Qualifying with Relocation/Short Sale

[Anonymous]

I'm going to try and include all of the info Shane recommends in his post. I can answer some questions, but I'm dealing with some hypotheticals also.

I have just accepted an offer for a new job (same industry for over 10 years) in the Seattle area (King County) with a 3-year contract for $132.5k per year. My wife also works (part-time) and will have to find a position in the health care industry. She has been averaging about $30k gross. I will have a contract in hand that shows my salary and a start date of July 2012. I have a credit score of 724 (1 agency) & 736 (the other 2). Our monthly debt includes students loans ($400), car payment ($475), and a home equity loan ($300 per month/$23,000 balance). We are hoping to buy a house in the $600k range with $100k down. The down payment is a gift from my parents, and could possibly be stretched to 20%.

Here's the tricky part. We currently live in Las Vegas in a house on which we still owe about $300k at 5.825%. I think the house would sell for about $140-150k. We put down 20% when we bought the house, and we have never been late on payments (we have been in the house for 6 years), and we are hoping that B of A will approve a short sale based on our need to relocate. We are working with a Realtor who specializes in short sales.

My concern is that without a short sale, we will not qualify for the mortgage in Seattle because we will still have the debt from our existing mortgage. On the other hand, if we are able to do a quicker short sale, we might not qualify for the Seattle mortgage because we have the short sale on our credit history. We cannot afford to rent out the house here (the rent would still leave us about $800 short every month) and still buy in Seattle. We do not want to rent in Seattle for a few years first, because the forecasts I have checked suggest that prices in the Seattle area will be climbing over the next couple of years.

Is there a strategy I haven't thought of? Are we out-of-luck? Or am I worrying too much (part of me keeps thinking that $150k gross income is pretty darn good)?

[StartingOver10]

What you are describing is selling short in order to buy in your new location. This is also called a "strategic default" because you clearly have the ability to repay your existing mortgage.  In order to qualify for a short sale, you will need to have a hardship. The transfer may be considered a hardship, however, given your current income and your new projected income, it is unlikely that your short sale will be approved since you have the ability to pay. It is true that you may not be able to buy in your new location - or not buy the home you prefer, but that is not what your current lender is concerned about. They review your financials in detail to determine your ability to pay (think of a short sale as a reverse mortgage application) and gauge the strength and location of all of your assets.

A short sale approval consists of two parts: 1) release of the mortgage lien so the property can be transferred and 2) release of the balance of the debt. If the short sale is approved, you may only get the release of lien and not the release of debt. In that case, you may still have the deficiency due (there are exceptions here...too much to go into in this post). IME the lender will look at your other assets like retirement accounts and your ability to earn income to determine if they will release the debt. The more you have in other assets, the less likely you will get a debt release.

Lets persue this line of thought for another minute...lets say you do get a short sale approval and actually close your short sale. There is no prime lender that will make a new mortgage loan to you in a new location with a fresh short sale. The short sale will have to age...most likely at least two years. Of course, you could get a hard money loan for about 65% of the new purchase price immediately after your short sale, but the interest rate is insanely high and the terms are terrible.

You are better off renting your old place IF you plan to buy in the new location. You will even have to show the lender you can carry both places as the rental income is generally only counted as 75% of the actual rental income. The reason you are better off renting out your previous residence is you will be seen as a better credit risk then someone that has a recent short sale.

[Anonymous]

Here is my advice. I just relocated from WA to CA and was forced to peroform a short sale. This qualifies as a "hardship" for most lenders and they will allow you to perform one.

This is the caveat. You need to make sure you don't miss any payments during the short sale process. Most banks will try to force you to miss one payment but the rules for Freddie Mac say you just need to be in danger of default if you are relocating.

If you can get through the short sale process with no late payments and negoiate that they won't seek deficency on either loan you can qualify for a FHA loan ASAP as long as you move 50 miles from where you currently live. Not sure how the PMI would work since you have 100k down but you can get approved like I did for 3.99% with 3.5% down.

FYI. I lost 55 points on my short sale to my credit. Overall the impact was minimal compared to Foreclosure or Deed in Lieu. This is a real world example. Let's just hope your house does not take 9 months to sell like mine!

Thanks,

Jay

[Anonymous]

You can also try to qualify for both but you need a mortgage lender to run your ratio's to determine what you can qualify for. You may also be able to reduce you ratio's by paying off the cars etc. If you qualify for both you can purchase the 2nd home and short sale the 1st one aterwards. I can give you a lender I know in Seattle I used to use when I lived there. Let me know!

Also, don't make any  late payments until you get things sorted out.

-Joe

[Anonymous]

Also, I would not worry about prices going up anytime soon lol. The house I sold I lost over six figures and it continus to lose value on Zillow weekly.

[Anonymous]

Thanks for the info! We are really trying to do this without missing any payments. My wife and I are going to speak with a Realtor tomorrow, but a colleague has also suggested working with a lawyer he used to negotiate a short sale. I will feel out the Realtor first and see if he thinks he can negotiate with our lender. Luckily we have only a 1st. I really don't want to stay here and rent - I don't think that (in our lifetime) this house will be worth the purchase price we paid.

Thanks again.

[Anonymous]

Who owns your mortgage? I would never let anyone negoiate my short sale beside myself. You have to be the squeky wheel to get this process moving. I would google short sale superstars and find someone who can help with BOA.

[Anonymous]

Actually you have a 2nd as well if you have  Home Equity line of Credit unless you intend on paying that full 23k off.