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Today I’m going to tell you what rules you need to follow when buying a primary residence while not selling your current home.
If you’re going to try and juggle multiple properties, there are three different sets of rules you need to follow, depending on your situation.
Check them out in today’s video:
Situation number one: Your current home is on the market and you are purchasing a new primary residence. If you’re current home is not sold before you purchase a new primary residence you must be able to qualify for both monthly payments in your DTI and you need to have a reserve of at least 6 months of principal and interest for both properties. However, that can be reduced to 2 months’ worth of P & I payments if your current home is 70% LTV or lower.
What if you sold your current home, but it isn’t closed before you purchase a new primary residence? In this case you must present a non-contingent sales contract for the sold home and a lender’s valid loan approval for the new buyer. Then you don’t have to qualify for both monthly mortgage payments.
Now, if your current home is sold to a relocation company, your loan officer will need a copy of the executed buyout agreement.
Situation number two: You want to convert your primary home into a second home and purchase a new primary residence. Once again, you’ll need to have the six month of P& I payments in reserve and you’ll have to qualify for both monthly payments. You can also have that cushion reduced to two months if your current home is again 70% LTV or below.
Situation number three: This is the most common one right now. You want to convert your primary home into an investment property.
Can you qualify using rental payments? Yes, but you need 70% or less LTV on the home being converted to a rental home, and a fully executed lease agreement with proof of receipt and security deposit.
You will also need a 2 month P & I reserve cushion for both properties for this situation. That’s not bad! Remember you can only use 85% of the rents if you can use them.
Here is the kicker: If the LTV is more than 70% you’ll need to qualify for both monthly payments and have the six month P&I cushion for both properties. The LTV is determined by an exterior-only appraisal dated no more than 60 days from the date of your purchase closing. This is the one that gets most people.
There you have it! Now keep in mind that not everyone will qualify for this. However, if you do qualify, now may be the perfect time to discuss this option with your loan officer.
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