Now we just need to step up the the plate and take a swing.

Thanks.....

[ShanetheMortgageMan]

Welcome.  Since you are purchasing a larger home then an underwriter shouldn't have any concern with it being a primary residence or not.