Can’t qualify with 2 mortgage payments? – New Owner Occupied Purchase with an Existing Property…
Let’s say you live inland and decide to look for a new house by the ocean. You go out one weekend and find your dream home and put an offer on it right away and the very next day your offer is accepted! Holy cow! You call me and I determine your new mortgage payment, in addition to your current mortgage payment, puts the debt to income ratio too high. Here are your options:
DTI RELIEF WHEN TRYING TO QUALIFY WITH TWO MORTGAGE PAYMENTS
• Sell the current home – Exclude the current mortgage payment from DTI. If the borrowers intend to sell their current home and have it listed for sale, then even though the current home hasn’t been sold yet, our underwriters will exclude the current mortgage payment from the DTI and qualify your borrower based only on the new mortgage payment. Why would our UW allow this? The answer is we require a lot of reserves. More reserves gives an underwriter confidence the borrower will be able to afford both payments should it take a while to sell the current home or if the borrower’s income suddenly deteriorated…makes sense. Therefore, an underwriter would want to see an additional 6-months PITI from the current home, in addition to our regular reserve requirement of 12 months full debt service.
• Rent the current home – No 30% equity rule to use rental income to offset the mortgage payments. Your borrowers could rent out their existing home and use the rental payments to offset the DTI. So, does there have to be 30% equity in the property in order to count the rental payments? No, that’s a Fannie requirement which we do not follow. However, there must be some equity in the property…it can’t be upside-down. In that case, the UW has the authority to allow rent to offset the mortgage payment. The borrower can use 75% of the rental income to offset the mortgage payments…use either a fully executed lease, an average of two years’ income documented with tax returns, or 75% of the lowest market rent shown on a comparable rent schedule.
