Although every situation is unique, it is not uncommon for Arizona homebuyers to qualify for a mortgage on a new home while still living in their primary residence.
Perhaps you are outgrowing your current house, or have been forced to relocate due to a job transfer? Regardless of the motivation for keeping one property while purchasing another, let’s address this question with the mortgage approval in mind:
Yes. No. Maybe. It depends. Welcome to the wonderful world of mortgage lending. Only in this industry can one simple question elicit four answers…and all of them may be right.
If you are in a financial position where you qualify to afford both your current residence and the proposed payment on your new house, then the simple answer is No!
Qualifying based on your Debt-to-Income Ratio is one thing, but remember to budget for the additional expenses of maintaining multiple properties. Everything from mortgage payments, increased property taxes and hazard insurance to unexpected repairs should be factored into your final decision.
This scenario presents the “maybe” and the “it depends” answers to the question. If you’re not quite qualified to carry both mortgages, you may have to rent the other property in order to offset the mortgage payment.
In that scenario, the lender will typically only count 75% of the monthly rent you are proposing to receive. So if you are going to receive $1000 a month in rent and your current payment is $1500, the lender is going to factor in an additional $750 of monthly liabilities in your overall Debt-to-Income Ratios.
Another detail that can present a huge hurdle is the reserve requirement and equity ratio most lenders have. In some cases, if you are going to rent out your current home, you will need to have at least 25% equity in order to offset your payment with the proposed rent you will receive.
Without that hefty amount of equity, you will have to qualify to afford BOTH mortgage payments. You will also need some significant cash in the bank.
Generally, lenders will require six months reserve on the old property, as well as six month reserves on the new property. For example, if you have a $1500 payment on your old house and are buying a home with a $2000 monthly payment, you will need over $21,000 in the bank.
Keep in mind, this reserve requirement is incremental to your down payment on the new property.
This answer is pretty straightforward, and doesn’t require a financial calculator to figure out. If you are in this situation, then you will have to sell your current home before buying a new one.
If you aren’t sure of the value of the home or how your local market is performing, give us a ring and we’ll happily refer you to a great Arizona real estate agent that is in tune with property values in your neighborhood.
As you can tell, purchasing one home while living in another can be a very complicated transaction. Please feel free to contact us anytime so we can review your specific situation and suggest the proper action plan.
If you have any questions about this or if you have any questions you’d like us to answer on our podcast, you can email your questions to team@azmortgagebrothers.com or give us a call at (602) 535-2171. Be sure to ask us for a free quote on your next mortgage. We’ll personally work with you and help you through the whole process.
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Thanks for listening and reading the Mortgage Brothers Show. Let us know if you have any questions you’d like us to answer on this podcast. You can email your questions to Tom@AZMortgageBrothers.com or Eddie@AZMortgageBrothers.com.
Be sure to ask us for a free quote on your next mortgage. We’ll personally work with you and help you through the whole process.
Signature Home Loans LLC does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. Signature Home Loans NMLS 1007154, NMLS #210917 and 1618695. Equal housing lender.
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