Challenge getting a mortgage. Why

[jayc2]

Good morning, community-

I am challenged with a problem. We own 1 rental property in CA ( rent covers entire mortgage) and we live in our home in AZ. The AZ home we put up for sale as the kids have left and its to big. We are being told that we cannot buy the smaller home until the AZ house is under contract with conditions removed. That seems like a challege because we won't have enough time ot find a home. 

Our scores

Mine-740, no lates in over a year, student loans on pause, 6 credit cards all $0, no car loan-paid off, mortgage is $4k

self employed making $10k a month now as a consultant in a business I have been doing for 20 years was on W2 prior.

his- 680, only his truck payment of $800, almost done paying it off. He has 3 late payments in the last year- 6 months left to pay off. He is not on the mortgages both are on me. He is making $6k month on W2

Not sure what else might be helpful to share some insight

[ShanetheMortgageMan]

It sounds like your income might not be able to qualify for your current mortgage + the new mortgage at the same time, thus you have to find a way to eliminate your current mortgage payment from your debt-to-income (DTI) ratio.  One of those ways is being under contract to sell your home, with your buyer removing their financing contingency.  The full guidelines are:

Current Principal Residence Pending Sale

If the borrower's current principal residence is pending sale, but the transaction will not close with title transfer to the new owner prior to the subject transaction, and the borrower is purchasing a new principal residence, the current PITIA and the proposed PITIA must be used in qualifying the borrower for the new mortgage loan.

However, Fannie Mae will not require the current principal residence's PITIA to be used in qualifying the borrower as long as the following documentation is provided:

• the executed sales contract for the current residence, and

• confirmation that any financing contingencies have been cleared.

If that cannot be accomplished, then you need to include your current mortgage payment in your DTI or you have to use an alternative type of mortgage financing - such as a bridge loan, which carry much higher interest rates and fees, and you'll want to refinance (you pay an additional set of closing costs) after you sell your current home since bridge loans are only meant to be carried for a short amount of time (1-2 years);  they are a costly alternative.  

It's possible to get a buyer for your home under contract and remove their financing contingency in time for you to close on your new purchase in time, but it's going to take careful timing and real estate agents who can communicate clearly with one another.   

[jayc2]

Good morning, Shane

Thank you, we assumed that because we were asking for less that the current home in terms of cost that would not be an issue. It makes sense to wait and hope it all moves smoothly. A Bridge loan might be possible but yes costly and risky with current market rates. We will keep the hope up that all works out.

[ShanetheMortgageMan]

You're welcome.  Unfortunately even though at the end of the buying/selling process your housing payment will be less than what it is currently, lenders basically want a guarantee you'll be selling your home soon after you purchase, so you won't have to juggle two payments at once.  It's all about the DTI ratio.